Vanessa Miles

1 As a consequence, both contested matters presently under advisement will be addressed
in this Memorandum Opinion.
UNITED S TATES B ANKRUPTCY COURT
FOR T HE E ASTERN DISTRICT O F PENNSYLVANIA
In re 	: 	Chapter 13
:
VANESSA MILES, 	: 	Bankruptcy No. 07-14495DWS
:
Debtor. 	:
:
In re 	: 	Chapter 13
:
BRIAN V. BEAL and 	: 	Bankruptcy No. 08-10357DWS
ANN E. BEAL, 	:
:
Debtors. 	:
MEMORANDUM OPINION
BY: 	DIANE WEISS SIGMUND, United States Bankruptcy Judge
Before the Court are the Objections of the Chapter 13 trustee (the “Trustee”) to the
Chapter 13 plans proffered by debtor Vanessa Miles (“Miles”), Case. No. 07-14495 and
joint debtors Brian and Ann Beal (the “Beals”), Case No. 08-10357. The Objections raise
a common ground for urging the Court to deny confirmation of these plans.1 Both plans
provide that the Debtors shall make all payments under their respective plans to a secured
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2 Much of the procedural and factual background of the Miles case is detailed in my
opinion addressing her objection to the claim of her mortgagee, Countrywide Home Loans, Inc.
(“Countrywide”). 	See In re Miles, --- B.R. ----, 2008 WL 5412308 (Bankr. E.D. Pa. 2008).
The relevant history as relates to this contested matter is set forth herein.
3 Miles consented to the bar order upon dismissal to settle a prior Trustee motion to dismiss.
4 The Filing Stipulation anticipated that claim to be approximately $48,000 although the
Debtor expressly reserved her right to review and object to it. Miles, 2008 WL 5412308 at *1.
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creditor directly rather than to the Trustee for distribution to those creditors. 	Given the
differing facts of each case, I will exercise my discretion to approve the plan proposed by the
Beals (the “Beal Plan”) but withhold it with respect to the plan proposed by Miles
(the “Miles Plan”).
FACTUAL BACKGROUND
A. Vanessa Miles
This is Miles’ fifth bankruptcy case since 2002.2 Her fourth case was dismissed with
a 180-day bar against filing a further bankruptcy petition without leave of Court as a result
of her three prior unsuccessful cases.3 Miles obtained Countrywide’s consent to a fifth case
by entering into a “Filing Stipulation” with Countrywide wherein she agreed to remain
current on post-petition mortgage payments to it and Chapter 13 	plan payments to the
Trustee as well as committed to file a Chapter 13 plan that adequately provided for
Countrywide's proof of claim.4
In this latest case, after filing three plans that provided for a cure of Countrywide’s
pre-petition arrears and reinstatement of its mortgage, Debtor changed her approach and
proposed a Third Amended Plan that contemplated paying Countrywide’s claim in full over
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5 Debtor’s first plan was followed by an unnumbered “Amended Plan” with numeration
applied to subsequent amendments. Thus, while I now have before me Miles’ “Seventh Amended
Plan, in actuality, it is the eighth proposed plan.
6 The Objection also raised a claim for recoupment under the Truth-in-Lending Act,
15 U.S.C. § 1638(a)(2)(A), (a)(3), (a)(4) and (a)(6), which I ultimately rejected. 	Id. at *4-5.
Miles has taken an appeal of this portion of my decision.
-3-
the remaining life of the plan.5 This was not an insignificant change. Debtor’s default under
the mortgage had been reduced to judgment in March of 2003, between her first and second
bankruptcy cases. 	By providing for full payment of the judgment rather than a cure and
reinstatement of the mortgage, Debtor was able to utilize Pennsylvania’s merger doctrine to
eliminate approximately $5,800 in post-judgment “escrow advances” for taxes and insurance
premiums by prosecuting a successful objection to Countrywide’s claim (the “Objection”).6
Id. at *2-3 (discussing In re Stendardo, 991 F.2d 1089 (3d Cir.1993)). The Objection was
strenuously defended by Countrywide which had assumed an arrears plan would be pursued
which would ensure that these advances would be repaid, and resulted in an allowed secured
claim in the amount of $85,752.30 plus interest at 6% over the life of the 60-month plan.
Id. at *4. I ordered Miles to file an amended plan and increase the wage order to fund the
allowed claim.
