A recent series of cases highlighted a loophole (some commentators say “intended exception”) in the language of 11 U.S.C. §1328, the Debtors’ Discharge. Most recently in In re: Kent, 2016 WL 9488860 (Bankr. D. OR 2016), the Bankruptcy Court extended the scope of the Chapter 13 Discharge to a post Chapter 13 foreclosure sale deficiency. Essentially, the Court found that unless the debtors utilized the provision of 11 U.S.C. §1322(b) (to cure pre-petition arrearage through the Plan), any deficiency on a post-Chapter 13 foreclosure was deemed discharged by the previously entered Chapter 13 Discharge.
The facts of Kent and other concurring cases are very simple. In each of them, the debtors were current on their home when they filed Chapter 13. The debtors remained current on their payments through the Chapter 13 and, some time after their respective Chapter 13’s were concluded, the debtors fell into arrears and their homes went into foreclosure, resulting in an unsecured deficiency. Judge James Shapiro, writing for the Bankruptcy Court for the Eastern District of Wisconsin, found that the clear language of the statute provided for the discharge of what might otherwise be thought to be a post-bankruptcy, deficiency debt. Attorneys practicing Chapter 13 need to be aware of this line of cases as a client’s problem that might otherwise be difficult or even insurmountable, may not even exist.