Matthew McCloskey and Debra McCloskey

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
In re: 	*
MATTHEW MCCLOSKEY, 	* 	Case No. 04-26258-PM
DEBRA MCCLOSKEY, 	Chapter 13
*
Debtors.
*
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
MEMORANDUM OF DECISION IN SUPPORT OF ORDER
DENYING RENEWED REQUEST [81] TO TERMINATE AUTOMATIC
PAYROLL DEDUCTIONS IN FAVOR OF TRUSTEE DUE TO COMPLETED
REFINANCE AND COMPLETION OF PLAN BALANCE
The Court has before it the Debtors’ Renewed Request [81] to Terminate Automatic
Payroll Deductions in Favor of Trustee Due to Completed Refinance and Completion of Plan
Balance (the “Request”), filed on November 20, 2006. A hearing on this matter was held on
December 19, 2006. During the hearing, the Debtors raised for the first time arguments not
presented in the Request. At the close of argument presented by both sides, the Court instructed
the Debtors to submit additional briefing with authority in support of their position on or before
January 15, 2007, and the Trustee to submit a reply on or before January 31, 2007. Neither the
Debtors nor the Trustee filed a brief.
Signed: March 08, 2007
SO ORDERED
Entered: March 09, 2007 Case 04-26258 Doc 94 Filed 03/09/07 Page 1 of 7

-2-
The Court has reviewed the pleadings, exhibits and the record in this case, and finds that the
Request will be denied.
BACKGROUND
On July 6, 2004, the Debtors filed their voluntary petition under Chapter 13 of the
Bankruptcy Code. On October 19, 2004, they filed an Amended Chapter 13 Plan (the “Plan”).
A hearing on confirmation of the Plan was held on November 30, 2004 and the Plan was
confirmed by Order [18] entered on December 9, 2004. Pursuant to the Plan, the Debtors were
to pay a total of $48,736.00 over sixty (60) months. An Order [19] to Pay Debtor’s Wages to
Trustee (the “Wage Order”) was also entered on December 9, 2004 to effectuate the monthly
payments.
Under the Plan, the prepetition arrearage owed to Flagstar Bank, FSB (“Flagstar Bank”),
the Debtors’ mortgage company, in the amount of $9,488.90, was to be paid by the Trustee
under the Plan and the post-petition payments were to be paid by the Debtors directly to Flagstar
Bank. However, at some point during the repayment period, the Debtors fell behind on the post-
petition payments, and on July 10, 2006, Flagstar Bank filed a Motion [56] for Relief from
Automatic Stay. According to this Motion, the Debtors had not paid the mortgage for five
months. This dispute was eventually resolved by entry of a Consent Order [66] Modifying
Automatic Stay on August 25, 2006.
About three weeks later, the Debtors filed a Motion [68] to Approve Incurring New
Secured Debt (the “Motion to Refinance”). The Chapter 13 Trustee filed a Response [69] on
September 29, 2006. Although he did not oppose the relief sought, the Trustee asserted that all
proceeds from the refinance, after payment in full to all lienholders, should be turned over to him
Case 04-26258 Doc 94 Filed 03/09/07 Page 2 of 7

1 The Order was the standard order uploaded by the Trustee and entered by this Court without objection
by the Debtors.
-3-
for distribution to creditors under the Plan. He also stated that as of that time, the amount
necessary to pay all allowed claims in full was approximately $190,910.00, including Flagstar
Bank’s arrearage balance of about $1,558.00, and that the amount needed to pay off the plan
base was $39,448.80.
On October 3, 2006, the Court entered an Order [70] Approving Secured Debt.1 The
Order contained, in part, the following provisions:
“ORDERED, that all debts secured by present liens upon the property
shall be paid at settlement; and it is further
ORDERED, that after payment of the costs of closing and satisfaction
of liens upon the property, the settlement office shall remit directly to the
Chapter 13 Trustee the lesser of: (1) the amount required to pay all allowed
claims; or (2) the total remaining net proceeds, together with a copy of the
executed settlement sheet (HUD-1); and it is further
ORDERED, that the plan confirmed in this case is hereby modified by
the terms of this Order; and it is further,
ORDERED, that if the Trustee does not receive the required proceeds
and settlement sheet (HUD-1) with[in] ninety (90) days of the date of entry of
this Order, the authority to refinance granted by the Order shall automatically
terminate and the modification to plan approved here in shall be void.”
See Order [70].
That day, the settlement agent requested from the Trustee a payment history and payoff figures.
On October 4, 2006, the Trustee notified the settlement agent that the balance needed to pay all
allowed claims in full was $174,337.85 and that the balance on the plan base was $39,448.80.
Case 04-26258 Doc 94 Filed 03/09/07 Page 3 of 7