Until the Third Amended Plan, when Miles was contemplating reinstatement of the
mortgage, her proposed payments were bifurcated, i.e she proposed payments to the Trustee
toward the arrears, while making current mortgage payments to Countrywide. The wage
orders in effect up to that point ordered her employer to send payments to both the Trustee
and Countrywide. 	After changing to her total cure strategy, Miles’ Third and Fourth
Amended Plans as well as subsequently amended wage orders provided for the entire plan
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7 The Objection was taken under advisement with respect to confirmation of Debtor’s Sixth
Amended Plan. While the issue was being briefed by the parties, Debtor filed a Seventh Amended
Plan that increases the monthly payments to address Countrywide’s objection to the Plan’s provision
of interest, but is otherwise identical to the Sixth Amended Plan. Given that the issue pressed by
Countrywide and the Trustee, i.e., direct Debtor versus Trustee disbursement of plan funds, is the
same in the Seventh Amended Plan and as the parties have had an opportunity to supplement their
memoranda, I will view the pending objections as being addressed to the Seventh Amended Plan.
The Seventh Amended Plan also contemplates a potential modification of the loan,
pursuant 	to 	a 	recent 	settlement 	agreement 	between 	the 	Pennsylvania 	Attorney 	General
and 	Countrywide. 	See 	Press 	Release 	dated 	January 	28, 	2009, 	available 	at:
http://www.attorneygeneral.gov/press.aspx?id=4273. 	It is unclear whether Miles’s loan meets
the eligibility requirements to participate in this settlement and the payments the Seventh Amended
Plan are proposed if loan modification is unavailable.
8 Debtor is willing to raise her monthly plan payment to $1,924.23 to resolve the ongoing
dispute with Countrywide over calculation of interest.
9 This amount continues to increase, as the monthly payments of $1,875 continue to be made
under the extant wage order.
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payments to be paid to the Trustee. Consistent with her Fourth Amended Plan, there is still
an order in place providing for Miles’ employer to make monthly payments to the Trustee
in the amount of $1,875. Doc. No. 109 (the “Third Wage Order”).
After further amendment by Debtor to her Plan and Countrywide to its proof of claim,
I now have before me Debtor’s Seventh Amended Plan. 7 The most significant change, which
originated in the Fifth and has carried through to the Seventh Amended Plan, is that Miles
now proposes to cease all further plan payments to the Trustee. Instead, the remaining plan
payments, now calculated by Debtor as $1,924.23 per month,8 are to be paid by Debtor
directly to Countrywide by way of a proposed amended wage order. 	The Trustee’s sole
remaining function will be to disperse $7,500 of the $11,440 paid as of the date of the filing
of the Seventh Amended Plan,9 to Countrywide, with the rest going toward Miles’ attorney’s
fees and the Trustee’s commission.
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10 There are other secured and unsecured claims filed in this case, including a secured claim
by the City of Philadelphia, which the Seventh Amended Plan proposes “will not be treated in this
plan, but will be deferred until after this case is over . . .” 	While the Seventh Amended Plan
proposes paying all other timely-filed claims on a pro rata basis, as a practical matter, there is
nothing left to pay after Countrywide, Miles’ attorney, and the Trustee’s commission.
The 	City 	has 	filed 	an 	objection 	that 	the 	Seventh 	Amended 	Plan 	violates
§1325(a)(5)(B)(II)(ii). 	There is no such subsection of § 1325. 	There is a § 1325(a)(5)(B)(i)(II),
which states that a plan shall be confirmed if it provides that a secured creditor shall retain its lien
if the case is dismissed or converted. 	However, it would seem that the City’s lien is adequately
protected by the Seventh Amended Plan language providing that “the City shall retain its lien until
it is paid.” Section 1325(a)(5)(B)(ii), which mandates confirmation if payments to a secured creditor
under a plan are made at “present value,” i.e with interest, would not appear implicated by the
Seventh Amended Plan, which is not proposing payments to the City. 	Given that I ultimately
conclude the Trustee’s objection should be sustained, supra, I need not try decipher the City’s
objection. If an Eighth Amended Plan is filed, the City should filed an amended objection that
clearly states the basis of its objection.
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The Trustee objects to Debtor making future plan payments directly to Countrywide.
The Chapter 13 trustee program is wholly funded by commissions paid by debtors calculated
as a percentage of the funds which the trustees receive from the debtor. 	28 U.S.C.
