Mileusnic v. PennyMac Loan Services

• Court: District Court, N.D. Indiana
• Decided: May 8, 2020
• Docket: 2:19-cv-00427
• Status: Unknown

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF INDIANA HAMMOND DIVISION JOHN MILEUSNIC, ) ) Appellant, ) ) vs. ) NO. 2:19-cv-427 ) PAUL R. CHAEL, Trustee, ) ) Appellee. ) OPINION AND ORDER This is a bankruptcy appeal that stems from the Bankruptcy Court’s dismissal of John Mileusnic’s Chapter 13 case due to his failure as the debtor to make Plan payments. Mileusnic, who represents himself in this appeal, believes that the mortgage on his home was really owned by a different entity than the company that filed a Proof of Claim in his bankruptcy case. Nevertheless, that is no excuse for failing to make the requisite Plan payments. Because I find the Bankruptcy Judge did not abuse his discretion in dismissing Mileusnic’s Chapter 13 bankruptcy case under 11 U.S.C. §1307(c)(4) for failure to make Plan payments, the Bankruptcy Court’s decision is affirmed. Background Mileusnic, the debtor, filed a Chapter 13 case on April 4, 2019. [DE 1, Case No. 19-20831.]1 On April 18, 2019, Mileusnic filed a Chapter 13 Plan. [DE 16.] In the Plan, Mileusnic agreed to pay only $10 per month to the Chapter 13 Trustee starting on April 18, 2019, for 60 months. [Id.] Mileusnic listed PennyMac in Schedule D as a mortgage

holder on his home at 325 Plum Creek Drive, Schererville, Indiana. [DE 13 at 16.] On June 13, 2019, PennyMac timely filed a Proof of Claim showing a mortgage on the Debtor’s home in the amount of $301,634.02, with a prepetition arrears of $123,312.51 and a monthly payment of $1,585.51. [POC No. 2-1.] Debtor’s Schedule I shows a net household income of $2,097.00 per month and Schedule J shows a mortgage

payment of $1,586.00. [DE 13 at 29-30.] On June 27, 2019, the Trustee filed a motion to dismiss the bankruptcy case for failure to commence plan payments, but that was withdrawn on July 9, 2019. [DE 23.] Indeed, it seems Mileusnic made four payments of $10.00 towards the Plan. [DE 75.] On August 7, 2019, PennyMac filed a Motion to Dismiss Debtor’s Chapter 13 case pursuant to 11 U.S.C. § 1307(c)(4), arguing Mileusnic failed to account for PennyMac in

the Plan, failed to make any post-petition payments to PennyMac, and alleging its pre- petition value of the collateral would decrease during the estate administration due to depreciation caused by Mileusnic’s use. [DE 33.] Mileusnic filed a response on August 20, 2019, arguing that although PennyMac claims to be the current holder of the promissory note and mortgage and claims the chain of assignments, another entity was

1 Citations are to the bankruptcy case in the United States Bankruptcy Court for the Northern District of Indiana (Hammond Division), No. 19-20831, unless otherwise noted. 2 the true owner of the note/mortgage. [DE 37.] Nevertheless, Mileusnic did state he was “willing to setup payments with the trustee.” [DE 37 at 3.] On August 28, 2019, Mileusnic filed an Amended Plan which stated that “Debtor

will make regular payments to the Trustee as follows: $1,685.51 per month for 60 months.” [DE 42 at 1.] The Amended Plan provided for ongoing mortgage payments to PennyMac Loan Services, LLC (“PennyMac”) in the amount of $1,585.51 per month and a payment to Capital One Auto Finance for a car loan of $100.00 per month. [DE 42 at 2.]

