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Newbie Summer Reading: Rake v. Wade

By Cathy Moran, Esq. Filed Under: Bankruptcy Practice

One more case before summer’s over:  Rake v. Wade. newbie summer reading

This one is interesting because it dealt with a central issue in Chapter 13:  whether the Bankruptcy Code requires payment of interest on mortgage arrears (which are usually themselves mostly interest) even when the underlying loan documents do not provide for interest on arrears.  And even more interesting, the effect of the decision had an effective life only slightly longer than a fruit fly.

In 1993, the Supreme Court held that the Code required payment of interest on arrears, even when the controlling documents did not so provide.  The 1994 amendments to the code added 1322(e)  reversing the decision with respect to any transaction entered into after the effective date of the amendments.

(e) Notwithstanding subsection (b)(2) of this section and sections 506 (b) and 1325 (a)(5) of this title, if it is proposed in a plan to cure a default, the amount necessary to cure the default, shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.

So, for once Congress watched what the Supreme Court had done, and acted to amend the law to effect its intention.

Unless the loans documents so provide, a mortgage creditor does not get interest on arrears through the plan.

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Filed Under: Bankruptcy Practice

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