Summary of a Recent
Judicial
Development in
Bankruptcy
Debtor May Make Direct Disbursement
of Post-Petition Payments
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Lopez, 350 B.R. 868 (Bankr. D. Cal. 2006), aff'd, 372 B.R. 40 (B.A.P. 9th Cir. 2007), the Ninth Circuit Bankruptcy Appellate Panel affirmed the ruling of the district bankruptcy court that a Chapter 13 debtor could act as the disbursing agent for payments made on long-term mortgage or deed of trust debt, and changes to the Bankruptcy Code made by the Bankruptcy Abuse Prevention and Consumer Protection Act did not affect a debtor's right to make direct disbursements.
Background
The debtor, Lopez, had a Chapter 13 plan allowing him to make postpetition maintenance payments on his mortgages directly to his creditors, and pay his prepetition arrears on those same notes via the trustee. Id. at 42. The trustee objected to the direct payment provisions, but the bankruptcy court overruled his objection and confirmed Lopez's plan. Id. at 43.
Arguments
The Trustee argued that Lopez should pay all amounts to the Trustee under the plan, and that he should then disburse those amounts to the creditors, because the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) only allows direct disbursement in two situations, both involving only debts on personal property. Id. at 50.
Lopez argued that the language of § 1326(c) of the Bankruptcy Code, "except as otherwise provided in the plan," indicated that there were other exceptions that would allow him to make maintenance payments directly to his creditors. Id. at 42-43.
Analysis and Holdings
The Trustee relied on dicta from Fulkrod v. Savage, 973 F.2d 801 (9th Cir.1992), in which the Ninth Circuit stated, "[a]lthough the BAP hinted that Chapter 12 might permit a debtor to make direct payments to impaired creditors without trustee compensation in certain limited circumstances, that statement is neither necessary to its decision nor supported by statute." Id. at 45. The panel determined that language may be persuasive, but was neither "binding nor determinative," because it technically applies only to Chapter 12 plans. Id. The power to make payments in Chapter 13 directly to creditors has never been in doubt. Id. at 46. The Trustee's argument that BAPCPA only allows direct disbursement for debts of personal property failed because the court noted that § 1326(c) of the Bankruptcy Code provided "[e]xcept as otherwise provided in the plan . . . the trustee shall make payments to creditors under the plan." Id. at 52. Based on the language "except as otherwise provided" and because other case law supported the debtor's position, the panel concluded that nothing under BAPCPA had changed the preexisting law, which permitted the debtor to designate himself as disbursing agent on current mortgage payments even where arrearages are paid through the Trustee. Id. at 53-54. The panel affirmed the decision of the bankruptcy court confirming Lopez's Chapter 13 plan. Id. at 56.
The case was decided on October 4, 2006, affirmed August 3, 2007.