Opinion
Case No. 6:20-bk-3399-TPG
2022-12-29
IN RE: Migdalia AGUIRRE-COLON and Jose Aguirre, Debtors.
Robert B. Branson, BransonLaw PLLC, Orlando, FL, for Debtors.
Robert B. Branson, BransonLaw PLLC, Orlando, FL, for Debtors.
ORDER GRANTING MOTION TO MODIFY CONFIRMED CHAPTER 13 PLAN
Tiffany P. Geyer, United States Bankruptcy Judge The issue before the Court is whether the Chapter 13 Trustee earns a commission in connection with secured arrears claims if the debtors sell the property subject to the arrears, have the title company satisfy the secured claims (including the arrears) at the closing of the sale, and seek to modify their confirmed plan to remove these claims from the Trustee's administration. Upon consideration of the arguments of counsel, the law, the case docket, and being otherwise fully advised in the premises, the Court concludes that the Debtors may modify their plan as proposed, and that 28 U.S.C. § 586 does not provide for payment of a commission under such modified plan.
A court may take judicial notice of its own records. ITT Rayonier Inc. v. United States , 651 F.2d 343, 345 n.2 (5th Cir. Unit B July 20, 1981). The decisions of the United States Court of Appeals for the Fifth Circuit issued on or before September 30, 1981, are binding precedent in the Eleventh Circuit. Bonner v. City of Prichard, Ala. , 661 F.2d 1206, 1207 (11th Cir. 1981).
I. PROCEDURAL HISTORY
The Debtors filed this Chapter 13 case on June 17, 2020. (Doc. No. 1.) On Schedule A, they listed their homestead at 250 Canterbury Court, Kissimmee, Florida 34758 (the "Property") with a value of $132,600 and claimed the Property as exempt on Schedule C. (Doc. No. 14 at 3, 9). The Debtors’ Chapter 13 plan was confirmed on January 7, 2021 (the "Plan") (Doc. No. 32), and last modified on December 15, 2021 (the "Modified Plan") (Doc. No. 48). Included in the Plan and Modified Plan were ongoing monthly payments to Nationstar (Claim 10) and Poinciana (Claim 18), whose claims are secured by the Property. (Doc. No. 15 at 3; Doc. Nos. 32, 48.) In addition, the Debtors included monthly payments on the arrearages owed to Nationstar and Poinciana in the Plan and Modified Plan. Unfortunately, the Debtors had trouble making payments, falling behind on several occasions, prompting motions to dismiss by the Chapter 13 Trustee. (Doc. Nos. 24, 43, 50.) In response to the motions to dismiss, the Debtors modified the Plan with the Trustee's consent (Doc. Nos. 44, 46, 48) or otherwise managed to catch up on payments and avoid dismissal (Doc. Nos. 52, 53). The Debtors were able to make the required payments for almost two years. (Doc. No. 65 at 4.) But beginning in month twenty-three, the Debtors appear to have made only partial monthly payments. (Doc. No. 48 at 4; Doc. No. 65 at 4.)
Nationstar Mortgage, LLC ("Nationstar") and Poinciana Portfolio Services ("Poinciana") filed claims against the Property. (Claims 10-1, 18-1.)
The Plan provided for monthly payments of the ongoing mortgage to Nationstar of $430.71 during months one through four, and then monthly payments of $508.46 for months five through sixty. (Doc. No. 32 at 8.) The Modified Plan changed the monthly payments to Nationstar on the mortgage to $760.04 in months thirteen through sixteen, $260.89 in month seventeen, $799.22 in months eighteen through twenty-nine, and $760.04 in months thirty through sixty. (Doc. No. 48 at 2.)
The Plan provided for no monthly payments to Poinciana on the ongoing mortgage in months one through three, but then provided for a monthly payment of $92.00 in month four and $23 payments in months five through sixty. (Doc. No. 32 at 8.) The Modified Plan provided Poinciana the same treatment in months one through sixteen, but provides no payment in month seventeen, $23.00 in months eighteen through fifty, $24.30 in months fifty-one through fifty-nine, and one payment of $34.30 in month sixty. (Doc. No. 48 at 3.)
