Pursuant to 11 U.S.C. § 1322(b)(2), a Chapter 13 bankruptcy plan cannot modify the rights of a secured creditor whose claim is only secured by an “interest in real property that is the debtor’s principal residence.”  On December 6, the Eleventh Circuit held that this provision prevents the discharge of a mortgage in a Chapter 13 bankruptcy, regardless of whether the plan “provided for” the mortgage or whether the mortgagee filed a proof of claim.  The case is In re Dukes, No. 16-16513, 2018 WL 6367176 (11th Cir. Dec. 6, 2018). 

Factual Background 

In 2009, Mildred Dukes filed for Chapter 13 bankruptcy.  Her plan listed a first and second mortgage on her primary residence—both held by Suncoast Credit Union—and provided that payments would be made directly to Suncoast.  Suncoast filed a proof of claim for the second mortgage, but not the first.  Shortly after Dukes filed the plan, she requested and received permission to pay make her mortgage payments directly.  The bankruptcy court confirmed Dukes’ plan and, after she timely made all her payments under the plan, discharged “all debts provided for by the plan.” 

While the bankruptcy was ongoing, Dukes defaulted on her mortgages and, in 2013, Suncoast foreclosed under the second mortgage.  The credit union then sought a personal judgment against Dukes on the first mortgage.  To do so, Suncoast commenced an adversary proceeding in the bankruptcy case, seeking a determination that Dukes’ personal liability on the first mortgage had not been discharged. 

Chapter 13’s Antimodification Provision 

The bankruptcy court held that the mortgages were not discharged because they were not “provided for” by the plan and that, in any event, Suncoast’s right to a deficiency judgment could not be modified due to § 1322(b)(2).  After an unsuccessful appeal to the district court, Dukes took her case to the Eleventh Circuit. 

But the Eleventh Circuit affirmed, holding that there could “be no discharge of the mortgage given the antimodification provision in §1322(b)(2).” While the credit union did not object to the bankruptcy plan, this was not evidence that it consented to a modification of its rights “because the plan did not contain any modification that would be objectionable.”  Under the plan, the rights and obligations of both Dukes and Suncoast “remained solely governed by the original loan documents.” 

Dukes’ argument that the bankruptcy discharged her personal liability was likewise unpersuasive. Because state law allowed Suncoast to pursue a deficiency judgment against Dukes, any modification of that right would be prohibited by § 1322(b)(2). Likewise, the fact that it did not file a proof of claim for the first mortgage did not bar it from recovering, even though 11 U.S.C. § 502(b)(9) generally disallows claims that are not timely filed. Again, the antimodification provision in § 1322(b)(2) prevented such a modification of the credit union’s rights. 

Whether the Mortgages were “Provided For”

Judges Julie Carnes and Anne Conway went further, holding that the mortgages were not discharged because Dukes’ bankruptcy plan did not “provide for” them.  Drawing on the Supreme Court’s decision in Rake v. Wade, 508 U.S. 464 (1993), they held that a debt is not discharged if the Chapter 13 bankruptcy plan does “nothing more than mention” the debt. 

Because Dukes’ mortgages “remained governed solely by the original loan documents,” her Chapter 13 plan did not put Suncoast on notice that the plan might modify its rights. To the extent that Dukes’ plan was ambiguous as to whether it “provided for” the mortgages, Dukes, as the drafter of the plan, had to “pay the price.”