Missed Payments to Mortgagee Do Not Preclude Discharge

Posted by NCBRC - May 10, 2021

The debtors’ missed plan payments to the mortgage creditor were a result of forbearance and COVID 19-related financial difficulties and were therefore not an impediment to discharge under section 1328. In re McCollum, No. 15-3502 (Bankr. D. S.C. Feb. 4, 2021).

After the debtors completed their chapter 13 plan, they filed for Certification of Plan Completion and Request for Discharge. Their mortgage creditor, Home Equity Asset Backed Certificates, Series 2006-1 (“HSBC”), responded with a Notice of Final Cure Payment, pursuant to Fed. R. Bankr. P. 3002.1(g), stating that the debtors had failed to make $4,364.40 in direct payments as provided in their plan under section 1322(b)(5).

The court began with section 1328(i) which provides that “the court may grant a discharge of debts dischargeable under subsection (a) to a debtor who has not completed payments to the trustee or to a creditor holding a security interest in principal residence of the debtor if—. . .the plan provides for the curing of a default and maintenance of payments on a residential mortgage under section 1322(b)(5); and the debtor has entered into a forbearance agreement . . .with the holder or servicer . . . of the mortgage . . . .” The court found that, with the exception of an amount representing less than one month’s payment, the vast majority of missed payments were a result of forbearance agreements between the debtors and HSBC.

As to the remaining missed payment, under section 1328(i)(1), a debtor does not lose the right to discharge due to three or fewer missed mortgage payments if those missed payments were caused by material COVID 19-related financial hardship. The court found that, to the extent the missed payments were not attributable to forbearance, they fell under this section.

The court concluded that the debtors were entitled to standard discharge under section 1328(a), except that their discharge would not include the debt to HSBC under section 1328(a)(1), which excepts a debt provided for under section 1322(b)(5).

McCollum Bankr SC


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