On September 16, 2019, the Chapter 13 Trustee filed a Motion to Dismiss for failure to make Plan payments under 11 U.S.C. § 1307(c) on the grounds that Mileusnic failed to timely commence Plan payments. [DE 50.] According to the Trustee’s motion, the monthly payment under Debtor’s Chapter 13 Plan was $1,685.51 and the amount of default at the time of the Trustee’s motion to dismiss had grown to $8,377.55. [Id.] A pre-hearing conference was held on PennyMac’s motion to dismiss on

September 16, 2019, at which Mileusnic appeared pro se, and the Trustee and PennyMac’s counsel also appeared. [DE 53.] Although Mileusnic claims in his appeal that he only saw a copy (never the original) of the Note and Mortgage, PennyMac’s counsel represents that he brought the original Note and Mortgage to the pre-hearing, where Mileusnic physically examined the original documents in open court. [DE 71 at 2-

3.] A final hearing on PennyMac’s Motion to Dismiss and the Trustee’s Motion to 3 Dismiss for default in Plan payments was held on October 28, 2019. [DE 61.] At the final hearing, Mileusnic appeared pro se, Trustee Chael appeared, PennyMac appeared by counsel, and Capital One Auto Finance appeared by counsel. [DE 74.] The Trustee filed

an Affidavit and Status Report. The Report shows monthly Plan payments required of $1,685.51 and a default in Plan payments of $10,043.06. [DE 75.] The Report disclosed that Mileusnic had only made Plan payments totaling $70.00 (four payments of $10 and one payment of $30). [Id.] The day after the hearing, on October 29, 2019, the Bankruptcy Court entered an

Order on both the Trustee’s and PennyMac’s Motions to Dismiss dismissing the Debtor’s Chapter 13 Petition for Default in Plan payments pursuant to 11 U.S.C. § 1307. [DE 76.] The judge determined Mileusnic to be in arrearage on the Plan in the amount of $10,043.00 as of October 28, 2019, and stated he found “there has been a material default by the Debtor as to the terms of the Plan, a failure by the Debtor to commence making timely payments, and/or that there has been an unreasonable delay by the

Debtor that is prejudicial to creditors.” [Id.] Mileusnic filed the instant notice of appeal on November 5, 2019. He argues that PennyMac was not the true owner of the Note/Mortgage on his house, and it never proved the chain of title in endorsement. Therefore, according to Mileusnic, PennyMac cannot enforce the Plan payments. I held a telephonic oral argument in this matter on

May 5, 2020, during which Trustee Chael and Mileusnic participated and provided argument. 4 Discussion In reviewing a bankruptcy court’s decision pursuant to 28 U.S.C. § 158(a), the district court functions as an appellate court and is authorized to affirm, reverse,

modify, or remand the bankruptcy court’s ruling. Fed. R. Bankr. P. 8013. The standard for review of bankruptcy court decisions depends upon the issue being reviewed. Findings of fact are upheld unless clearly erroneous, but legal conclusions are reviewed de novo. Id.; In re Marrs-Winn Co., Inc., 103 F.3d 584, 589 (7th Cir. 1996). Dismissals of bankruptcy petitions, like this case, are reviewed for an abuse of discretion. In re Hall,

304 F.3d 743, 746 (7th Cir. 2002); In re Matter of McDonald, 118 F.3d 568 (7th Cir. 1997). In reviewing for abuse of discretion, I have to reverse where a bankruptcy court’s “decision is premised on an incorrect legal principle or a clearly erroneous factual finding, or when the record contains no evidence on which the court rationally could have relied.” In re KMart Corp., 381 F.3d 709, 713 (7th Cir. 2004); see also Corp. Assets, Inc. v. Paloian, 368 F.3d 761, 767 (7th Cir. 2004). Whether I agree with the bankruptcy

judge’s decision is beside the point as long as the decision is within the range of options from which one would expect a reasonable trial judge to select. Liu v. Price Waterhouse LLP, 302 F.3d 749, 754 (7th Cir. 2002). It is for this reason that the pro se debtor, Mileusnic, faces an uphill challenge in trying to convince me that Judge Ahler abused his discretion. Zhou v. Guardian Life Ins. Co. of Am., 295 F.3d 677, 679 (7th Cir. 2002).

