Court: United States Bankruptcy Court, D. Massachusetts; December 8, 2016; Us Bankruptcy; United States Bankruptcy Court
HSBC Bank USA, N.A. has objected to the confirmation of Penny and Jason Sperry's First Amended Chapter 13 Plan, asserting that the plan's requirement for HSBC to send monthly mortgage statements is unconfirmable. The Sperrys, who incurred a pre-bankruptcy arrearage of $11,416.99, proposed a 'cure and maintain' plan, which involves curing their arrearage through 60 monthly payments while making current payments directly to HSBC. The plan employs the local bankruptcy form and includes a provision for HSBC to send monthly statements, which the Sperrys argue is essential for managing their payments and not a violation of the automatic stay.
HSBC raises multiple objections, including logistical challenges in sending accurate monthly statements, claims that federal regulations exempt them from this requirement during bankruptcy, and concerns that sending such statements could violate the automatic stay. HSBC also contends that the monthly statement requirement modifies its claim impermissibly and is an inappropriate addition to the district's official Chapter 13 plan form.
The judge references the Bankruptcy Code, noting that Section 1322(a) mandates certain provisions for Chapter 13 plans, while Section 1322(b) allows optional provisions, including the ability to modify secured claims under specific conditions. Notably, Section 1322(b)(2) restricts modifications for claims secured solely by the debtor's principal residence, but Section 1322(b)(5) permits the curing of pre-petition defaults while maintaining ongoing post-petition payments for such claims, which is relevant to the Sperrys' situation.
The Sperrys have proposed a cure and maintain plan, referencing the 2011 amendment of the Federal Rules of Bankruptcy Procedure to include Rule 3002.1, aimed at facilitating the implementation of 1322(b)(5). Rule 3002.1(b) mandates that the holder of a claim secured by the debtor’s primary residence must notify the debtor, their counsel, and the trustee of any payment amount changes at least 21 days prior to the new payment due date. This requirement ensures chapter 13 debtors receive timely updates to adjust their post-petition payments.
In Massachusetts, MLBR Appendix 1 Rule 13-4 stipulates that chapter 13 plans conform to MLBR Official Local Form 3, allowing for necessary modifications. The form includes an 'other provisions' section for additional terms, promoting efficiency in plan preparation and review. Courts have emphasized minimizing non-standard terms in plans, requiring that any such terms be justified by special circumstances. Provisions duplicating existing Bankruptcy Code or Rules are typically prohibited.
On February 14, 2013, the Consumer Financial Protection Bureau (CFPB) introduced mortgage servicing rules modifying Regulation Z and Regulation X, mandating that mortgagees provide periodic mortgage statements to borrowers throughout the loan's duration, including during bankruptcy. These statements must detail payment amounts, due dates, fees, transaction activities, and account information. Following concerns from mortgagees about confusion due to these requirements, the CFPB amended Regulation Z, effective January 10, 2014, to exempt servicers from sending periodic statements while borrowers are in bankruptcy.
12 C.F.R. 1026.41(e)(5) exempts mortgage servicers from sending periodic statements to borrowers in bankruptcy, which HSBC cites in its objection to the confirmation of the Sperrys’ Chapter 13 plan. However, courts have upheld provisions in plans requiring mortgagees to provide periodic accountings to debtors, as seen in In re Herrera and In re Collins, where such obligations do not violate the anti-modification provision of 11 U.S.C. § 1322(b)(2). The court in In re Payne noted that uncommunicated post-petition charges could disrupt a debtor's plan and hinder their ability to achieve a fresh start. The First Circuit, in Ameriquest Mortgage Co. v. Nosek, recognized the necessity of monthly statements in Chapter 13 plans to protect debtors' rights and mitigate defaults. Effective management of home mortgage claims within Chapter 13 plans requires detailed provisions concerning arrearages, ongoing payments, and adjustments throughout the plan's duration. Best practices developed by debtors' attorneys advocate for regular communication from mortgagees, ensuring debtors are not surprised by post-plan fees. Consequently, a Chapter 13 plan's requirement for lenders to provide periodic mortgage statements is legally sound and does not make the plan unconfirmable.
The Bankruptcy Code does not prohibit the requirement for mortgage holders to send monthly statements, and it may be supported by 11 U.S.C. § 1322(b)(11). HSBC's claim that this requirement constitutes an impermissible modification under § 1322(b)(2) is unconvincing, especially considering Rule 3002.1, which mandates various reporting obligations for mortgage lenders. The prohibition in § 1322(b)(2) pertains to the modification of 'rights' of mortgage claim holders, whereas sending monthly statements is an obligation tied to the debtor’s ability to rectify mortgage defaults, a key aim of Chapter 13. Even if this obligation were interpreted as a right, its procedural nature would exclude it from the protections against modification intended by the statute. Collier on Bankruptcy indicates that Chapter 13 plans can impose procedural requirements on mortgage holders to facilitate the curing of defaults.
HSBC’s assertion that monthly statements violate the automatic stay is incorrect, as Massachusetts MLBR 4001-3 allows secured creditors to send necessary written correspondence, including statements. The absence of a monthly statement requirement in the local plan does not preclude its inclusion, as Section VI of the Massachusetts form plan permits additional provisions. While HSBC cites logistical challenges posed by this requirement, the potential harm to the Sperrys if monthly statements are not provided outweighs these concerns, justifying the addition of this provision to the local form plan. Furthermore, the Sperrys' plan complies with 12 C.F.R. § 1026(e)(5), which allows but does not mandate the suspension of monthly statements during bankruptcy. HSBC's cited cases do not support its position, as they address issues distinct from the sending of periodic statements and involve plan provisions that exceeded mere procedural requirements.
The Sperrys propose to continue receiving periodic payment statements similar to those received before their bankruptcy filing, which does not alter HSBC's substantive rights or impose new obligations on the lender. Consequently, HSBC's objection to the confirmation of the Sperrys' amended plan is overruled. In this district, debtors can make post-petition payments directly to secured creditors. The Sperrys' plan includes a comparable provision for Chase Auto Finance's secured claim, which has not objected to confirmation. However, the court has a duty to review all plans and deny confirmation of any that contain impermissible provisions, applying this scrutiny to Chase as well. The legal framework under sections 1322(a) and (b) outlines the requirements for a plan, including submission of future earnings to trustee control, full payment of priority claims unless otherwise agreed, equal treatment of claims within classes, and various provisions related to the modification of secured and unsecured claims. The CFPB has proposed a rule reinstating the requirement for borrowers in bankruptcy to receive periodic statements, but this does not affect the case at hand, and the court finds no change in a Chapter 13 debtor's ability to require such statements in their plan.
