Trustee May Not Retroactively Adjust Chapter 13 Payments

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By Deborah Swann

A trustee lacked authority to alter Chapter 13 plan payments retroactively to accommodate an allowed home-mortgage claim filed after the plan’s confirmation ( In re Velazquez , Bankr. S.D. Tex., 16-70326, 4/17/17 ).

Judge Eduardo V. Rodriguez of the U.S. Bankruptcy Court for the Southern District of Texas called the trustee’s actions “shocking” and “disturbing.”

“Without any authority” and “without seeking leave from the court,” Chapter 13 Trustee Cindy Boudloche implemented a new procedure through which she retroactively adjusted confirmed plan payments in 25 cases across the McAllen, Brownsville, and Corpus Christie Divisions, the court said.

Debtors filing for protection under Chapter 13 of the Bankruptcy Code must agree to a court-approved plan to pay creditors out of their future income. Under the plan, the debtor submits a portion of his future earnings and income to the control of a bankruptcy trustee for supervised payments to creditors over a three- to five-year period.

In the 25 cases in question, the trustee erroneously relied on a provision in the district’s standard Uniform Chapter 13 Plan that requires trustees, for home mortgage payments, to distribute the amounts listed in allowed claims rather than the amounts set forth in the plan.

The standard Chapter 13 plan provides that if the amount of an allowed claim differs from the estimated amount in the plan, payment is adjusted to the allowed claim without amending the overall plan. The adjustment is forward looking.

Here, when lenders timely filed their claims after plan confirmation and no one objected, their claims were allowed. The trustee then applied the difference between allowed and confirmed amount retroactively and prospectively, knocking many debtors into arrears. Boudloche filed motions to dismiss the cases with payment delinquencies.

The court said that the trustee is required to pay the amount stated in an allowed home mortgage proof of claim, regardless if it conflicts with the amount stated in a confirmed plan.

“However, retroactively altering confirmed plan payments based on an allowed home mortgage proof of claim filed after confirmation is impermissible,” the court said.

Trustee was ordered to restore payments to the amounts specified in the confirmed plans.

To contact the reporter on this story: Deborah Swann in Washington at dswann@bna.com To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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