Chapter 13 Defaults and Second Chances

If you’re the “TL;DR” type – skip ahead to the bottom of this post – that what’s written in red.  Because this post contains very important information.
For anyone who has ever filed a Chapter 13 Bankruptcy case, there is an obligation to make monthly plan payments to the Chapter 13 Trustee, who – in turn – makes distributions to certain creditors (read more here on what gets paid and what doesn’t get paid in Chapter 13).
Homeowners in Chapter 13 also have an additional duty to make monthly mortgage payments (unless they are surrendering their home or if their future payments are being paid through the bankruptcy (known as a conduit mortgage provision).
A default on either one of these payments will eventually trigger a motion – a motion to dismiss the bankruptcy case, in the event of a default on plan payments, or a motion for relief from stay, in the event of a default on mortgage payments.
For as long as I can remember, conventional wisdom has been that either type of default can be resolved with an objection and the almost certain guarantee that the debtor would be given a second (or third or fourth) chance under what we call a doomsday provision.  A doomsday provision is a period of time (usually 6 months) during which all plan or mortgage payments must be made, and that there are no second chances in the event of a default during the doomsday provision.  Also, plan payments would often have to increase to either accommodate a supplemental claim for the defaulted mortgage payments or to otherwise get the debtor caught up on missing plan payments.
But that conventional wisdom seems to be changing – at least with one judge.  While waiting my turn for a telephonic confirmation hearing several days ago, I was able to listen in on several hearings regarding motions to lift the automatic stay (debtors who had defaulted on their mortgage payments).  From just the handful of hearings I was able to observe, it seemed clear that the judge was no longer willing to hand out doomsday provisions and “second chances” that we had become so accustomed to  and taken for granted in the past.
This is not to say that a motion for relief from stay cannot be defeated.  But it seems that the standard for getting that second chance has been raised significantly.
If I were to summarize and characterize a new doctrine based on the hearings I observed – I would say that motions for relief from stay will be granted unless the debtor can demonstrate a good faith effort to make mortgage payments and remain current on those payments.  Cases in which no mortgage payments have been made since the inception of the bankruptcy case and cases where no mortgage payments have been made in a long time may now be far more susceptible to having the stay lifted, even if an objection is timely filed.
The obvious disclaimer here is that this is an observation based on a handful of hearings in front of a single judge and on a particular type of motion.  But it is not unreasonable to expect that our other judges will adopt a stricter policy on issuing second chances to debtors, and that these policies may also be applied to motions to dismiss on account of defaulted plan payments.
I can’t say that I blame this particular judge for this new approach.  I have always cautioned my clients that there is no 100% guarantee that we will prevail on an objection to a motion to dismiss or a motion for relief from stay.  But now, what we used to take for granted as a 99% certainty may have been knocked down quite a few percentage points.
What to take away from this post?
If you default on your Chapter 13 Plan payments or your post-filing mortgage payments – DO NOT TAKE FOR GRANTED that you will be able to prevail in objecting to a Motion to Dismiss or a Motion for Relief from Stay.  Obviously, sometimes things happen that cause these defaults, and I am not at all suggesting that there is a strict “no second chances policy”.  But the more you can demonstrate a good faith effort to make good on these payments, the better chances you will have of earning that second chance.