§ 586(e)(2). Thus, the Trustee receives no commission on payments that debtors pay directly
to creditors under a plan. The consequence of this plan amendment is to eliminate the receipt
by the Trustee of the commission which otherwise would have been payable on account of
these plan payments. While secured creditors generally prefer direct payment as ensuring
a speedier receipt of the plan funds, Countrywide joins in this objection to confirmation,
stating its wish to be paid by and through the Trustee. Plan confirmation is also opposed
by the Trustee on the grounds that the Seventh Amended Plan is underfunded even if Debtor
is permitted to avoid the Trustee commission on the Countrywide payments.10
Also pending is the Trustee’s Motion to Dismiss this case on the basis of plan
infeasibility, i.e., the total claims to be paid through the plan exceed the value of the plan
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11 I glean this from the following facts: there is no proof of claim filed with respect to a
primary mortgage; there is no provision addressing it in the Plan; and it was not addressed in the
adversary proceeding discussed below.
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(the “Dismissal Motion”). 	However, the Dismissal Motion is based upon the Second
Amended Plan, which proposed to pay a secured claim by the City of Philadelphia.
Beginning with the Third Amended Plan, Miles has expressly stated that the City’s claim will
not be paid. Thus, the Dismissal Motion is clearly mooted by subsequent plan amendments.
B. Brian and Ann Beal
Like Miles, the Beals have proposed a Chapter 13 plan primarily to address mortgage
debt, in their case several secondary mortgages on their 	primary residence. 	It appears
that they are current on the primary mortgage, held by PNC Bank, N.A. (“PNC”).11 The Beal
Plan provides for payments to the Trustee totaling $10,518, from which they will cure
approximately $900 in arrears under their second mortgage with PNC securing a home
equity line of credit. Beal Plan ¶ 4-5. The Beals are making current payments under the
second mortgage directly to PNC. Schedule J. In addition to arrears on the second mortgage,
the Plan payments to the Trustee are allocated to a priority tax claim of $2,784, attorney’s
fees, and a pro rata distribution toward unsecured claims.
While direct payments to PNC on account of the current obligation under the second
mortgage are not objectionable to the Trustee, the Plan’s intention for the Debtor to pay PNC
directly on account of another mortgage obligation is. 	This payment arises from the
settlement of an adversary proceeding addressing Debtors’ third and fourth mortgages.
Stipulating that PNC has a fully secured third mortgage in the amount of $75,000 and a
totally undersecured fourth mortgage debt to be classified as a general unsecured claim of
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12 At the confirmation hearing, held the same day as the Miles confirmation hearing,
the Trustee’s staff attorney requested a continuance. There was no pending objection to the Beal
Plan, but in light of the Trustee’s position in Miles, the staff attorney wanted to reevaluate the
necessity of filing a like one. I denied the continuance request but allowed her to preserve an oral
objection and supplement it in writing based on the outcome of the reevaluation. A written objection
followed which, I note also raised other issues the Trustee had not raised at the confirmation hearing.
While the Court has always given considerable leeway to the Trustee with regard to filing written
objections to the many plans he reviews, the attempt to press objections not raised at the concluded
(continued...)
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$80,000, the parties agreed how this secured debt would be paid. Doc. No. 11, Beal v. PNC
Bank, N.A., Adv. No. 08-119 (the “Stipulation”). 	The Stipulation provides for monthly
payments of $632.89 for 180 months (15 years) to be made by the Debtors directly to PNC
on account of the third mortgage. Id. The Beal Plan was amended to reflect this settlement,
thereby reducing plan payments to the Trustee to $50 and releasing the balance of the
prior plan payment, i.e., approximately $600, to the Debtors for direct payment to PNC.
Unlike the Miles Plan, these direct payments to PNC for the third mortgage will not result
in a full cure at the end of the plan period. Rather, the Beals are commencing payments that
will go on for years after their Chapter 13 case is completed. PNC has no objection to the
Beals’ treatment of any of its loans. As stated below, in light of the historic policy in this
district regarding direct debtor disbursements of current obligations, it is not clear to me
why the Trustee finds this direct payment offensive.
As with the Miles case, the Trustee has a pending motion to dismiss based upon
feasibility. 	At the confirmation hearing, the Trustee’s staff attorney conceded that this
motion is moot in light of the settled adversary action and that the plan is feasible. The only
objection therefore raised by the Trustee is the Beals’ direct payments to PNC of the third
mortgage during the plan period.12
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(...continued)
confirmation hearing will not be allowed. While the Court has a sua sponte duty to ensure that all
requirements of confirmations are met, none of the issues newly raised by the Trustee have sufficient
support for me to deny confirmation on these grounds. Rather I will only consider the objection the
Trustee’s staff attorney preserved at the hearing, i.e., whether direct payments to the mortgagee are
permissible.