On the mortgage arrearage owing to Nationstar, the Plan provided for monthly payments in months one through fifty-nine of $114.63 and $115.16 in month sixty. Doc. No. 32 at 8.) The monthly payments on the Nationstar arrearages changed in the Modified Plan to $114.63 in months one through sixteen, no payment in month seventeen, payments of $73.91 in months eighteen through twenty, payments of $90.19 in months twenty-one through twenty-nine, $129.37 in months thirty through fifty-nine, and a payment of $129.71 in month sixty. (Doc. No. 48 at 3.) The payments for other arrears for Nationstar remained at zero for months one through five, but changed to $22.00 in months six through sixteen, no payment in month seventeen, $22.00 in months eighteen through fifty, $23.80 in months fifty-one through fifty-nine, and a payment of $17.80 in month sixty. (Id. at 3.)
As to arrearages on Poinciana's claim, the Plan provided that no monthly payments would be made in months one through four, but then in month five a payment of $107.25 would be made, and in months six through twelve the monthly payments would be $411.25, $390.95 in months thirteen through fifty-nine, and in month sixty, a payment of $380.95. (Doc. No. 32 at 9-10.) In the Modified Plan, the monthly payments through the sixteenth month remained unchanged, but there was no monthly payment for month seventeen, then payments of $200 for months eighteen through twenty, $215.02 for months twenty-one through twenty-two, $315.02 for the twenty-third month, $415.02 for months twenty-four through fifty, $465.02 for months fifty-one through fifty-nine, and one last payment of $456.02 for the sixtieth month. (Doc. No. 48 at 3.)
The Debtors ultimately determined they could not afford the Property and elected to sell it. They filed a sale motion (Doc. No. 60) proposing to sell the Property for $320,000, intending to use the sale proceeds to resolve the Trustee's most recent motion to dismiss (Doc. No. 63). The Trustee consented to the sale but conditioned her consent upon, among other things, payment of her statutory fee "required by 28 U.S.C. 586(e)(1)(B)(ii) upon all impaired claims being provided for in the plan" within ten days of closing. (Doc. No. 61 ¶ 1.)
The Trustee cited to 28 U.S.C. § 586(e)(1)(B)(ii), however, since the Debtors are not family farmers, the Court presumes the statutory fee is being sought pursuant to 28 U.S.C. § 586(e)(1)(B)(i).
This prompted the Debtors to seek to modify their plan (again), but this time to remove the payments to Nationstar and Poinciana, and instead satisfy those claims in full upon the closing of the sale of the Property and to have the claims paid by the title company handling the sale transaction, thereby removing the claims from administration by the Trustee. (Doc. No. 65 ¶ 6.) The Debtors filed the motion at issue here on July 29, 2022, asking to modify the Modified Plan to reflect the sale of the Property (the "Motion"). (Doc. No. 65.) The Debtors argue that they should not "be required to pay a Trustee commission on secured claims that will be paid direct at closing." (Doc. No. 70 ¶ 7.) They further dispute the Trustee's reading of 28 U.S.C. § 586 and argue it does not require them to pay a commission on impaired claims provided for in the Modified Plan, and instead requires commissions to be based upon the Trustee's receipt of payments from the Debtors. (Id. ¶¶ 4, 5.)
This prompted the Trustee to object to the Debtors’ proposed plan modification, arguing that the proposed modification is not appropriate as it is based on a future sale event and unfairly seeks to avoid paying her a fee on secured claim arrears. (Doc. No. 73 ¶¶ 1, 2.) The Trustee argues she is entitled to a constructive fee on the remaining balances owed on the impaired claims of Nationstar and Poinciana that the Debtors seek to remove from the Modified Plan (Doc. No. 74 ¶ 1) because impaired claims such as these must be paid through a Chapter 13 plan in order to force a creditor to accept such payments. The Trustee also argues that permitting the Debtors to avoid paying her a constructive fee allows them to take advantage of Chapter 13, avoid foreclosure, and then deny the Trustee the fee that she would have earned had the Debtors paid the pre-petition arrearages to Nationstar and Poinciana under the Modified Plan.
The Trustee also objects because the Debtors have not turned over their tax refund for the 2021 tax year. (Doc. No. 73 ¶ 3.)
In re Evans , 584 B.R. 917 (Bankr. D. Or. 2018) (explaining that impairment has been defined "as any proposed alteration of the rights of a creditor, which the debtor could not insist on but for the protections of the Bankruptcy Code.")
The Court conducted a hearing on the issues, took argument from the parties, and invited each side to submit supplemental authority, which they did. (Doc. Nos. 79, 82).
With the consent of the Trustee, the Court approved the sale of the Property, with the condition that the disputed commissions be held in the Debtors’ counsel's trust account until the Court decided the issue. (Doc. No. 77.) The amount in dispute is $166.84. (Doc. No. 77 ¶ 6.)
