The local bankruptcy rules and model Chapter 13 plan of the Southern District of Indiana will be changing effective January 24th, 2022. Unless otherwise noted, the changes affect existing cases filed prior to January 24th, 2022 as well as cases filed after that date.
Local Rule Changes
B-3015-1(d) – The court removed projected escrow shortages from the definition of pre-petition arrearages. This is a new rule. It supersedes and modifies the previous rule that did not except escrow shortages from prepetition arrears. The previous rule (d) caused loans with escrow shortages to be trustee pay even though the debtor was current at filing with payments to the creditor. This rule should eliminate some claim objections and reduce costs for mortgage creditors associated with defending their claims, amending their claims to remove escrow shortages, or both.
B-3015-1(e) – (Previously Rule B-3015(d)) – The court replaced this rule to permit a Debtor to have only one pre-petition mortgage payment in arrears on the principal residence and still be permitted to make mortgage payments directly, as opposed to being required to make conduit mortgage payments. Payments made by the Trustee to the mortgage creditor shall include ongoing postpetition mortgage installments, prepetition arrearage, and any uncontested or allowed postpetition costs, fees, and charges asserted by the mortgage creditor. The Trustee is also required to notify the Debtor 30 days before the Debtor is obligated to resume direct mortgage payments. The 30-day notice requirement is new, and is designed to ensure the Debtor knows when to resume making mortgage payments directly to the lender/servicer. The previous version of this rule required any residential real estate loan to be paid on a conduit basis in the event there was a pre-petition arrearage, and made no reference to the payment of post-petition costs, fees and charges.
Paragraph 7 Mortgage Debt: The court revised paragraph 7, which pertains to residential real estate to require Creditors to return escrow surpluses to the Ch. 13 trustee. The plan now reads:
7(d) Escrow Surplus: An escrow surplus arising as to a mortgage paid by the Trustee shall be returned to the Trustee by the mortgage lender or servicer within 30 days of the completion of an annual escrow analysis or other review that determines a surplus. The Trustee shall file and serve on the Debtor and claimants a Notice of Proposed Distribution of the escrow surplus, provide a 30-day Objection Notice and file a Certificate of Service. If no response is timely filed, the Trustee may treat the escrow surplus as set forth in the Notice of Proposed Distribution.
Thus, if the post-petition mortgage payments are being made by the trustee and an escrow surplus arises during the plan term, that surplus must be sent to the trustee, not the Debtor. The rule is silent as to whether the term “surplus” refers to the definition contained in RESPA that uses contractual currentness to require a refund where the surplus is >$50, or whether “surplus” refers to loans that are not contractually current (have arrearages) but are current postpetition.
Paragraph 8: The court reworded paragraph 8 to add more specificity to the treatment of non-residential real property and claims secured with personal property. Under the new wording, it is now clear that Debtors are not required to make conduit mortgage payments on non-residential real property (see paragraph 8(d)), but are not prohibited from doing so. It is likely that several of the trustees in southern Indiana may require conduit payments on loans in arrears at the time of bankruptcy filing.
This publication is for informational purposes only and does not constitute an opinion of Manley Deas Kochalski LLC.
Do not rely on this publication without seeking legal counsel.