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DISCUSSION
The role of a Chapter 13 trustee as the dispersing agent of payments made under a
Chapter 13 plan has been universally recognized:
Chapter 13 is available to individuals who earn a regular income. 	Debtors
propose a plan by which they will repay some or all of their debts through
regular payments to a chapter 13 trustee. The trustee pays the sums collected
to creditors according to the plan for a period of up to five years. The trustee
is not involved in the daily lives of the debtors. 	He or she does not take
possession of debtors’ nonexempt assets or monitor ordinary course usage of
assets. The trustee does not receive any of the debtors' earnings except what
is paid to him or her as prescribed by the chapter 13 plan.
In re Griner, 240 B.R. 432, 436 (Bankr. S.D. Ala.1999). See also In re Richardson,283 B.R.
783, 800 (Bankr. D. Kan. 2002) (The role of the standing Chapter 13 trustee is . . . to receive
the projected disposable income and to disburse it to prepetition allowed claims according
to the terms of the plan); In re Bowker, 245 B.R. 192, 195 (Bankr D. N.J. 2000) (Basic role
of a Chapter 13 trustee is to review plans, advise the court with respect to plans, and act as
a disbursing agent under confirmed plans). The disbursing function is implicated by several
related provisions of the Bankruptcy Code:
“[T]he plan shall . . . provide for the submission of all or such portion of future
earnings or other future income of the debtor to the supervision and control
of the trustee as is necessary for the execution of the plan[.]” 	11 U.S.C.
§ 1322(a)(1) (emphasis added).
“Unless the court orders otherwise, the debtor shall commence making
payments not later than 30 days after the date of the filing of the plan or the
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order for relief, whichever is earlier, in the amount . . . proposed by the plan
to the trustee[.].” 11 U.S.C. § 1326(a)(1) (emphasis added).
If a plan is confirmed, the trustee shall distribute [plan payments] in
accordance with the plan as soon as practicable.” 11 U.S.C. § 1326(a)(2)
(emphasis added).
“Except as otherwise provided in the plan or in the order confirming the plan,
the trustee shall make payments to creditors under the plan.” 11 U.S.C.
§ 1326(c) (emphasis added).
Section 1326(c) has been interpreted to reflect the presumption that disbursement to
creditors be made by the Trustee. 	In re Sanford, 390B.R. 873, 878-79 (Bankr. E.D. Tex
2008); In re Vigil, 344 B.R. 624, 628-29 (Bankr. D. N.M. 2006); In re Burkhart, 90 B.R. 724,
725 (Bankr. N.D. Fla. 1988). Nonetheless, there is some flexibility for the bankruptcy court
to order otherwise. 	Indeed, the parties agree that a bankruptcy court has considerable
discretion to allow direct payments by the debtor to creditors under the plan. See e.g. Matter
of Aberegg, 961 F.2d 1307, 1308 (7th Cir. 1992); Matter of Foster, 670 F.2d 478, 486
(5th Cir. 1982). However, the debtor must present a valid reason for the deviation. In re
Barber, 191 B.R. 879, 885 (D. Kan. 1996); Sanford, 390 B.R. at 879; Vigil, 344 B.R. at 629.
In practice, the extent to which trustees and debtors handle disbursements under a
plan varies by district. In re Lopez, 372 B.R. 40, (9th Cir. BAP 2007) (discussing different
practices). In this district, a practice has developed of allowing a “bifurcation” of disbursing
agent roles where a chapter 13 debtor seeks to cure a prepetition default in accordance with
§ 1322(b)(5), typically seen in plans dealing with arrears in house and car payments. In such
instances, he or she will customarily pay the cure payments to the Trustee over the life of the
plan, while making his or her current postpetition payments, i.e., the payments required by
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13 In contrast, debtors in the Western District of Pennsylvania make all plan payments to the
Trustee, including current maintenance payments that will continue after discharge to the secured
creditor. There is a similar practice in the Southern District of Texas, which mandates by local rule
that current mortgage payments be paid to the Trustee during the course of a chapter 13 case. Perez
339 B.R. at 392.
14 To be sure, there is room for disagreement. Some courts view payment through the trustee
of both arrears and current mortgage payments as ensuring a successful chapter 13 case by debtors
(continued...)