Mileusnic represented himself during the underlying bankruptcy, and now on appeal as well. Although a pro se litigant should be accorded a substantial degree of 5 leniency, the court’s procedural and substantive rules still do “apply to uncounseled litigants and must be enforced.” Members v. Paige, 140 F.3d 699, 702 (7th Cir. 1998). A Debtor who files a Chapter 13 Bankruptcy is required to make Plan payments

to the Trustee pursuant to section 1326(a)(1)(A). Under this provision, the Debtor must make the first payment to the Trustee within 30 days after filing the Bankruptcy Petition. That section specifically provides: Unless the Court orders otherwise, the debtor shall commence making payments not later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier, in the amount - (A) proposed by the plan to the trustee. 11 U.S.C. 1326(a)(1)(A). Pursuant to 11 U.S.C. § 1307(c)(4), a Chapter 13 proceeding is subject to dismissal if the debtor fails to timely commence making Plan payments. Here’s what that section provides: Except as provided in subsection (f) of this section, on request of a party in interest or the United States trustee and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including . . . . (4) failure to commence making timely payments under section 1326 of this title . . . . 11 U.S.C. § 1307(c).2 In this case, Paul R. Chael was appointed by the bankruptcy court to serve as Trustee. One of the Chapter 13 Trustee’s duties is to make sure the Debtor starts (or 2 Although this section provides that the court could convert the Chapter 13 proceeding to one under Chapter 7 as an alternative to dismissal, there is no evidence in the record that Mileusnic asked the Bankruptcy Judge to convert the proceeding to one under Chapter 7, and he makes no argument in his appellate brief that the judge should have done so. 6 commences) making timely payments under Section 1326 of the Bankruptcy Code. See 11 U.S.C. §1302(b)(5). If they do not, the Trustee has authority under section 1307(c)(4) to file a motion to dismiss the debtor’s case for failure to make timely Plan payments.

And indeed, Mr. Chael filed a motion to dismiss in this case. Mileusnic filed his Bankruptcy Petition on April 4, 2019, so his first Plan payment was due on May 4, 2019. 11 U.S.C. 1326(a)(1)(A). Now, under the original Plan, Mileusnic only agreed to pay $10 per month, and there is evidence that he paid those small installments for several months. However, on August 28, 2019, Mileusnic

amended the Plan and agreed to pay $1,685.51 per month for 60 months. According to what Trustee Chael told me during the oral argument, because the bankruptcy law provides that a Plan may only last up to 60 months, see 11 U.S.C. §§ 1329, 1322(d)(1), when Mileusnic filed his Amended Plan and agreed to pay $1,685.51 per month for 60 months, the Trustee interpreted this as an agreement that Mileusnic would retroactively pay $1,685.51 per month from the time the Plan began. Frankly, I’m not so sure how

fair this assumption is on the part of the Trustee. And if Mileusnic had counsel, he or she probably would have built in a provision stating the Debtor could cure the arrearage that went back to the original start of the Plan over time. But that is not what happened in this case. According to the Trustee, under the terms of the Debtor’s Chapter 13 Plan,

Mileusnic was past due on six monthly payments at the time of the final hearing on the Motion to Dismiss for Default in Plan Payments (October 28, 2019). [DE 42.] The 7 Appellant’s brief claims that Mileusnic was $8,77.55 behind in Plan payments at the time the Motion to Dismiss was filed, which had snowballed into $10,043.06 in arrears at the time of the final hearing, a month later. It is important to note that Mileusnic did

not raise this issue with the bankruptcy court and never argued that he only owed a few months of payments in the amount of $1,685.51 per month at the time of the hearing, and was not 6 payments behind. In both his response to the motion to dismiss and in this appeal, Mileusnic states he “is willing to deposit ‘Amount of default: $8,377.55, Amount due per month: $1,685.51' in escrow or with Trustee with an understanding

that this amount will NOT be released to Creditors unless this Court decides on the question of Validation of Debt.” [DE 65 at 10; DE 4, Case No. 2:19-cv-427.] Therefore, he has basically acknowledged the default in the full amount that the Trustee claimed in the bankruptcy court. Mileusnic certainly has not contested the amount of default or brought this matter to my attention. Even if I don’t buy the Trustee’s assumption that the Amended Plan agreed to

retroactively pay $1,685.51 a month, and Mileusnic was therefore six months behind at the time of the hearing, Mileusnic still missed a couple of payments after the Amended Plan was made and clearly had not adhered to the Amended Plan. The Amended Plan is dated August 28, 2019, and the hearing was October 28, 2019, so at a minimum, two payments of $1,685.51 each were due. Yet Mileusnic had only paid $70.00 total into the

