Saving a principal residence from foreclosure and curing a mortgage arrearage are key reasons why many debtors file for chapter 13. While paying a home mortgage arrearage through a chapter 13 plan can cure that pre-petition arrearage, a home mortgage creditor may assess fees or other charges after confirmation that the debtor might not be aware of until the debtor's chapter 13 plan is completed. Generally, the debtor is unaware of the post-confirmation assessments because the creditor has not declared them to be due until after the case is closed. These post-closing demands for payment are often legitimate under the terms of the loan documents and applicable state law, but they are burdensome to debtors and, in extreme cases, may result in a second chapter 13 petition.

This three-part article examines bankruptcy issues concerning the post-closing collection efforts by home mortgage creditors to recover fees and charges incurred during the pendency of a debtor's chapter 13 plan. This article focuses on (1) bankruptcy court jurisdiction (in this installment), (2) the legality of a mortgage creditor's post-closing collection of fees and charges assessed during the pendency of a debtor's chapter 13 plan² and (3) what—if anything—a debtor may do about it.

A vignette helps to crystalize the issues discussed herein. Stephen and Marion Winfree³ filed a chapter 13 petition to prevent a foreclosure on their principal residence. Their chapter 13 plan provided that the mortgage arrearage claim of $7,091.23 and payments on the long-term mortgage debt were to be made by the chapter 13 trustee. As of the petition date, the Winfrees' mortgage creditor was oversecured.

The Winfrees successfully completed their plan, and the trustee filed a final report detailing that the full amount of the mortgagee's arrearage claim was paid as well as payments on the underlying long-term debt. Based on the trustee's report, the Winfrees received their chapter 13 discharge. The clerk's office then closed the Winfrees' case.

Shortly thereafter, the Winfrees began receiving demands from their mortgage creditor to pay $967.00—representing property-preservation fees, attorney's fees, broker's price opinion fees and recordation fees that the creditor assessed during the pendency of their chapter 13 plan.⁴ One can easily imagine that the Winfrees felt bamboozled after just having successfully completed their chapter 13 plan and then being confronted with a new arrearage claim, which was the very basis for their original bankruptcy filing. Returning to the bankruptcy court, the Winfrees sought sanctions, damages and attorney's fees from the mortgage creditor for allegedly violating the automatic stay and the discharge injunction.

Jurisdiction over Post-Discharge Activities

As illustrated by the vingnette, the activities of the mortgage creditor seeking to collect mortgage-related fees and charges from the Winfrees occurred after the Winfrees received their chapter 13 discharge and after their case was closed. Thus, as an initial matter, the parties and the court must ascertain if the bankruptcy court has any jurisdictional basis for adjudicating a dispute over the post-discharge activities of a former debtor and creditor. When a debtor seeks redress for alleged violations of the automatic stay or discharge injunction, then bankruptcy court jurisdiction is straightforward.5 When a debtor seeks redress on different grounds, however, bankruptcy court jurisdiction is less certain.

To adjudicate its bankruptcy laws, Congress granted federal district courts original and exclusive jurisdiction over all cases under the Bankruptcy Code; even in cases where Congress had otherwise conferred exclusive jurisdiction to a different court, Congress granted the district court original, but nonexclusive, jurisdiction over all civil proceedings arising under, arising in, or related to a bankruptcy case.⁶ The district courts have delegated this grant of jurisdiction to the bankruptcy courts.⁷

In short, controversies "arise in" the bankruptcy when they "have no existence outside of the bankruptcy."⁸ Claims "arise under" the Code if the claims "clearly invoke substantive rights created by bankruptcy law."⁹ A proceeding is "related to" a bankruptcy case when the resolution of the proceeding could conceivably have an effect on the bankruptcy estate.¹⁰

Accordingly, before a bankruptcy court may exercise jurisdiction over the post-closing activities of a former debtor and creditor, the underlying dispute must arise under, arise in or be related to a case under the bankruptcy laws. Jurisdiction generally cannot be imposed either by consent of the parties or under the terms of a confirmed plan.¹¹ Stated another way, when the dispute concerns nondebtor parties, does not involve property of the estate, does not affect the administration of the estate or where payments to creditors under a confirmed plan are not affected, then the bankruptcy court will generally not have jurisdiction.¹² On the other hand, a bankruptcy court will likely have post-confirmation jurisdiction "where there is a close nexus to the bankruptcy plan or proceeding, as when a matter affects the interpretation, implementation, consummation, execution or administration of a confirmed plan...."¹³

Once the jurisdictional basis for a bankruptcy court to hear a matter is determined, the jurisdictional basis is further refined into "core" and "non-core" proceedings. In general terms, core proceedings depend on the Bankruptcy Code for their existence and are those matters that either "arise in" or "arise under" the Bankruptcy Code.¹⁴ "Non-core" matters are those that may otherwise be brought in a different forum but that are related to a bankruptcy case.¹⁵ In "non-core" cases, the bankruptcy court only makes recommendations to the district court about their disposition.¹⁶ The parties, however, may consent to having the matter finally determined by the bankruptcy court.¹⁷