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the “maintenance of payments” obligation under § 1322(b)(5) directly to the creditor.13
While this practice deprives the Trustee of commission income on these current payments,
prior to these contested matters the Trustee had not interposed an objection in any of the
cases before me on such grounds.
Several courts have articulated a logical basis for allowing debtors to make current
payments directly to secured creditors of long-term debt such as mortgages while paying
arrears through the trustee. These payments will continue long after the Chapter 13 plan has
expired. It is counterintuitive to have debtors make their regular mortgage payments to the
Chapter 13 trustee for the term of the plan and then change their practice again after the
case is completed. In re Burkhart, 90 B.R. at 726; In re Hines, 7 B.R. 415, 421 (Bankr. S.D.
1980). On the other hand, there are sound reasons to pay arrears through the trustee:
The debtor's ability to cure the default on a home mortgage is frequently the
heart of a Chapter 13 plan. 	The arrearage payments are temporary and
catch-up in nature, and they typically are accounted for separately by the
secured creditor. 	The trustee can disburse the arrearage payment without
interfering with the established debtor-creditor relationship, and, furthermore,
in so doing the trustee is thereby able to continue to monitor the debtor's
compliance with the plan.
Burkhart, 90 B.R. at 726; accord Matter of Aberegg, 961 F.2d 1307, 1309 (7th Cir.1992)
(citing Burkhart); In re Westpfahl, 168 B.R. 337, 362 (Bankr. C.D. Ill. 1994) (same).14
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(...continued)
who have already demonstrated a questionable ability to manage a budget on their own. See Perez,
339 B.R. at 390-91; In re Teagardener, 98 B.R. 318, 321 (Bankr. S.D. Ohio 1989). However, the
Trustee, who has never advocated such a policy for this district, did not argue that direct payments
to the Trustee would enhance the success of the Beal Plan.
15 Lundin opines that late payments as a result of trustee disbursements on a differing
schedule could could be viewed as an impermissible modification of the creditor’s rights, prohibited
by § 1322(b)(2). Id. at 59-15 to 59-16. See also In re Harris, 107 B.R. 204, 207 (Bankr. D. Nev.
1989) (so holding).
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This bifurcation of arrears and current payments between the trustee and debtor also
balances the rights of the secured creditor, who is entitled to timely maintenance payments
after a debtor enters into bankruptcy, 11 U.S.C. § 1322(b)(5). A secured creditor who will
have an ongoing contractual relationship with the debtor long after the bankruptcy benefits
from the continuity of payments resulting from having the same disbursing agent both during
the bankruptcy and after. Indeed, “[b]ecause Chapter 13 trustees typically disburse money
to creditors once a month, it is unlikely that the regular monthly disbursement . . . will satisfy
every Chapter 13 debtor’s contractual obligation to make mortgage payments by a certain
date each month,” perhaps even resulting in late fees and charges. 	1 Keith M. Lundin,
Chapter 13 Bankruptcy § 59.1, 59-16 to 59-17 (3d ed. 2000 & Supp. 2004). 15 At least one
court has found such a practice further bolstered by recent amendments under the Bankruptcy
Abuse Prevention and Consumer Protection Act (“BAPCPA”). In In re Clay, 339 B.R. 784
(Bankr. D. Utah 2006), the court analyzed § 1325(a)(1)(C), which requires a debtor, within
thirty days of filing a case, to commence adequate protection payments “directly to a creditor
holding an allowed claim secured by personal property to the extent the claim is attributable
to the purchase of such property . . .” The court noted: “It would seem an awkward result
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if the debtor could make payments directly to secured creditors before plan confirmation
but never make such payments after confirmation.” Id. at 788.
Thus, the issue before me is not whether a debtor can make direct payments to his or
her creditors as this is already a Trustee-sanctioned practice in this district under the
foregoing scenario, but rather “setting proper boundaries to the power.” In re Lopez, 372
B.R. 40, 46 (9th Cir. BAP 2007). While I am hard pressed to understand the basis for the
Trustee’s opposition to the Beals’ Plan where current payments of a modified long-term
mortgage are proposed to be paid directly by the Beals, the Miles Plan appears to test the
limits of that power by proposing that the sole claim, a secured judgment, be paid directly
by the Debtor, leaving no remaining role for the Trustee in the implementation and
administration of the Chapter 13 case.
