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66 By: Joel Jensen Quick Take BANKRUPTCY COURT WEIGHS IN ON CHAPTER 13 Attorney Joel Jensen discusses a recent proceeding involving violations of a bankruptcy rule. Learn the latest and how it could impact the industry. e United States Bankruptcy Court for the Southern District of Ohio issued an order in a Chapter 13 bankruptcy proceeding wherein it found the debtor's mortgagee, HSBC [i] , violated a bankruptcy rule when it sought to collect a past tax advance after the debtor's debt had been discharged and the bankruptcy case closed. In re Dewitt, No. 11- 36341, 2022 WL 4588320 (Bankr. S.D. Ohio September 30, 2022). In DeWitt, the debtor (Dewitt) sought to reorganize her debt via a Chapter 13 bankruptcy proceeding. She filed for bankruptcy protection in November 2011, made payments according to her plan for several years and received a discharge of her debts, including some past-due amounts on her HSBC mortgage loan, in June 2017. Problems arose in 2018 when HSBC required DeWitt to escrow for past due taxes. Although DeWitt failed to pay property taxes in 2014, 2015, and 2017 [ii] (while her bankruptcy was pending), she believed the tax advances HSBC made on her behalf for these periods were either paid, waived, or discharged by the discharge order entered in June 2017. Based on this understanding, Dewitt did not pay the monthly escrow amount HSBC said was due. HSBC considered Dewitt's refusal to escrow for the past-due taxes a default under the terms of the mortgage and sent a demand letter advising it intended to foreclose. When DeWitt failed to cure the alleged default, HSBC stopped accepting her monthly mortgage payments and filed foreclosure proceedings in state court. Dewitt's repeated inquiries regarding the returned mortgage payments went unanswered. DeWitt answered the foreclosure complaint and filed counterclaims against HSBC for "wrongful foreclosure, attempted wrongful foreclosure, breach of contract, and breach of good faith and fair dealing." [iii] Dewitt also reopened her bankruptcy case and moved for an order of contempt and for sanctions against HSBC for its alleged "violation of the discharge order and other actions …" Dewitt explained that in May 2017, prior to entry of the discharge order, the bankruptcy trustee filed a Notice of Final Cure. e purpose of the notice was to provide HSBC an opportunity to notify the court of any outstanding debt that Dewitt was required to pay. If HSBC incurred post-bankruptcy filing "fees, expenses, or charges" that were not already part of Dewitt's repayment plan, HSBC was required to file a claim for those charges under Rule 3002.1(c). Although HSBC filed a claim for the second tax advance during the bankruptcy proceedings, it did not file claims for the first or third tax advances. To make matters worse, upon receiving the Notice of Final Cure, HSBC filed a sworn response, under penalty of perjury, agreeing that the "Debtor was current on all post-petition payments due, including all fees, charges, escrow, and costs …" ereafter, the trustee filed its Certification of Final Payment and Case History. Although HSBC could have objected to the certification based on the outstanding tax advances, it chose not to do so. e court also noted HSBC never requested an extension of time to file the 3002.1(b) response or submit an accurate showing that any amounts remained outstanding. By way of explanation, HSBC stated that, at the time the trustee filed the Notice of Final Cure, HSBC's records reflected that the escrow balance of $10,253.86 (the total of the first and third tax advances) would be waived from the loan. [iv] However, at some point, ostensibly about a year after Dewitt's bankruptcy was closed, HSBC "changed its mind" and decided the advance remained recoverable from the Dewitt.