HSBC Bank Must Provide Monthly Mortgage Statements Under Ch. 13 Plan

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Diane Davis

Mortgage lender HSBC Bank USA must continue to provide monthly statements to a debtor as part of their Chapter 13 plan ( In re Sperry , 2016 BL 410492, Bankr. D. Mass., No. 15-14583-MSH, 12/8/16 ).

Judge Melvin S. Hoffman of the U.S. Bankruptcy Court for the District of Massachusetts Dec. 8 concluded that a provision in the debtors’ plan requiring that they receive the same type of periodic payment statements that they received before filing bankruptcy isn’t so “onerous that it modifies HSBC’s substantive rights.”

HSBC objected to confirmation of the debtor’s plan. However, the court found that the plan’s requirement doesn’t impose obligations on HSBC that it didn’t have before the debtors began their bankruptcy case.

Bankruptcy Code Section 1322(b)(11) allows “debtors to include any appropriate plan provision in a Chapter 13 plan that is not inconsistent with the Bankruptcy Code,” according to Bloomberg Law: Bankruptcy Treatise, pt. VII, ch. 229 (D. Michael Lynn et al. eds., 2016). “By allowing debtors to include any appropriate provision not inconsistent with the Code, Section 1322(b)(b)(11) gives debtors discretion to propose Chapter 13 plan terms that fit their unique circumstances,” the Treatise states.

Debtors Penny and Jason Sperry proposed a “cure and maintain” Chapter 13 plan that required them to pay their pre-bankruptcy arrearage to HSBC of $11,416 in 60 monthly payments through the Chapter 13 trustee, while also making their current monthly mortgage payments directly to HSBC. Chapter 13 bankruptcy allows individuals receiving regular income to obtain debt relief while retaining their property, but to do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.

The debtors’ plan uses the official local form Chapter 13 plan in Massachusetts, but added a provision requiring HSBC to send monthly mortgage statements “consistent with its prepetition practice.” The provision also states that the statements won’t be considered a violation of the automatic stay.

HSBC argued that under the Consumer Financial Protection Bureau’s amendment to Regulation Z in 2014, 12 C.F.R. §1026.41(e)(5), servicers are exempt from sending periodic statements if the borrower is in bankruptcy.

The Bankruptcy Code doesn’t prohibit the debtors’ plan requirement, the court said. The anti-modification provision of Section 1322(b)(2), which permits a debtor to “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence,” doesn’t preclude a Chapter 13 plan from “imposing procedural or accounting requirements on a mortgage holder in order to effectuate the cure of a default under the plan,” the court said.

Section 1322(b)(2) prohibits the modification of the rights of holders of home mortgage claims, the court said. Requiring holders to send monthly statements isn’t a “right,” but an “obligation” that is bound to a debtor’s ability to cure mortgage defaults in Chapter 13, the court said.

The monthly statement provision should be included in the local form, the court said.

Tanya Tabachnik, Harmon Law Offices, P.C., Newton Highlands, Mass., represented HSBC Bank USA, N.A.

Marques C. Lipton, Law Office of Nicholas F .Ortiz, P.C., Boston, represented debtors Penny and Jason Sperry.

To contact the reporter on this story: Diane Davis in Washington, D.C. at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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