My evaluation of the two plans being challenged by the Trustee is informed by the
many decisions which have identified various factors to determine whether to allow debtors
to make direct payments. Relevant considerations are (1) the ability of the trustee and the
court to monitor future direct payments; (2) the potential burden on the trustee; (3) the
possible effect upon the trustee’s salary or funding the U.S. Trustee system; (4) the potential
for abuse of the bankruptcy system; (5) the number of payments proposed to pay the targeted
claim; (6) the plan treatment of each creditor to which a direct payment is proposed to be
made; (7) the consent, or lack thereof, by the affected creditor to the proposed plan treatment;
(8) the ability of the debtor to reorganize absent direct payments; and (9) the good faith of
the debtor in proposing direct payments. Perez, 339 B.R. at 409 (citing twenty-one factors
culled from various cases); In re Pianowski, 92 B.R. 225, 233-34 (Bankr. W.D. Mich.1988)
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16 In Sauer I denied confirmation on the basis that the plan terms at issue were internally
inconsistent. Id. at *2. Thus, I did not have to address whether or to what degree direct payment
by a debtor is a allowable.
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(enumerating thirteen factors)); In re Bettger, 105 B.R. 607, 609 (Bankr. D. Or.1989)
(reducing the Pianowski factors to eight).
The Trustee’s objection is driven in part by the third factor, i.e., a concern that the
direct payment approach will jeopardize the vitality of the Chapter 13 program, which is
funded solely from commissions based on amounts received by debtors. The Trustee argues
that his office would suffer if all plans proposed direct payments to secured creditors and the
Trustee lost the income represented by commissions on those payments. 	Chapter 13
Standing Trustee’s Brief (“Trustee Brief.” at 2) (citing 1 Keith M. Lundin, Chapter 13
Bankruptcy § 59.1, at 59-2 to 59-3 (3d ed. 2000 & Supp. 2004)). Indeed there appears to be
a consensus that it is improper to allow debtors to make direct payments solely to avoid
paying the trustee’s commission. In re Sauer 2004 WL 1043150, *2 n.7 (Bankr. E.D. Pa.
2004).16 See also; In re Reid, 179 B.R. 504, 508-09 (E.D. Tex.1995); Perez, 339 B.R. at 409;
In re Generous, 137 B.R. at 411, 413 (Bankr. W.D. Wash. 1992). See also In re Vigil, 344
B.R. at 628 (noting that the trustee system was envisioned by Congress as a self-funding
program, citing 28 U.S.C. § 586(e)).
The Trustee suggests that allowing direct payment in these cases is heading down
the proverbial “slippery slope.” Presumably taken to its inevitable conclusion, debtors will
seek to avoid commissions to gain confirmation of underfunded plans which in turn will
jeopardize the financial stability of the program. 	The concern is a valid one. 	What the
Trustee does not address is how to reconcile the direct payments he routinely allows debtors
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to make, i.e., current post-petition mortgage payments, with the direct payments proposed
by Miles and Beal. If the Objection represents a change in the Trustee’s policy, he needs to
be more explicit. 	Since he has not stated as much, I must assume that in the Trustee’s
opinion, there is something about these challenged Plans that has crossed the permissible
boundaries of direct debtor disbursement. I will consider whether that is so with respect to
each Plan next.
The Miles Plan
As noted, the Miles Plan does not propose to cure mortgage arrears while
maintaining current mortgage payments that will extend beyond the plan period, the type
of plan where the Trustee has historically conceded direct monthly payments made to the
mortgagee. Instead, Miles has determined to pay the foreclosure judgment and is using the
extended time that a chapter 13 bankruptcy allows to pay that obligation in full. 11 U.S.C.
1322(b)(3). 	See also In re Iberia, 235 B.R. 204, 209 (Bankr. D. Puerto Rico1999) (noting
that § 1322(b)(3) allows a debtor to cure any default over the life of a plan). The payments
that Miles proposes making directly to Countrywide are payments not available to her under
the terms of her mortgage and they must be completed by the end of her Plan. Indeed these
proposed debtor disbursements of a final judgment are more akin to the arrearage portion
in a cure plan that is typically paid to and administered by the Trustee.
The Trustee also raises concerns under factors one and two, i.e., the ability of the
Trustee and burdens placed on his office by direct debtor payment. 	Trustee’s Brief at 4.
