Discharge Issues: Practice Tips and “OMG!” Lessons from the 2016 NACTT Annual Conference

I’m sharing a few practice tips and “OMG!” lessons we picked up at the NACTT Annual Conference last week in Philadelphia.  This post is on two important case decisions affecting the debtor’s chapter 13 discharge (both warranted “OMG!” reactions from my staff attorneys and I).

1. OMG!: The discharge injunction does not prevent the collection of a DSO claim that was disallowed by the bankruptcy court, which had sustained the debtor’s objection to a portion of the DSO claim, per a recent decision of the 8th Cir. BAP.
   • The court held that a DSO claim is nondischargeable in chapter 13, whether or not the claim is allowed or disallowed.
   • Even though the debtor paid the allowed DSO claim in full through the plan and received a discharge, the child support enforcement agency did not violate the discharge injunction by garnishing the debtor’s wages for the disallowed portion of the claim.
2. OMG!: A debtor who is making mortgage payments directly (“outside” the plan) and who is delinquent in those postpetition mortgage payments at the end of the chapter 13 case is not entitled to receive a discharge of any debts because the debtor has not completed all payments under the plan as required by section 1328, per a recent decision of the Fifth Circuit Court of Appeals.
   • The issue arises when the mortgage lender files its Response to the trustee’s Notice of Final Cure under Bankruptcy Rule 3002.1(f) and (g). If there is an unpaid postpetition amount reported in the creditor’s response, courts so far have unanimously ruled that the debtor gets NO DISCHARGE AT ALL.  Scary stuff.
   • Debtors’ attorneys need to counsel their clients on the risks of not making postpetition mortgage payments.
   • Don’t assume you’ll find out about a postpetition mortgage arrearage before the end of the case from a creditor’s motion for relief from stay; many creditors are choosing not to seek stay relief during the case.
   • One speaker suggested that debtors’ attorneys might want to send annual Requests for Information under RESPA on behalf of their clients to find out if the debtors are postpetition delinquent so the issue can be dealt with before the end of the case. (Sounds onerous to me).
   • Is the only real solution conduit mortgage payments through the trustee?

Stay tuned for more practice tips and OMG! lessons from the NACTT annual conference, and mark your calendars for July 12-15, 2017, for the next NACTT annual conference in Seattle, WA.