II. THE DEBTORS MAY MODIFY THEIR CONFIRMED PLAN
A confirmed Chapter 13 plan may be modified, in the court's discretion, upon request of a trustee, debtor, or holder of allowed unsecured claims if the statutory requirements are satisfied. In re Guillen , 972 F.3d 1221, 1226 (11th Cir. 2020). Bankruptcy Code Section 1329 sets forth those statutory requirements, including that the required purpose of the proposed modification must be
to—
(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;
(2) extend or reduce the time for such payments;
(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan; or
(4) reduce amounts to be paid under the plan by the actual amount expended by the debtor to purchase health insurance for the debtor ....
11 U.S.C. § 1329(a). "[T]he modified plan must still satisfy the requirements of § 1325(a), along with the requirements of §§ 1322(a), (b), and 1323(c)." In re Guillen , 972 F.3d at 1229 (citing 11 U.S.C. § 1329(b)(1) ).
Here, the proposed modification reduces the time for payments to Nationstar and Poinciana and alters the amount of the distributions to Nationstar and Poinciana (whose claims are provided for in the Modified Plan), to account for payment of their claims other than under the Modified Plan. (Doc. No. 65 ¶ 6.) There is no contention that the proposed modification fails to satisfy sections 1322(a) and (b), 1323(c), and 1325(a), other than the assertion that the Debtors did not turn over their tax refund for 2021, which is the subject of the Trustee's pending motion to dismiss. (Doc. Nos. 73, 81.) Thus, the proposed modification is authorized under 11 U.S.C. § 1329(a)(2) and (3).
III. THE DEBTORS ARE NOT REQUIRED TO PAY THE TRUSTEE A COMMISSION UNDER 28 U.S.C. § 586(e)(2)
The next issue before the Court is whether the proposed plan modification precludes the Trustee from receiving a fee. The Trustee contends that 28 U.S.C. § 586(e)(1)(B)(i) entitles her to a fee on all impaired claims provided for in the plan being paid by the Debtors. (Doc. No. 61 ¶ 1.) Although it is true that 28 U.S.C. § 586(e)(1)(B)(i) addresses the compensation of a standing trustee insofar as it caps it at ten percent, it does not refer to the Trustee's fee being earned based on the payment of impaired claims through the plan. Instead, as argued by the Debtors, 28 U.S.C. § 586(e)(2) provides for payment of the Trustee's commission "based on payments received by the Trustee from the Debtor." (Doc. No. 70 ¶ 4.) The Debtors also point to paragraph 5 of the Fifth Amended Administrative Order Prescribing Procedures for Chapter 13 Cases (Doc. No. 4), which provides as follows:
Section § 586(e)(1)(B)(i) states the following:
The Attorney General, after consultation with a United States trustee that has appointed an individual under subsection (b) of this section to serve as standing trustee in cases under subchapter V of chapter 11 or chapter 12 or 13 of title 11, shall fix—
....
(B) a percentage fee not to exceed—
(i) in the case of a debtor who is not a family farmer, ten percent ....
See footnote 7.
28 U.S.C. § 586(e)(2) states, in relevant part, that the Trustee "shall collect such percentage fee from all payments received by [the Trustee] under plans in the cases under ... chapter ... 13 ... for which such individual serves as standing trustee."
The Trustee is authorized to pay from these funds any fees and charges assessed against the estate by law as authorized by § 1326(b) and to collect from all receipts the Trustee's fee authorized by 28 U.S.C. § 586 ("Trustee's commission"). The Trustee's commission shall be earned upon receipt of each payment from the Debtor and may be distributed to the Trustee upon receipt of the payment.
(Doc. No. 70 ¶ 5, quoting Doc. No. 4 ¶ 5.) (Emphasis added.) The Debtors argue that their proposed plan modification will permit Nationstar and Poinciana to be paid directly by the title agent at closing, and thus the Trustee will not earn a fee. (Doc. No. 70 ¶¶ 6-7.)
