United States District Court, E.D. Michigan, Northern Division
IN RE CRAIG W. MAIKE, Debtor.
CRAIG W. MAIKE, Debtor Consol Appellant, THOMAS W. McDONALD, JR., Chapter 13 Trustee, Appellant,
UNITED FINANCIAL CREDIT UNION, Appellee.
OPINION AND ORDER AFFIRMING ORDER OF THE BANKRUPTCY
L. LUDINGTON, United States District Judge
consolidated bankruptcy appeal was initiated by Debtor Craig
Maike and Chapter 13 Bankruptcy Trustee Thomas W. McDonald
(together “Appellants”). The bankruptcy
proceeding at issue was the subject of a previous appeal to
this Court by Appellee United Financial Credit Union
(“UFCU”) on September 9, 2015. See in re
Maike, Case No. 15-cv-13176 (Sept. 9, 2015) (hereinafter
Maike I). That appeal was addressed by an opinion
dated April 7, 2016. The Court held that 11 U.S.C. §
1322(b)(5) does not allow the plan itself to create defaults
at the expense of the protected homestead mortgagee in order
to accrue funds for the administrative expense of the
remand, on January 11, 2017, Appellants initiated separate
appeals from a bankruptcy court order denying the
Trustee's motion to alter or amend judgment or for
reconsideration. In essence, Appellants argue that by
ordering the Debtor's attorney to remit $623.63 to the
Trustee in order to pay Appellee UFCU, the bankruptcy court
misconstrued this Court's previous order and unfairly
enriched the mortgagee at the expense of the Debtor's
Attorney by requiring Debtor Maike to pay two “gap
payments” to the homestead mortgagee for the months of
March and April of 2015 upon confirmation of the revised
plan. The appeals were consolidated on March 10, 2017.
See ECF No. 5. For the reasons stated below, the
order of the bankruptcy court will be affirmed.
Maike entered into a note and mortgage agreement with
Appellant UFCU on March 2, 2007. Pursuant to that agreement,
UFCU lent Maike $62, 000, for which UFCU received a security
interest in Maike's primary residence and the right to
receive interest at the rate of 8.0 percent on any unpaid
balance. The parties agreed that Maike would make monthly
payments in the amount of $454.93. If Maike failed to make
such payments as due, he would be in default. UFCU would then
have the option to provide Maike notice that failure to
correct his default within 30-days would result in
acceleration of the balance due on the note.
Maike was struggling to make his monthly mortgage payments.
Accordingly, on January 24, 2014 Maike and UCFU entered into
an agreement modifying the original note. Under the
amendment, the monthly principal and interest payment was
reduced from $454.93 to $367.36, beginning on February 2,
2014. BR. 25. The parties agreed that Maike was relieved from
making the December 2, 2013 and January 2, 2014 payments.
Id. The parties also agreed to a reduction of the
interest rate from 8.0 percent to 5.375 percent, and UFCU
agreed to forgive the past due interest amount of $445.30.
Id. As part of the amendment, Maike acknowledged
that as of January 24, 2014 he still owed a principal balance
in the amount of $59, 754.80. The modification agreement only
addressed Maike's default, and did not otherwise affect
either party's rights prospectively under the loan
February 10, 2015, after again falling behind in his mortgage
payments in the amount of $2, 515.90, Maike sought Chapter 13
Bankruptcy protection in the Eastern District of Michigan.
Maike then filed his proposed Chapter 13 Bankruptcy plan on
February 14, 2015 based on the Eastern District of Michigan
model Chapter 13 plan. Maike's proposed plan called for
making payments into the plan in the amount of $660.00 per
month. Pursuant to the model plan, he proposed paying his
attorney fees in full, in the amount of $2, 910, before
beginning monthly payments in the amount of $510.00 to UFCU.
