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Austin v. Bankowski

United States District Court, D. Massachusetts

September 25, 2014

BETH A. AUSTIN, Appellant,

For Beth A. Austin, Appellant: David G. Baker, LEAD ATTORNEY, Boston, MA.

For Carolyn Bankowski-13, Appellee: Patricia A. Remer, Office of the Chapter 13 Trustee, Boston, MA.

U.S. Bankruptcy Court, Notice, Pro se, Boston, MA.

Page 560




Beth A. Austin (" Austin" ), a Chapter 13 debtor, appeals from an order of the Bankruptcy Court for the District of Massachusetts (" Bankruptcy Court" ) sustaining Chapter 13 Trustee Carolyn Bankowski's (the " Trustee" ) objection to the confirmation of Austin's proposed Chapter 13 plan (" Proposed Plan" ) pursuant to 11 U.S.C. § 1325(a)(6) (" Section 1325(a)(6)" ).

The crux of this appeal is whether a Chapter 13 plan is " feasible" where it is contingent upon the achievement of a loan modification. In the proceedings before the Bankruptcy Court, Austin alleged that the secured creditor who had made the loan in question had accepted the Proposed Plan and, on that basis, to deny confirmation would be unfair to the other creditors. Tr. Hr'g Trustee's Objection Confirmation Plan (" Bankr. Tr." ) 4:17-24, Aug. 8, 2013, ECF No. 11. The Bankruptcy Court disagreed, concluding that under these circumstances it was not appropriate to confirm Austin's Proposed Plan. On appeal, Austin argues that the Bankruptcy Court erred when it sustained the Trustee's objection to confirmation and ruled that it would be premature to confirm a plan which is contingent upon a pending loan modification. Bankr. Tr. 5:7.

Page 561

A. Procedural Posture

On August 23, 2013, Austin filed a motion for leave to appeal the decision sustaining the Trustee's objection to the United States District Court for the District of Massachusetts, Mot. Leave Appeal, ECF No. 1, and on October 8, 2013, this motion was granted. Elec. Order, Oct. 8, 2013, ECF No. 5. Both parties subsequently filed supporting briefs. Br. Appellant Beth A. Austin (" Austin's Br." ), ECF No. 10; Appellee Carolyn A. Bankowski's Br. (" Trustee's Br." ), ECF No. 14; Reply Br. Appellant Beth A. Austin (" Reply" ), ECF No. 16. This Court heard the case on March 25, 2014, and took the matter under advisement. Elec. Clerk's Notes, Mar. 25, 2014, ECF No. 23.

B. Summary of Undisputed Facts

1. Background

The underlying facts of this matter are undisputed. On March 28, 2012, Austin voluntarily petitioned for bankruptcy relief under Chapter 13 of the United States Bankruptcy Code (the " Code" ) and, pursuant to 11 U.S.C. section 1321, submitted a Chapter 13 Reorganization Plan. U.S. Bankr. Ct. Dist. Mass. (Bos.) Bankr. Pet. #: 12-12571 (" Bankr. Ct. Docket" ) 1:1, 2:4, ECF No. 2. Nationstar Mortgage L.L.C., the servicing agent for First Horizon Home Loans (the " Mortgagee" ), successfully objected to the confirmation of both this plan, see id. at 5:48, and a subsequent, amended Chapter 13 plan (the " Amended Plan" ) filed by Austin. Id. at 8:79. The Mortgagee also filed for, and obtained, relief from the 11 U.S.C. section 362 automatic stay. Id. at 7:67, 8:80. Despite granting the Mortgagee's motion for relief from stay, and sustaining its objection to the confirmation of the Amended Plan, on March 21, 2013, the Bankruptcy Court permitted Austin to file a further amended Chapter 13 plan. Id. at 8:82. Prior to drafting this further amended Chapter 13 plan (the " Proposed Plan" ), Austin sought and retained specialist legal counsel to assist her in negotiating a loan modification with the Mortgagee. Austin's Br. 4; Bankr. Ct. Docket 8:73. Subsequently, on May 6, 2013, Austin filed both the Proposed Plan and a motion for its approval. Bankr. Ct. Docket 9:91-92.

2. Proposed Plan

The Proposed Plan was for a term of sixteen and a half months, though as of May 6, 2013 -- the date of filing -- only four and a half remained. Bankruptcy Ct. Docket Record (" Bankr. Ct. Record" ) 13, ECF No. 15-1. Under the Proposed Plan, Austin was required to make monthly payments of $523.00 to the Trustee for distribution to her unsecured creditors.[1] Id. Further, with respect to the treatment of secured claims, Austin proposed that " [a]ll payments to [the Mortgagee] shall be in accordance with the [terms of an application for a] modification [of the loan], when approved." Id. Austin's motion for approval of the Proposed Plan stated that, " [i]n order to maintain the status quo while the modification is being considered, no distribution to the mortgagee/servicer is proposed." Id. at 17. Austin proposed to pay the Mortgagee's claim directly, instead of paying to the Trustee for distribution. See id. The Proposed Plan did not, however, include any provision for addressing the outstanding pre-petition arrears of $60,000[2] that Austin owed to the Mortgagee. See id. at 13-17; Bankr. Tr. at 2:10-12.

Page 562

3. Confirmation Hearing

On May 14, 2013, Austin filed a certificate of service in the Bankruptcy Court, indicating that all relevant creditors and parties, including the Mortgagee, had been properly notified of the terms of the Proposed Plan. Bankr. Ct. Record 19-21. The Trustee filed an objection to confirmation of the Proposed Plan on June 6, 2013. Id. at 22. The Mortgagee, however, did not file an objection.

On August 8, 2013, the Bankruptcy Court conducted a hearing to consider the Trustee's objection to confirmation of the Proposed Plan. See Bankr. Ct. Docket 10:102. At the hearing, the Trustee argued that the Bankruptcy Court must sustain her objection to confirmation, because at the time of hearing, the status of a loan modification was still pending and there was no sign it would be approved prior to the end of the Plan's term, which was, at that time, within the month. Bankr. Tr. 5:22-6:1.

In response, Austin argued that the Mortgagee's failure to object constituted an acceptance of the terms of the Plan. Id. at 6:20-7:1. Because the Plan proposed that no payments be made to the Mortgagee while the loan modification was under consideration, " [d]enial of confirmation in this situation is unfair to other creditors." Id. at 4:17-18. At the conclusion of the confirmation hearing, the Bankruptcy Court sustained the Trustee's objection and denied confirmation of the Plan. Id. at 5:14. The Bankruptcy Court did, however, permit Austin to file a further amended plan. Id. at 5:9-11; Bankr. Ct. Docket 10:102. The Bankruptcy Court ...

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