The Trustee argues otherwise, citing In re Evans , 584 B.R. 917 (Bankr. D. Or. 2018). (Doc. No. 79 at 6-13.) In Evans , the trustee objected to confirmation of the debtors’ modified Chapter 13 plan, which provided that their secured creditors would be paid "through escrow upon the sale or refinance of the real property." 584 B.R. at 919. The Oregon bankruptcy court looked to 11 U.S.C. § 1326(c), which states, "Except as otherwise provided in the plan or in the order confirming plan, the trustee shall make payments to creditors under the plan." Id. The court then relied on the Ninth Circuit's decision in Cohen v. Lopez (In re Lopez) , 372 B.R. 40 (9th Cir. BAP 2007), aff'd 550 F.3d 1202 (9th Cir. 2008), to hold "that a debtor's ability to directly pay creditors turned on whether the creditor's claim was ‘impaired.’ " 584 B.R. at 919. "If impaired, the claim must be paid by the trustee unless the court, in its discretion, determines that direct payment is appropriate." Id. A claim is impaired if there is "any proposed alteration of the rights of a creditor, which the debtor could not insist on but for the protections of the Bankruptcy Code." Id. at 921. The Evans court held that Section 1326(c) ’s requirement that the trustee make payments to creditors "under the plan," "includes claims that are impaired by operation of bankruptcy law." Id. The claims at issue in Evans were impaired because the proposed treatment impeded the right of the creditor (the county) to pursue foreclosure for delinquent taxes. Id. The plan and its confirmation were "the mechanism for delaying payment to the secured claims for three years. The Plan thereby invoke[d] § 1326(c) and the applicable caselaw regarding impaired claims." Id. at 922.
In Evans , even though the claims were impaired, the court retained discretion to determine whether direct payments to the creditors would " ‘be appropriate based upon the confirmation requirements of § 1325, policy reasons, and the factors set forth by case law, local rules or guidelines.’ " Id. (quoting In re Giesbrecht , 429 B.R. 682, 690 (9th Cir. BAP 2010) ). The court found that direct payments to the creditors would not be appropriate because, under its local rule, if real property was sold, then the debtors could only pay claims secured by that real property directly to the creditor if the trustee agreed. Id. at 922-23. Because there was no agreement under the local rule, the plan did not satisfy § 1326(c) and could not be confirmed. Id. at 923.
In support of their position, the Debtors rely on In re Weathers , No. 14-41938, 2018 WL 11357474 (Bankr. E.D. Tex. July 3, 2018). (Doc. No. 82 at 4-5.) In Weathers , the debtor was paying his mortgage arrearages to the trustee in his Chapter 13 plan. No. 14-41938, 2018 WL 11357474, at *1. He decided to sell his home with a realtor and used a title company for the closing. Id. at *2. The debtor filed a motion to modify his plan so that the claims secured by the home would be paid by the title company at closing, including the outstanding mortgage arrearages. Id. The trustee objected to the plan modification because allowing the payments to be made by the title company at closing would deprive her of her percentage fee. Id. at *3. The trustee argued that she should "recover the difference between the total amount of percentage fees she had expected to collect under the previously confirmed plan and the total amount of percentage fees she would receive under the modified plan as a result of [the debtor's] direct payment of the mortgage arrearage." Id. at *2.
The court turned to 28 U.S.C. § 586(e)(2), "which governs the compensation for a standing chapter 13 trustee, [under which] ‘[s]uch individual shall collect such percentage fee from all payments received by such individual under plans in the cases under subchapter V of chapter 11 or chapter 12 or 13 of title 11 for which such individual serves as standing trustee.’ " Id. at *3 (quoting 28 U.S.C. § 586(e)(2) (emphasis in case)). The trustee argued that the title company should be deemed to have acted as her agent, "and, therefore, that she constructively received the funds used to pay the mortgage arrearage and is entitled to a percentage fee for the payment." Id.
The court first concluded that the Bankruptcy Code permits direct payments to creditors by a chapter 13 debtor. Id. The court then reviewed the reasons why the motion to modify the plan would be granted. Id. at *4-6. The payment to the secured creditor was a one-time event that did not involve monitoring future payments or handling future disbursements. Id. at *4. The transaction was not organized to avoid paying the trustee's fee; rather the title company was used "to handle the transaction in order to ensure that the proper amount of proceeds would be delivered to the proper parties, that title would be properly transferred, and that proper releases would be issued." Id. Additionally, the home was exempt from creditors, and the trustee did "not have the authority to sell it." Id. at *5. Finally, the plan did not provide that the debtor "would sell his home to make a balloon payment in order to meet confirmation requirements." Id. If it did, then "a debtor's attempt to later modify the plan solely to avoid the trustee's percentage fees would constitute evidence of bad faith, precluding approval of the modification." Id.