Given that it is the Trustee’s duty to supervise execution of the plan and insure payments
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are made under the plan, the Court should accord appropriate deference to the Trustee’s
judgment that he can more easily monitor a debtor’s compliance by requiring payments be
made through him. In re Case, 11 B.R. 843, 846 (Bankr. D. Utah 1981). Miles counters that
her payments are being made by her employer pursuant to a wage order, and that the Trustee
can verify payments by inquiry of the employer. However, it seems onerous to place a duty
upon the Trustee to make such inquiries, especially when he receives no compensation for
this new task.
While arguably Countrywide is in the best position to monitor plan compliance as the
recipient of the payments, it strongly opposes payment other than through the Trustee.
The creditor’s position is a relevant factor to consider. Perez, 339 B.R. at 409. “[A] creditor
should have the right to insure protection of its interests under the plan by refusing to deal
further directly with the debtor with whom it may have experienced problems in the past.”
Case, 11 B.R. 843 at 846. However, Countrywide correctly notes that Mrs. Beal’s employer
is not a party to this proceeding and has no fiduciary obligations. If her employer fails to
remit payment, Countrywide and/or the Trustee would have no recourse save costly
litigation. A similar concern was raised by the Perez court:
Weyerhaeuser [debtor’s employer], unlike the trustee, is not bonded and is not
in the business of acting as a disbursing agent and keeping records of such
payments. 	Hence, if Weyerhaeuser ever failed to remit a payment to the
mortgagee, neither the mortgagee nor the trustee would have any recourse
against Weyerhaeuser; or, if they did, such recourse would be in the form of
a lawsuit, which requires time and money. Permitting Mr. Friar' employer to
make the Debtors' home mortgage payments would severely compromise the
ability of the trustee and the Court to monitor the payments.
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17 A Chapter 13 trustee must file a bond with the court and therefore provides debtors with
a remedy in the event that the trustee breaches his duties. 11 U.S.C. § 322.
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339 B.R. at 411.17
Given the history between Countrywide and Miles, I can appreciate that Countrywide
would welcome the Trustee’s support in the event of a plan default. Seemingly a motion to
dismiss for missed plan payments made by the Trustee and joined in by Countrywide would
cost Countrywide less and perhaps have a better chance of success. 	It also may be that
Countrywide’s objection is driven by a recognition that the extra commission expense
may put confirmation beyond Miles’ reach. Countrywide cannot welcome a further deferral
of repayment after the delay it has been subjected to in five bankruptcy cases. Countrywide’s
position may also be colored by Miles’ failure to live up to her bargain to pay its arrears
proof of claim and maintain current payments that was, at least in its view, the quid pro quo,
of its consent to a fifth case.
I must also consider Miles’ good faith in proposing a disbursement scheme opposed
by both the Trustee and Countrywide. Perez, 339 B.R. at 409. While Miles’ switch to a
full-payment plan was not prohibited, it was certainly not contemplated by the parties
when they reached their Stipulation to allow her to refile. Countrywide never envisioned
having to bear the post-judgment expenses that would have been reimbursable under the
terms of a reinstated mortgage. 	Clearly Miles would have had to pay those sums to
Countrywide under an arrears plan but has taken advantage of the uniquely bankruptcy
benefit of paying the full balance over five years to reduce this amount. Having received
the advantages of bankruptcy law, it is rather brazen of her to urge an accommodation to
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allow a direct payment of the full mortgage balance claiming that she cannot afford the
Trustee commission.
Miles argues that the most significant consideration is “the ability of the debtor
to reorganize absent direct payments,” which is also a factor that courts have considered.
Miles Memorandum of Law at 5; Perez 339 B.R. at 409. 	She calculates that paying
Countrywide’s claim through the Trustee, and the resulting commission, would require
monthly payments of $2,074, which is $150 more than the $1,924 payment Miles proposes
to pay in her Seventh Amended Plan. Debtor asserts that this higher payment is impossible
for her.
As an initial matter, Miles’ position is fraught with the potential for abuse, another
important consideration to be weighed by the Court. Id. Presumably debtors could easily
take a liberal view of their expenses that would reduce available income to fund the plan
just short of the amount necessary to pay required claims and the Trustee’s commissions.
Accepting Miles’ justification for circumventing the Trustee commission would be a
disincentive for debtors to maximize funds available for the Chapter 13 plan through
conservative budgeting. 	Thus, it seems to me that any such claim by a debtor must be
carefully scrutinized.
