In Chapter 13, if you didn't default, your mortgage may be reinstated

A successful Chapter 13 plan allows a Debtor to reinstate a delinquent mortgage as if no default had occurred. The Chapter 13 Trustee will verify the status of a mortgage as reinstated before the completion of a plan. When a Chapter 13 debtor receives a discharge, a permanent injunction against collection on amounts addressed through the Chapter 13 plan goes into place.  The willful failure of a creditor to have properly credited payments received under a confirmed Chapter 13 plan where there has been no default by a Debtor constitutes a violation of the discharge injunction if such action causes material injury to a Debtor.  A party who knowingly violates a discharge order can be held in contempt and sanctions awarded. The Ninth Circuit has applied a two-part test for a Debtor to prove in determining whether sanctions are justified:  (1) the creditor knew the discharge injunction was applicable and (2) the creditor intended the actions which violated the injunction.          

As to the first prong, the Court must find actual knowledge in the context of contempt before a finding of willfulness can be made.  Meaning, the Court must find evidence that the creditor was aware of the discharge injunction and that it applied to its claim. As to the second prong concerning a party’s intent, the focus is not on a party’s belief or intent, but on determination of whether a party’s conduct complied with the order at issue. If the Court finds a party has willfully violated the discharge injunction to a Debtor’s detriment, the Court may award compensatory damages, punitive damages, and attorney’s fees to the Debtor. Therefore, a Chapter 13 Debtor has protection to know once a delinquent mortgage has been cured through a confirmed Chapter 13 plan, that a Debtor is absolutely entitled to a fresh start going forward.