Keri Ebeck, Esq.
Partner at Bernstein-Burkley, P.C.
On December 22, 2020, Congress passed the Consolidated Appropriations Act, 2021 (“CAA”), which was signed into law by the President on December 27, 2020.
The CAA specifically amends §1328 and adds section (i). The amendment now allows the Bankruptcy Court to grant a Chapter 13 discharge of debts under subsection (a) to a debtor who has not completed payments to the trustee or a creditor holding a security interest in the principal residence of the debtor if-
- (1) the debtor defaults on not more than 3 monthly payments due on a residential mortgage under section 1322(b)(5) on or after March 13, 2020, to the trustee or creditor caused by a material financial hardship due, directly or indirectly, by the coronavirus disease 2019 (COVID–19) pandemic; or
- (2)(A) the plan provides for the curing of a default and maintenance of payments on a residential mortgage under section 1322(b)(5); and
(B) the debtor has entered into a forbearance agreement or loan modification agreement with the holder or servicer (as defined in section 6(i) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605(i)) of the mortgage described in subparagraph (A).
There is not a lot of guidance from the legislation regarding how a debtor would seek to receive this early discharge. Under the amendment, there is no specific language that the residential mortgage must be the primary residence, so does this include a second residence? Also, there is anticipated litigation on what is “directly or indirectly” caused by the coronavirus.
From paragraph (2), this does not include residential mortgages that will mature during the life of the bankruptcy. This would only include a plan that provides for long-term continuing debt of a residential mortgage. Additionally, there is no specific timeframe as to when the debtor has to have entered into a forbearance agreement or loan modification. This could very well be pre-bankruptcy filing. The amendment as a whole leaves some questions and issues for the courts to interpret if a debtor seeks an early discharge under the Section.
If you are a mortgage servicer or creditor and have a debtor seeking an early discharge, it is imperative to make certain your rights are protected.