Discharge Injunction

Debtors seeking an adjudication of a creditor's post-discharge activities often rely on the continuing effects of the discharge injunction of §524 as a basis for bankruptcy court jurisdiction. The discharge injunction generally prohibits creditor attempts to collect debts that have been discharged by the completion of the chapter 13 plan.¹⁸ Bankruptcy court jurisdiction exists to adjudicate alleged violations of the discharge injunction because it is a right that "arises under" the Bankruptcy Code.¹⁹ Although a violation of the discharge injunction is not specifically listed as a "core" matter,²⁰ the claim is decidedly "core" inasmuch as the claim itself depends on the Code for its existence.²¹

Automatic Stay

Like the discharge injunction, the automatic stay²² prohibits creditor attempts to collect on pre-petition debts and, in some cases, post-petition debts. The obvious difference between the two provisions is that the automatic stay generally applies after a debtor files a bankruptcy petition and, at the latest, terminates when the case is closed.²³ The discharge injunction only applies after the order of discharge is entered. Because chapter 13 plans can last several years and a chapter 13 discharge is not entered until after the chapter 13 plan is completed,²⁴ it is the automatic stay that is in effect during the chapter 13 plan.

Although a chapter 13 case may be closed, the mere act of closure does not terminate a debtor's rights to allege a violation of the automatic stay that occurred while the stay was still in effect.²⁵ Indeed, the automatic stay of the Code preempts state law tort claims for stay violations.²⁶ Like the discharge injunction, an alleged violation of the automatic stay is sufficient to create a jurisdictional basis for adjudication in the bankruptcy court on the basis that it is a claim that "arises under" the Code,²⁷ and that the claim is a core proceeding.²⁸

Other Causes of Action

Merely alleging a violation of the discharge injunction or the automatic stay is an insufficient basis to boot-strap other causes of action that might exist under the guise of supplemental jurisdiction. Unlike the federal district courts, bankruptcy courts are generally considered not to enjoy supplemental jurisdiction over causes of action that do not arise in, under or that are not related to a case arising under Title 11.²⁹ Supplemental jurisdiction remains in the federal district courts,³⁰ and if the supplemental claim does not fit within the specific parameters of the grant of jurisdiction to the bankruptcy courts under 28 U.S.C. §1334, then it is not a claim that has been referred by the district courts to the bankruptcy courts.³¹ Unless a jurisdiction recognizes supplemental jurisdiction in the bankruptcy court, post-petition activities that violate state or federal law may not be adjudicated by the bankruptcy court—even though the claims form part of the same case or controversy.³² For example, by analyzing each cause of action in light of the bankruptcy court's jurisdictional grant of authority, courts have determined that no bankruptcy court jurisdiction exists over related post-petition activities that might have violated, inter alia, the Fair Debt Collection Practices Act.³³ If a debtor believes that a creditor's activity violates rights arising under the Code in addition to related state or federal law—for which no independent basis exists for exercising bankruptcy court jurisdiction—then the debtor may seek to file a motion to withdraw the order of reference³⁴ delegating the authority of the district court to the bankruptcy court. In this manner, the debtor may file the case in federal district court and adjudicate all claims in a single forum under the district court's grant of original or supplemental jurisdiction.

Footnotes

1 The views expressed in this article are solely those of the author.

2 The focus of this article does not encompass the legality of mortgage fees and charges under state law.

3 In re Winfree, No. 02-13890 (Bankr. M.D.N.C. 2002).

4 By the time the parties reached a settlement in the matter, the creditor's fees and charges had blossomed to $1,976.69.

5 The author does not believe that the automatic stay or discharge injunction is applicable to the post-closing collection efforts of a mortgage lender—without more—when the fees and charges were incurred post-confirmation.

6 28 U.S.C. §1334.

7 28 U.S.C. §157(a).

8 U.S. Trustee v. Gryphon at the Stone Mansion Inc., 166 F.3d 552, 555 (3d Cir. 1999).

9 Glinka v. Federal Plastics Mfg. Ltd. (In re Housecraft Indus. USA Inc.), 310 F.3d 64, 70 (2d Cir. 2002).

10 Belcufine v. Aloe, 112 F.3d 633, 636 (3d Cir. 1997); Pacor Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984).

11 See, e.g., Binder v. Price Waterhouse & Co. LLP (In re Resorts Int'l. Inc.), 372 F.3d 154, 160 (3d Cir. 2004) ("retention of jurisdiction provisions will be given effect, assuming there is bankruptcy court jurisdiction. But neither the bankruptcy court nor the parties can write their own jurisdictional ticket. Subject-matter jurisdiction 'cannot be conferred by consent' of the parties") (citation omitted).