Miles did not make an evidentiary record, leaving the Court with only her schedules
to confirm her claim that payment of the trustee commission is the sole impediment to a
confirmable plan. However, and somewhat ironically, Schedules I and J indicate that she
cannot even afford the payments she is currently making. Miles receives $2,091 in net pay
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18 Schedule J actually has expenses totaling $2,912, but this includes $682 toward her
mortgage payment. Since Miles is not reinstating her mortgage, this monthly payment must be
subtracted from Schedule J.
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from her employer, which combined with her husband’s monthly income of $1,728, totals
$3,819. 	Schedule I. 	Subtracting the $2,330 in monthly expenses for a family of five,
Miles has $1,589 available in net income to fund her plan. 18 Schedule J. Despite this she
is currently making plan payments under a wage order in the amount of $1,875 ($276 in
excess of available income) and proposes to increase this amount to $1,924 ($335 in excess
of available income). Seventh Amended Plan. Miles did not testify or provide any other
evidence as to her ability to make the increased payments. 	Thus, I simply cannot find
credible Miles’ plea that the Trustee’s commission will make or break her case, when it
is clear that her schedules have no basis in reality. 	It is the debtor’s burden to establish
that her plan meets all the confirmation requirements, including plan feasibility. 11 U.S.C.
§ 1325(a)(6). Since I cannot determine how she is making her current plan payments and
supporting herself and family with this monthly deficit, how can I determine whether an
additional $150 per month would doom her reorganization? 	Rather I agree with the
Trustee that Miles has not established that her Seventh Amended Plan is feasible without
regard to the Trustee commission that would be required if Countrywide was paid through
the Trustee and not directly as Miles proposes.
Seemingly, the foregoing conclusion regarding feasibility precludes confirmation of
the Seventh Amendment Plan. However, in fairness to all parties given the possibility that
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Debtor would file yet an Eighth Amended Plan or seek reconsideration of this decision based
on some “changed circumstance” fashioned as newly discovered evidence, my alternate
holding is that the Seventh Amended Plan is not confirmable due to its provision to cease
future payments to the Trustee and pay the judgment claim directly to Countrywide.
As the Trustee has not sought dismissal based upon Miles’ alleged inability to fund
her plan, I will merely deny confirmation at this juncture. Presumably the Trustee will file
a new dismissal motion. 	If Debtor has the resources to fund a further amended plan that
pays Countrywide and the Trustee’s commission, she will be put to her proof at that time
or suffer dismissal of this case.
The Beal Plan
Unlike Miles who has availed herself of a uniquely bankruptcy payment provision,
the 	Beals 	have 	simply 	entered 	into 	a 	modified 	and 	restated 	mortgage 	contract.
Through settlement of the adversary proceeding, the Beals have effectively negotiated
a new 15-year loan secured by the third mortgage, whose payments commence during the
plan period. 	The $632.89 payments they wish to pay directly to PNC represent current
payments owed under this new contract memorialized in the Stipulation. These payments
will continue for a decade beyond the plan term. 	They are no different than the current
mortgage payments typically made directly by debtors to mortgagees or from the payments
the Beals are making on their first mortgage. As noted above, the Trustee historically has
permitted debtors to make current mortgage payments directly to their mortgage holders.
He has not explained why the Beal Plan should be treated differently.
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In re Vanessa Miles - Bankruptcy No. 07-14495DWS
In re Brian V. & Ann E. Beal - Bankruptcy No. 08-10357DWS
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Moreover, unlike the Miles Plan, direct payment to PNC will not leave the Trustee
without any duties in this Chapter 13 case. Under the Beal Plan, the Trustee will receive plan
payments from the Debtors necessary to make distributions to PNC on account of the arrears
on the second mortgage as well as pay priority claims and make a pro rata distribution to
allowed unsecured claims. Finally and in contrast to Countrywide, PNC, who will continue
to have an ongoing creditor-debtor relationship with the Beals beyond this bankruptcy case,
has not objected to direct payment. 	Under these circumstances, I see no reason for the
PNC payments pursuant to the Stipulation to be made to the Trustee. 	The Trustee’s
Objection to paragraph 3 of the Miles Plan that provides otherwise is overruled and
confirmation is granted.
Orders consistent with the foregoing Memorandum Opinion shall be entered in
each case.
DIANE WEISS SIGMUND
United States Bankruptcy Judge
Dated: April 7, 2009
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