UFCU filed an objection to Maike's plan on April 14,
2015, arguing that the plan impermissibly altered its rights
to receive payments each month during the pendency of the
plan under 11 U.S.C. §§ 1322(b)(2) and 1322(b)(5).
initial confirmation hearing took place on April 23, 2015. At
the hearing, UFCU argued that by allocating all of the plan
payments to Maike's attorney's fees prior to payment
to UFCU, the plan impermissibly created a post-petition
default of Maike's mortgage obligations and altered
UFCU's right to receive payments each month in violation
of § 1322(b)(2). Maike disagreed, arguing that his
attorney fees should be paid first as a priority
administrative expense. The Trustee agreed with Maike.
Problematically, on that date the Trustee had not received
sufficient funds from Maike to pay Maike's attorney, and
the bankruptcy court was hesitant to confirm the plan before
the plan had accumulated enough funds both to pay Maike's
attorney in full and to commence monthly payments to UFCU,
the homestead mortgagee. At the urging of the Trustee, the
bankruptcy court therefore decided to adjourn the
confirmation hearing until the Trustee had sufficient funds
to pay Maike's attorney in full and begin monthly
payments to UFCU, which the bankruptcy court calculated to be
in late July.
adjournment of the confirmation hearing, on May 21, 2015 UFCU
filed a motion to compel payments under § 1322(b)(2).
Reiterating its objections from the April 23, 2015 hearing,
UFCU argued that “§1322(b)(2) and §1322(b)(5)
act in concert to require regular contractual payments on a
mortgage claim during the pendency of the bankruptcy case
when a debtor chooses to treat the mortgage claim pursuant to
§1322(b)(5).” At a motion hearing held on July 9,
2015, the bankruptcy court declined to order payments or lift
the automatic stay, and reaffirmed its decision to adjourn
the confirmation hearing to a time when the Trustee had
sufficient funds to pay Maike's attorney in full and
begin monthly payments to UFCU. The confirmation hearing was
later adjourned to August 20, 2015.
time of the August confirmation hearing, the Trustee reported
to the bankruptcy court that he had received $3, 144.90. Of
that, he proposed to pay $2, 910 towards Maike's attorney
fees under the plan. BR. 182. This left $234.90 available to
begin payments to UFCU. This was short of the $503.18 that
UFCU was ultimately to receive under the plan each month. At
the hearing, UFCU informed the bankruptcy court that because
it had not received payments since Maike's initial
Chapter 13 filing in February, it was owed an additional $3,
019.18 in post-petition arrearage. It also renewed its
objections under §1322(b)(2) and §1322(b)(5). The
bankruptcy court took the matter under advisement.
September 3, 2015, the bankruptcy court issued its opinion
overruling UFCU's objections. The court concluded that
under the plan UFCU would receive its contractual payment of
$503.18 each month, that its post-petition arrearage of $3,
522.26 would take 28 months to cure, and that its prepetition
arrearage of $2, 515.90 would then take 20 additional months
to cure. The total arrearage owed to UFCU would therefore be
cured within the 60 months required under Chapter 13. On
September 4, 2015 the bankruptcy court issued an order
confirming Maike's Chapter 13 plan. The trustee was
ordered to pay Maike's attorney in full and commence
monthly payments to UFCU. UFCU then filed a notice of appeal
on September 9, 2015. See Maike I, Case No.
15-cv-13176 (Sept. 9, 2015).
Maike I, UFCU argued that its rights under 11 U.S.C.
§ 1322(b)(2) as the holder of the security interest in
Maike's principal residence were violated when the
bankruptcy court delayed confirmation of Debtor Maike's
Chapter 13 Bankruptcy Plan for over four months in order to
accrue cash to pay Maike's attorney. Maike disagreed,
arguing that the plan reasonably cured his pre-petition and
post-petition defaults, and provided payments to UFCU in
accordance with 11 U.S.C. § 1322(b)(5). Maike further
argued that lump-sum priority payment to his attorney was
proper under 11 ...