The court rejected the trustee's argument that she should receive a fee from the sale because receiving the fee required departing from the plain language of 28 U.S.C. § 586(e)(2), which applies the trustee's fee "only to funds ‘received’ by a standing chapter 13 trustee." Id. Although the trustee was concerned about being able to fund her operations through percentage fees, "[h]er policy arguments simply cannot trump the plain language of 28 U.S.C. § 586(e)(2)." Id. at *6. Additionally, "the Bankruptcy Code does not require debtors to make all payments of mortgage arrearages through a chapter 13 trustee." Id. The court concluded with the following:
[The debtor] properly acted as the disbursing agent with respect to a single, lump sum disbursement of the proceeds from the sale of his exempt homestead to pay his mortgage arrearage. The trustee did not "receive" the funds used to pay the mortgage arrearage at closing.... [I]mposing a trustee's fee on any of the funds disbursed at closing would be more of a windfall than compensation.
Id.
This case is more like Weathers than Evans . There is no evidence that the Debtors intended the sale, or proposed to modify their Modified Plan, in bad faith merely to thwart the Trustee's entitlement to a commission. (Doc. Nos. 73, 74.) Notably, the Plan and the Modified Plan generally provided for ongoing monthly payments to Nationstar and Poinciana on account of the arrearages as well as regular ongoing monthly payments since the Plan was confirmed, and the Debtors appear to have done what they could to make these payments. Neither the Plan nor the Modified Plan proposed de minimis payments on these secured claims with a balloon payment at the end, as may tend to demonstrate that the Debtors were hoping to eventually deprive the Trustee of a commission by selling the property using a title company to distribute the sale proceeds while reaping the benefits of time and avoiding foreclosure in a Chapter 13 case. (Doc. Nos. 32, 48.) Rather, the Debtors made efforts to make their monthly payments and decided to sell the Property when they could no longer do so. (Doc. No. 65.) The Trustee does not argue that the sale proceeds should go through her office or that she worked on the sale and thus is entitled to a fee based on that work. (Doc. Nos. 73, 74.) Instead, her sole argument is that she is entitled to the fee on the secured arrearages that were paid at closing by the title company because she would have earned those fees but for the sale and the Debtors’ attempt to further modify the Modified Plan. (Doc. Nos. 73, 74.) But under 28 U.S.C. § 586(e)(2), the Trustee is only entitled to a fee as to funds she receives from the Debtors under a plan.
Even the Evans court recognized that the court has discretion to determine whether direct payments to the creditors would " ‘be appropriate based upon the confirmation requirements of § 1325, policy reasons, and the factors set forth by case law, local rules or guidelines.’ " In re Evans , 584 B.R. at 922 (quoting Giesbrecht , 429 B.R. at 690 ). In Evans , the debtor failed to comply with that court's local rule requiring an agreement with the trustee to pay claims directly to the creditor secured by real property upon a sale of the property. Id. at 922-23. Here, not only is there no such local rule, but there is an administrative order governing procedures in Chapter 13 cases that states, "The Trustee's commission shall be earned upon receipt of each payment from the Debtor and may be distributed to the Trustee upon receipt of the payment." (Doc. No. 4 ¶ 5 (emphasis added).)
The Court's conclusion that the Motion should be granted is further buttressed by the amendments made under the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub.L. 99–554, § 228(2) (the "Act"). Prior to the Act, "[r]esolution of the trustee's fee issue under Section 1302(e) turned on which payments were construed by the Court to be ‘under the plan.’ " In re Burkhart , 94 B.R. 724, 727 (Bankr. N.D. Fla. 1988). But the Act fixed the Chapter 13 trustee's fee computation pursuant to 28 U.S.C. § 586(e), which, as discussed above, provides that the trustee's fee is collected "from all payments received by such individual under plans in cases under chapter 12 or 13 of title 11 for which such individual serves as trustee." 28 U.S.C. § 586(e)(2) (emphasis added). The difference between § 1302(e)(2) and amended § 586(e)(2) is that the phrase "received by such individual" was added to § 586(e)(2). In re Burkhart , 94 B.R. at 727. "Given the fact that the Court has the discretion to decide which payments will in fact be received by the trustee, it is readily apparent that the new language shifts much of the emphasis away from the question of which payments are ‘under the plan.’ " Id. The plain language of § 586(e)(2) is that if the debtor has a right under the Bankruptcy Code to pay creditors directly, then those payments are not subject to the trustee's fee. Id. (holding "that, where the debtor's plan provides for, and the Court approves, payments directly to a secured creditor, the trustee is not entitled to a commission on those payments.").
IV. CONCLUSION
Accordingly, it is ORDERED that the Motion (Doc. No. 65) is GRANTED, and the Objection (Doc. No. 73) is OVERRULED .