In re:

RAUL BAROCIO and DIANA A. BAROCIO,

Debtors.

Case No. A03-00466-DMD

Chapter 13

Pending before the court is the confirmation of the debtors’ amended chapter 13 plan, filed September 15, 2003. Under the terms of the plan, the trustee will pay the arrearages on the debtors’ mortgage with Wells Fargo and their car loan with Alaska USA Federal Credit Union from plan payments made to him by the debtors. The debtors will maintain the regular monthly payments on both of these obligations during the pendency of the plan.

Alaska USA has agreed to the treatment of its claim in the amended plan. ^1.

However, the trustee objects to confirmation of the debtors’ amended plan because it contemplates having the debtors make the regular monthly payments on the vehicle loan to Alaska USA. He contends the car loan is an impaired claim and, where such claims involve secured debts for non-residential property, the trustee must pay both the arrearage amount and the regular monthly payments under the plan. To permit a debtor to make the regular monthly payments on impaired claims runs counter to the chapter 13 statutory scheme, he argues, because it makes it difficult for a trustee to monitor a debtor’s performance under the plan and permits a debtor to avoid paying the trustee’s statutory fee for administering the chapter 13 case.

7 ABR 450

The trustee cites In re Fulkrod, ^2.

and other cases to support his position. ^3.

In Fulkrod, the Ninth Circuit held that a chapter 12 debtor could not make payments directly to creditors with impaired claims in order to avoid paying the trustee’s statutory fee. The court noted that a standing trustee’s compensation for the statutory duties he had in administering a chapter 12 case was the percentage fee established by 28 U.S.C. § 586(e)(1)(B)(ii), and that this percentage fee was to be collected from all payments received by the trustee under plans in which he served as a standing trustee. ^4.

The court felt it was inappropriate for a chapter 12 debtor to make direct payments to impaired creditors because this would reduce the trustee’s percentage fee, an outcome the court didn’t believe was intended by Congress in enacting 28 U.S.C. § 586. ^5.

The court also concluded that there was nothing in the Bankruptcy Code which would permit a chapter 12 debtor to make direct payments on impaired claims.

Section 586(e) sets the percentage fee for standing trustees in both chapter 12 and chapter 13 bankruptcy cases. ^6.

Accordingly, while other circuits which have examined the

7 ABR 451
issue have concluded that debtors in chapter 12 and 13 cases can make direct payments on impaired claims in their plans, ^7.

the Ninth Circuit’s analysis in Fulkrod is applicable to chapter 13 as well as chapter 12 cases in this district. Notwithstanding its applicability, Fulkrod’s holding is not controlling in this case, because Alaska USA’s vehicle loan is not an impaired claim.

A secured claim is neither modified nor impaired if, under a chapter 13 plan, the debtor simply cures arrearages and reinstates the debt. ^8.

In the amended plan pending here, the debtors are treating their vehicle loan in the same manner as their residential mortgage. They are curing the arrearages, maintaining their regular monthly payments and reinstating the debt. In a bankruptcy context, this treatment does not modify or impair the claims of these secured creditors. Since Alaska USA’s secured claim for the vehicle has not been modified or impaired under the debtors’ amended chapter 13 plan, the Ninth Circuit’s holding in Fulkrod does not preclude the debtors from making their regular monthly car payments directly to this creditor.

Alaska USA’s vehicle loan is not an impaired claim under the debtors’ amended plan. Alaska USA doesn’t object to the treatment of its claim under the plan, and the debtors are current on their plan payments. I find that the debtors’ amended plan meets the requirements of 11 U.S.C. § 1325. The trustee’s objection to confirmation will be overruled. The debtor’s amended plan will be confirmed.

1 Before filing their amended plan, the debtors had filed a motion for valuation of Alaska USA’s\ security interests in the vehicle and in some furniture which they had financed through this creditor. The\ debtors withdrew their motion, as to the vehicle, at the confirmation hearing and Alaska USA assented to\ the debtors’ bifurcation of the furniture loan claim into secured and unsecured portions.

3 Fulkrod is the only Ninth Circuit case cited by the trustee. His other cited authorities are not\ controlling in this district.

7. Mendoza v. Temple-Inland Mtg. Corp. (Matter of Mendoza), 111 F.3d 1264, 1269 (5th Cir. 1997) [chapter 13 permits debtor to act as disbursing agent and make payments directly to a creditor]; Michel v. Beard (In re Beard), 45 F.3d 113, 118-120 (6th Cir. 1995) [Provisions in Bankruptcy Code control whether a debtor may directly pay creditors in a plan; § 586(e) limits trustee’s percentage fee to payments he receives to disburse under plan.]; Wagner v. Armstrong (In re Wagner), 36 F.3d 723, 726-728 (8th Cir. 1994) [28 U.S.C. § 586(e) establishes the trustee’s fee structure and limits his percentage fee to payments he receives under the plan, rather than all payments to be made under the plan; Bankruptcy Code provisions control whether a debtor may make direct payments to creditors.].

8. See Great W. Bank & Trust v. Entz-White Lumber and Supply, Inc. (In re Entz-White Lumber and Supply, Inc.), 850 F.2d 1338, 1341 (9th Cir. 1988) [In chapter 11 context, 11 U.S.C. § 1124 permits a debtor-in-possession to cure a default without impairing a secured creditor’s claim]; Downey Savings and Loan Ass’n v. Metz (In re Metz), 820 F.2d 1495, 1497 (9th Cir. 1987) [A chapter 13 debtor can’t modify a mortgage on his principal residence, but can cure arrearages and thereby reinstate the debt.].