12 See, e.g., Zerand-Bernal Group v. Cox, 23 F.3d 159, 162-63 (7th Cir. 1994) (holding that bankruptcy court jurisdiction did not exist over a product-liability suit arising out of a bankruptcy sale when the debtor no longer existed, all its assets were transferred, the dispute concerned nondebtor parties and the cause of action arose after the bankruptcy); Smith v. First Suburban Nat'l. Bank (In re Smith), 224 B.R. 388, 394 (Bankr. N.D. Ill. 1998) (reforming a post-discharge note insofar as it attempted to collect a discharged debt of the former debtor, but refusing to reform the note insofar as it related to the obligation of the former debtor's wife and daughter on the basis that the court lacked jurisdiction over those nondebtor parties).

13 Binder v. Price Waterhouse & Co. LLP (In re Resorts Int'l. Inc.), 372 F.3d 154, 168-69 (3d Cir. 2004) (holding that post-confirmation jurisdiction did not exist over a tort dispute between a litigation trust and an accounting firm hired by the trust). See, also, Boston Reg'l. Med. Ctr. Inc. v. Reynolds (In re Boston Reg'l. Med. Ctr. Inc.), 410 F.3d 100, 106 (1st Cir. 2005) ("once confirmation has occurred, fewer proceedings are actually related to the underlying bankruptcy case. That makes good sense: as the corporation moves on, the connection attenuates"); Montana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189, 1194 (9th Cir. 2005) ("post-confirmation bankruptcy court jurisdiction is necessarily more limited than pre-confirmation jurisdiction, and that the Pacor formulation may be somewhat overbroad in the post-confirmation context. Therefore, we adopt and apply the Third Circuit's 'close nexus' test for post-confirmation 'related to' jurisdiction because it recognizes the limited nature of post-confirmation jurisdiction but retains a certain flexibility...").

14 See, e.g., Dunmore v. United States, 358 F.3d 1107, 1114-5 (9th Cir. 2004) ("we determine Dunmore's claims to be 'non-core' proceedings if they do not depend on the Bankruptcy Code for their existence and they could proceed in another court"); Mich. Empl. Sec. Comm'n. v. Wolverine Radio Co. (In re Wolverine Raido Co.), 930 F.2d 1132, 1144 (6th Cir. 1991) ("§157 apparently equates core proceedings with the categories of 'arising under' and 'arising in' proceedings") (citation omitted), cert. dismissed 503 U.S. 978 (1992). A nonexclusive list of matters that are "core" is contained in 28 U.S.C. §157(b)(2).

15 28 U.S.C. §157(b)(3).

16 §157(c)(1).

17 §157(c)(2).

18 11 U.S.C. §§524(a) and 1328(a).

19 See, e.g., Insurance Co. of North America v. NGC Settlement Trust & Asbestos Claims Management Corp. (In re National Gypsum Co.), 118 F.3d 1056, 1064 (5th Cir. 1997) ("a proceeding to enforce or construe a bankruptcy court's...discharge injunction issued pursuant to its confirmation order—and whether the confirmed reorganization plan precludes certain post-confirmation collection efforts—necessarily arises under Title 11 and supports a finding that federal jurisdiction exists under 28 U.S.C. §1334 and that such a proceeding is 'core' under 28 U.S.C. §157(b)"); Steele v. Ocwen Fed. Bank (In re Steele), 258 B.R. 319, 322 (Bankr. D. N.H. 2001) (holding that the bankruptcy court has subject-matter jurisdiction over the debtor's adversary proceeding alleging a violation of the discharge injunction when the mortgage-holder sought to collect "bankruptcy fees" after the debtor had received a chapter 13 discharge and the case was closed).

20 28 U.S.C. §157(b)(2).

21 See, e.g., Dunmore v. United States, 358 F.3d 1107, 1114-5 (9th Cir. 2004) ("the claim that the government violated the discharge injunction depends on the bankruptcy court's authority to enforce its own orders under the Bankruptcy Code. Accordingly, this claim is a core proceeding").

22 11 U.S.C. §362(a).

23 §362(c). The automatic stay will not apply 30 days after filing if a debtor had a case dismissed within the previous year and no showing is made to extend the automatic stay deadline. §362(c)(3)(A). No automatic stay arises if a debtor had two cases dismissed within the past year unless the court issues an order imposing the stay after a motion is filed by the debtor. §362(c)(4)(A).

24 §1328(a).

25 See, e.g., Price v. Rochford, 947 F.2d 829, 830-31 (7th Cir. 1991) ("we hold that 11 U.S.C. §362[(k)] creates a cause of action that can be enforced after bankruptcy proceedings have terminated").

