In re Booth: Chapter 13 Plan Provisions Regarding Cure of Mortgage Arrearages and Application of Fees Disapproved by Court

25 Jan In re Booth: Chapter 13 Plan Provisions Regarding Cure of Mortgage Arrearages and Application of Fees Disapproved by Court

A recent Arkansas bankruptcy court decision, In re Booth, 2009 WL 81327 (Bky.E.D.Ark. Jan. 14, 2009), was notable more for the chapter 13 plan provisions it disapproved, than for the chapter 13 plan provisions it approved.

First, the court disapproved a plan provision which prohibited the mortgage lender from imposing costs or fees of any kind, without seeking court approval prior to their imposition. The court held that this provision would impermissibly modify the mortgage lender’s rights under the mortgage contract, in violation of section 1322(b)(2).

Second, the court upheld a plan provision which required the mortgage lender to deem the prepetition arrears as being contractually current, and required the mortgage lender to apply post-petition mortgage payments to the month in which they were made. The court held that this provision merely implemented to the debtor’s right to cure a default and maintain payments under section 1322(b)(5).

Third, the court disapproved a plan provision requiring the mortgage lender to notify not only the debtor, but the debtor’s attorney and the trustee, of any change in the interest rate, property tax or insurance. The court reasoned that because the contract only required that the lender notify the debtor of such changes, to require notification of anyone else ran afoul of section 1322(b)(2).

The court also disapproved the debtor’s attempt to add the sometimes-used section 524(i) language to the chapter 13 plan, on the ground that it was ambiguous, and because by its expess terms section 524(i) applied only prospectively and in limited circumstances.

Fourth, the court disapproved a plan provision stating that any contractual provisions regarding arbitration, mediation or alternative dispute resolution, were deemed rejected; and it disapproved a plan provision stating that all daily interest accounts would, upon the commencement of the case, be placed on a non-accrual basis. These provisions were ambiguous and lacked a factual basis relating to any particular creditor, and amounted also to an effort to reject only a portion of a contract, in violation of section 365.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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