Case No. 99-11985-SSM Chapter 13, Contested Matter No. 00-0321.United States Bankruptcy Court, E.D. Virginia, Alexandria Division
Date: April 10, 2000.
D. Carol Sasser, Esquire Samuel I. White, P.C., Virginia Beach, VA, Counsel for the movant.
Gudrun Patricia Scholl Jeffrey Alan Scholl, Fredericksburg, VA, Debtors.
W. L. Ragland, Esquire Walter Ragland, P.C., Fredericksburg, VA, Counsel for the debtors.
Gerald M. O’Donnell, Esquire, Alexandria, VA, Chapter 13 trustee.
ORDER
Stephen S. Mitchell, United States Bankruptcy Judge.
This matter is before the court on the entry of a proposed consent order resolving a motion for relief from the automatic stay. The chapter 13 trustee has objected to its entry. Because the debtors have no apparent ability to comply with the terms of the order, and because the order provides no appropriate safeguards in the event of a future late payment, the court declines to enter the order and will place the matter back on the docket for hearing and determination.
Gudrun Patricia Scholl and her husband, Jeffrey Alan Scholl, filed a voluntary chapter 13 petition in this court on April 4, 1999. The schedules reflect that she is employed as an insulator, he as a salesman. Together, they bring home $2,240.48 a month. Their schedules reflect monthly living expenses of $1,840.00. More than one-third of that consists of the $656.52 monthly mortgage payment. Their plan, which was filed on May 3, 1999, was confirmed on June 22, 1999. It requires the debtors to pay the chapter 13 trustee $400 per month for 60 months and projects a 100% dividend to unsecured creditors. It also cures a $1,066.13 prepetition mortgage arrearage, which the account filed by the chapter 13 trustee shows has now been fully paid. Payments to the trustee are being made to the trustee by wage order, and the trustee’s account reflects that they are current.
The motion that is now before the court was filed on March 1, 2000, and seeks relief from the automatic stay in order to foreclose. The motion alleges that the debtors are in arrears post-petition mortgage in the amount of $2,026.83. The proposed consent order liquidates the amount of the post-petition arrearages (including the lender’s attorney’s fees) at $2,551.83, and provides for their cure in three monthly installments (in addition to the debtor’s plan payment and regular mortgage payment) of $850.61. The order also provides that upon default with respect to any future payments (not merely the three catch-up payments), the lender “shall have relief from the stay and may proceed forthwith to enforce [its deed of trust],” with no provision for notice, opportunity to cure, or opportunity to contest an alleged default.
Discussion
In many instances, the settlement of a relief from stay motion has no effect on other creditors, and in those situations there would be little reason for the court to scrutinize the wisdom of a particular settlement, especially where a debtor is represented by counsel. However, when a settlement in a chapter 13 case requires the debtor to make sizeable catch-up payments, the interests of all creditors are implicated. Ordinarily, a chapter 13 debtor is required to pay into a plan his or her disposable income for at least three years. § 1325(b)(1)(B), Bankruptcy Code. If the debtor suddenly has additional income to make catch-up payments, the question obviously arises as to why that income is not being devoted to the plan, and why the post-petition arrears are not being paid through the plan.[1] If the debtor does not have additional income with which to make the catch-up payments, those payments can only be made at the expense of the regular plan payments. Where, as here, the plan payments are being made by wage allotment, the necessary robbing of Peter to pay Paul will not immediately impact the plan. But if the debtors cannot afford to make the payments, they will either default on the catch-up payments or on the regular payment, and the almost inevitable result will be a foreclosure. Experience teaches that where a chapter 13 has been filed mostly to save a debtor’s house from foreclosure, the granting of relief from stay based on post-petition defaults almost invariably results in voluntary dismissal of the case. The plan in this case is a 100% plan, and the failure of the plan will have a significant impact on the unsecured creditors.
It is no secret that most mortgage companies will not agree to cure periods exceeding six months. In the nature of things, a chapter 13 debtor who is already devoting all non-discretionary income to a plan will not have the financial resources to take the matter to court in an effort to litigate a longer cure period. Consequently, a debtor may agree to unrealistic catch-up terms in a desperate effort to save his or her home. Certainly, that seems to be the situation here. The amount of the catch-up payment is fully one-third of the debtors’ combined monthly take-home pay. It is more than twice the amount of the monthly chapter 13 plan payment, and it is almost $200 a month more than the mortgage payment itself. The fact that the debtors have fallen behind post-petition is powerful evidence that they are already struggling financially: it beggars the imagination to think they could possibly make the payments set forth in the proposed consent order without outside assistance. A letter from debtor’s counsel that was sent to the trustee, however, dispels any notion of outside assistance. It states that the debtors “intend to pay their mortgage arrearage from funds partially on hand and from future wages . . . by temporarily reducing their budget allocations for some of their monthly expenditures.” This is simply not possible, given their already spartan budget.
Under the circumstances, the court will place the motion back on the hearing calendar. If the parties cannot agree on terms of cure that the debtors can live with, the court will make that determination based on evidence at the hearing as to the debtors’ current financial condition.
It is, accordingly,
ORDERED:
1. The court declines to enter the proposed consent order. The motion for relief from the stay is placed back on the calendar to be heard on May 3, 2000, at 9:30 a.m. in Courtroom I, Martin V. B. Bostetter, Jr., United States Courthouse, 200 South Washington Street, Alexandria, Virginia.
2. The clerk will mail a copy of this order to the parties listed below.