NJ Bankruptcy Court Adopts 5th and 11th Circuit Position Regarding Ability to Cure Post-Petition Mortgage Arrearage In Modified Chapter 13 Plan

NJ Bankruptcy Court Adopts 5th and 11th Circuit Position Regarding Ability to Cure Post-Petition Mortgage Arrearage In Modified Chapter 13 Plan

Judge Poslusny of the Bankruptcy Court for the District of New Jersey recently issued an opinion wherein he held that a Debtor may cure post-petition arrears in a modified Chapter 13 Plan as long as all other provisions of the Bankruptcy Code are met. Consistent with Section 1325, the Court held that the Amended Chapter 13 Plan was feasible and that the Debtor was able to make her newly proposed payments within the modified Chapter 13 Plan.
 
Briefly, Debtor’s original Chapter 13 Plan was confirmed and she was making timely payments thereunder. Debtor was paying her pre-petition mortgage arrears within the Plan and post-petition mortgage payments outside of the Plan.  She then defaulted on her post-petition mortgage payments and the Lender filed a motion for relief from the automatic stay, which the parties resolved. Thereafter, Debtor again defaulted on her mortgage payments and a certification of default was filed by the Lender seeking relief from the stay provisions of 11 USC Section 363. That too was resolved. Upon the third post-confirmation default, the Lender again proceeded to seek relief. It should be noted that the defaults were mainly caused by Debtor’s husband’s unemployment and the economic ramifications of this circumstance on the family and related COVID-19 hurdles. Debtor filed a response to Lender’s relief motion incorporating these circumstances and asserted that she intended to make not only her pre-petition but also post-petition mortgage payments under a Modified Chapter 13 Plan seeking to incorporate the post-petition mortgage arrears in the Plan and extend the length of the Plan to 73 months.
 
The Court addressed whether the requirements of Sections 1322(b)(5), 1325 and 1329(a) of the Bankruptcy Code were met. The Court, noting a split in the Circuits on this issue, found that Section 1322 allows for the curing post-petition arrears within a Plan. Further, the Court considered the terms of the CARES Act of 2020, which allows debtors who experience a “material hardship due, directly or indirectly” from COVID-19 to extend the length of a Chapter 13 Plan to up to 84 months. Here, Debtor met her burden to show her financial hardship and that the requested increase to a total of 73 months for the plan payments was within the purview of the CARES Act and was reasonable. In so finding, the Court determined that the Amended Chapter 13 Plan complied with the requirements of good faith, feasibility and reasonableness. Therefore, the Court confirmed the modified Chapter 13 Plan and denied the Lender’s motion for relief from the stay.
 
I highly recommend reading this opinion (In Re Catherine E. Smith, BKY. Case No. 18-2383 – docket # 59) for the Court’s thoughtful analysis of this issue.

To discuss this and other issues involving creditors rights and bankruptcy, please contact Leslie Beth Baskin at 215-241-8926 or lbaskin@sgrvlaw.com.

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