Plan since inception. The Debtor’s payment of $70.00 towards the total amount (whether we calculate it from the beginning of the Plan or from the Amended Plan), is 8 still paltry and tells me he was not seriously trying to make the payments. Even if Mileusnic was in default for a smaller amount of money than the Trustee claimed, he was still significantly behind in his Plan payments. So I cannot say that the bankruptcy

judge abused his discretion in dismissing this case. In a similar case involving nonpayment, the Seventh Circuit found the Bankruptcy Court did not abuse its discretion in dismissing a Chapter 13 case after the debtor missed the deadline for making the initial payment on the plan. Matter of McDonald, 118 F.3d 568 (7th Cir. 1997). As that Court recognized, “Debtors enter

Chapter 13 delinquent in payments to creditors. If the new plan is to succeed, they must change their ways. It is best to discover, as quickly as possible, which debtors are willing and able to follow the plan.” Id. at 568-69. The Bankruptcy Court has the discretion to ensure that debtors make the first Plan payment on time. Id. To the extent Mileusnic did pay $70 toward the Plan payments, “[c]ourts considering situations in which a debtor commenced making payments but then either stopped or paid less than

the plan required have considered the text of section 1307(c)(4) and concluded that a failure to continue making payments as required by the plan is cause for dismissal.” In re Mallory, 444 B.R. 553, 558 (S.D. Tex. 2011) (emphasis in original); see also Chapman v. Citicorp Mortg., Inc., No. 92 C 2862, 1992 WL 157499, at *3 (N.D. Ill. June 23, 1992) (same). The Bankruptcy Court could have dismissed this case solely on the Trustee’s

Motion to Dismiss. And a dismissal under Section 1307(c)(4) requires the district judge to indulge in a firm presumption against reopening. McDonald, 118 F.3d at 569 (citing 9 Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd., 507 U.S. 380, 393 (1993); Metlyn Realty Corp. v. Esmark, Inc., 763 F.2d 826 (7th Cir. 1985)). Recall, though, that PennyMac also filed a Motion to Dismiss. This is where

Mileusnic’s true argument lies – he contends that PennyMac did not have standing and was not a real party in interest. This argument is largely immaterial since the Bankruptcy Judge had the power and discretion to dismiss the case on the Trustee’s motion to dismiss. But because Mileusnic’s brief insists the issue for review is whether PennyMac could enforce the Mortgage and Promissory Note, I will address it.

PennyMac did have standing. The Proof of Claim, with a copy of the Note and Mortgage and the chain of endorsements attached, shows that the note was assigned to PennyMac on November 27, 2018, and recorded with the State of Indiana, Lake County Recorder’s Office on December 13, 2018. [POC No. 2-1, at 40-41.] If Mileusnic really doubted that PennyMac held title to the Mortgage and Note, he should have filed an objection to the Proof of Claim to seek determination from the court on PennyMac’s

standing, instead of just not making payments to the Trustee. See In re Mallory, 444 B.R. at 558 (holding debtor’s failure to make payments to trustee constituted cause for dismissal of case, notwithstanding debtor’s argument that he stopped making payments to prevent trustee from making distributions to an entity that had not established a clear chain of title to mortgage note). Mileusnic’s desire to litigate

PennyMac’s standing doesn’t excuse his obligation to make payments to the Trustee on account of the secured loan. See In re Tornheim, 239 B.R. 677, 687 (Bankr. E.D.N.Y. 1999) 10 (finding debtor’s “almost talismanic mantra that he does not know who holds the Mortgage or how much to pay” did not justify suspension of payments). Mileusnic had four months from the time PennyMac filed its Proof of Claim in

June until his bankruptcy was dismissed in October. If he truly believed PennyMac was the wrong party, he should have filed an objection to PennyMac’s Proof of Claim, and yet he failed to do so. As such, it was not an abuse of discretion for the Bankruptcy Judge to grant PennyMac’s Motion to Dismiss the bankruptcy case, alongside also granting the Trustee’s Motion to Dismiss.

Conclusion For the reasons set forth above, the Bankruptcy Court’s Order dated October 29, 2019, dismissing Mileusnic’s Chapter 13 bankruptcy case under 11 U.S.C. section 1307(c)(4) for failure to make Plan payments is AFFIRMED. SO ORDERED. ENTERED: May 8, 2020. s/ Philip P. Simon PHILIP P. SIMON, JUDGE UNITED STATES DISTRICT COURT