Comments from Hank Hildebrand on Conduit Payments

From Hank Hildebrand, Chapter 13 Trustee in Nashville


I have long held the belief that the trustee of a confirmed plan should be the one making all of the payments that are provided in the plan, whether or not those payments will be fully satisfied during the tenure of the trustee.  So, I have always been a “conduit” trustee, even though I have often (though not always) refrained from opposing a chapter 13 plan where the debtor was making the post-petition payments (the “conduit” payment) if the debtor was current at the time of filing and had been current during the past couple of years.  If the debtor had a default, I would oppose confirmation of the plan on feasibility grounds.

I have also had the opportunity to observe a significant number of jurisdictions with and without the “conduit” component in their chapter 13 plans.  All of us that are “conduit” trustees have seen the result:  More cases complete (Jean Braucher did a study 20 years ago that appeared to find that it was one of three elements that lead to plan completion – the other two are app payments by payroll deduction and attorneys are paid and stay committed over time). 

Now, it is more likely than ever that a debtor emerging from a chapter 13 plan will be current on the mortgage, will easily be able to pick up the payments thereafter, and has a greater opportunity for future home retention.  I believe that it is my responsibility as a trustee to properly account for the mortgage payments, to make certain that the plan will “work” when there are changes or adjustments in the mortgage during the term of the plan, and that the mortgage servicer has accurate records when the plan completes.  So, by acting as a “conduit” trustee, I have noticed the following:

1.     Debtors emerge current.  Hopefully they will stay that way.

2.     Debtors “self selection” of who to pay is removed, reducing the risk of a completed plan without a discharge.  See In re Heinzel, 511 BR 69 (WD Tex. May 30, 2014) and In re Gonzales, 532 BR 828 (Bankr. Colo, June 9, 2015).

3.     The trustee takes the 3002.1 motion/notice as a trustee task rather than a debtors’ attorney task.

4.     The costs are less to the debtors.  I acknowledge that with the size of the California mortgage this may not hold true universally, but most of the debtors I talk to have been paying (or at least have been charged) a late fee of approximately 5% of the monthly installment.  This is a greater number than most of the conduit trustees’ commissions across the country.

5.     The volume of Motions for Relief from Stay are significantly reduced.

6.     The need for plan modifications to deal with mortgage problems during the case is reduced.

7.     The trustees’ staffs are reviewing the Notices of Mortgage Payment Change more carefully and verifying that the numbers “make sense”.

Judge Bohm effectively articulated the benefits in In re Perez, 339 BR 385 (Mar. 23, 2006)..

I guess I can say the “conduit” system works and the completion rate reflects that.


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