26 As explained in the case Eastern Equip. & Servs. Corp. v. Factory Point Nat'l. Bank, 236 F.3d 117 (2nd Cir. 2001): [S]tate tort claims alleging violations of the automatic stay provision are completely preempted by federal bankruptcy law. This preemption arises because (1) Congress placed bankruptcy jurisdiction exclusively in the district courts under 28 U.S.C. §1334(a); (2) Congress created a lengthy, complex and detailed Bankruptcy Code to achieve uniformity; (3) the Constitution grants Congress exclusive power over the bankruptcy law, see U.S. Const. Art. I, §8, cl. 4; (4) the Bankruptcy Code establishes several remedies designed to preclude the misuse of the bankruptcy process; and (5) the mere threat of state tort actions could prevent individuals from exercising their rights in bankruptcy, thereby disrupting the bankruptcy process. Id. at 121 (discussing MSR Exploration Ltd. v. Meridian Oil Inc., 74 F.3d 910, 913-16 (9th Cir. 1996)). But see Randolph v. IMBS Inc., 368 F.3d 726, 730-33 (7th Cir. 2004) (holding that the automatic stay did not "preempt" a Fair Debt Collection Practices claim).

27 28 U.S.C. §§157(b)(2)(G) and 1334; Davis v. Courington (In re Davis), 177 B.R. 907, 912 (BAP 9th Cir. 1995) ("appellant's action for willful violation of the automatic stay...arises under Title 11 and is within the subject-matter jurisdiction of the bankruptcy court").

28 See, e.g., Budget Serv. Co. v. Better Homes, 804 F.2d 289, 292 (4th Cir. 1986) ("we are of opinion and hold that a proceeding to prosecute a violation of the automatic stay is a core proceeding within the meaning of 28 U.S.C. §157(b)(1) and (2)").

29 28 U.S.C. §§157(a) and (b) and 1334. See infra, notes 32-33.

30 §1367.

31 §157.

32 §1367. See, e.g., Chapman v. Currie Motors, 65 F.3d 78, 81 (7th Cir. 1995) (assuming that the bankruptcy court does not have supplemental jurisdiction on the basis that a contrary finding would "step on the toes of the bankruptcy statute conferring 'related to' jurisdiction"); Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 572 (5th Cir. 1995) ("while §1367 addressed the power of the district courts to exercise supplemental jurisdiction, it did not discuss the power of the bankruptcy courts to reach pendent parties... Because there is no congressional statute conferring upon the bankruptcy courts the power to exercise supplemental jurisdiction, we find no error in the district court's conclusion that the bankruptcy court did not have the power to hear [the supplemental claim]") (emphasis in original); Block-Lieb, Susan, "The Case Against Supplemental Bankruptcy Jurisdiction: A Constitutional, Statutory and Policy Analysis," 62 Fordham L. Rev. 721 (1994) (concluding that a district court's adjudication of supplemental claims related to a "related to" proceeding may be unconstitutional, unauthorized by statute and inconsistent with the primary purpose of bankruptcy jurisdiction—the efficient administration of a bankruptcy estate—and proposing a balancing approach when supplemental jurisdiction is based on claims "arising under" or "arising in" title 11). Contra Sasson v. Sokoloff (In re Sasson), 424 F.3d 864, 869 (9th Cir. 2005) (stating that a bankruptcy court enjoys supplemental jurisdiction under §1367); Montana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189, 1195 (9th Cir. 2005) ("this circuit has applied §1367 to bankruptcy claims, even when the subject-matter jurisdiction is based on 'related to' bankruptcy jurisdiction. Here, the remaining claims involve a 'common nucleus of operative facts' and would ordinarily be expected to be resolved in one judicial proceeding, and therefore the bankruptcy court has supplemental jurisdiction over the remaining claims"); Jones v. Woody (In re W. J. Services Inc.), 139 B.R. 824, 826 (Bankr. S.D. Tex. 1992) (stating that as unit of the district court, bankruptcy courts may exercise supplemental jurisdiction).

33 See, e.g., Gates v. Didonato (In re Gates), 04-1240, 2004 Bankr. LEXIS 2303 at * 9-10 (Bankr. E.D. Va. Oct. 20, 2004) ("bankruptcy courts may not exercise supplemental jurisdiction... Accordingly, notwithstanding the obvious judicial economy that would result from this court exercising jurisdiction over the Fair Debt Collection Practices Act claims, the court reluctantly concludes that it is without power to do so"); Steele v. Ocwen Federal Federal Bank (In re Steele), 258 B.R. 319, 321 (Bankr. D. N.H. 2001) ("the FDCPA and state law claims do not fall within the court's 'related-to jurisdiction.' Any recovery on the part of the debtor would be his alone and would not inure to the benefit of the bankruptcy estate") (citations omitted).

34 28 U.S.C. §157.