-4-
On November 6, 2006, the Debtors filed a Request [72] to Terminate Automatic Payroll
Deductions in Favor of Trustee Due to Completed Refinance and Completion of Plan Balance
(the “First Request”). In the First Request, the Debtors asked that the Court immediately enter
an Order ceasing the payroll deductions authorized by the Wage Order because the refinance had
been consummated, $40,624.36 in proceeds had been paid to the Trustee, but payroll deductions
had not stopped. According to the Debtors, two payments of $520.80 each had been made to the
Trustee by Mr. McCloskey’s employer after closing on the refinance. Three days later, the
Debtors later withdrew the First Request on the grounds that the Trustee had assured them that
the payroll deductions would cease and the payments made after the refinance would be returned
to the Debtors. On November 20, 2006, the Debtors filed the instant Request. On December 19,
2006, the Court heard oral argument. The Debtors acknowledged that the wage deductions had
ceased, but raised two new issues for the first time: (1) that the Trustee should be required to
return $520.80 paid under the Wage Order and disbursed to creditors after the Order Approving
Secured Debt was entered but before the Trustee received the refinance proceeds; and (2) that
the Trustee should have received only the amount sufficient to pay the plan base.
CONCLUSIONS OF LAW
At the hearing on December 19, 2006, the Debtors introduced the following exhibits:
1. 	Department of Defense Civilian Leave and Earnings Statements with pay dates of
October 20, 2006, November 3, 2006 and November 17, 2006 (collectively marked as Debtors’
Exhibit 1);
2. 	Settlement statement (or HUD-1) dated October 13, 2006 (marked as Debtors’
Exhibit 2); and
Case 04-26258 Doc 94 Filed 03/09/07 Page 4 of 7

-5-
3. 	Facsimile cover sheet from the Debtors to their attorney containing a Trustee’s
Periodic Report to Debtor dated October 2, 2006 (marked as Debtors’ Exhibit 3).
The Trustee introduced the following exhibits:
1. 	A receipts register that reflects plan payments for the period August 3, 2004
through November 21, 2006 (marked as Trustee’s Exhibit 1);
2. 	A disbursement ledger that reflects payments made to creditors (marked as
Trustee’s Exhibit 2); and
3. 	A facsimile transmission sheet from the Trustee to Tabitha Fitzgerald containing a
receipts register for the period August 3, 2004 through September 26, 2006 and a Trustee’s
Period Report to the Debtor dated October 4, 2006 (marked as Trustee’s Exhibit 3).
All of the exhibits were admitted into evidence without objection.
The Order Approving Secured Debt is unambiguous. The issue in this case is one of
timing. On October 13, 2006, the refinance took place. On October 20, 2006, after the closing
but before the proceeds were disbursed, the Debtors made a $520.80 plan payment. The Trustee
received these funds on October 25, 2006 and on October 31, 2006, he distributed these funds to
creditors. On November 1, 2006, the Trustee received proceeds from the refinance in the
amount of $40,624.36. The Debtors made two payments after this date and the Trustee returned
both of them to the Debtors.
The Debtors argued that they are entitled to a refund of $520.80, which is the monthly
plan payment made after the Order Approving Secured Debt but before the Trustee received the
refinance proceeds. They also argued that they are entitled to the difference between the
Trustee’s asserted base plan balance of $39,448.80 and the proceeds paid to him of $40,624.36, a
Case 04-26258 Doc 94 Filed 03/09/07 Page 5 of 7

-6-
difference of $1,175.56. They argued that the Trustee has received an overpayment of
$1,696.36, and that permitting him to keep it results in a “rolling plan base.” Further, they
argued that they are treated disparately because Mr. McCloskey’s employer did not cease wage
deductions, whereas other debtors may stop making plan payments to the Trustee after the entry
of an order approving a refinance. Whether or not the Trustee in a particular case pursues
debtors who stop making payments too soon is not before the Court. The Order Approving
Secured Debt does not provide that payments should cease prior to the receipt of the proceeds.
In fact, to do so would result in the Debtors’ risk of default under the terms of the Plan should
the refinance not take place as planned. The Debtors cited no authority, statutory or otherwise,
in the Request or at the hearing in support of their position. As stated, neither the Debtors nor
the Trustee submitted post-hearing briefs.
The Court cannot grant the Debtors’ Request. The Order [70] Approving Secured Debt
expressly states that the Trustee was to receive the amount required to pay all allowed claims –
in this case, $174,337.85 – or the total remaining net proceeds, whichever is less. The Order
also says that the Plan was modified by the terms thereof. Moreover, the Trustee’s Periodic
Report to Debtor of October 2, 2006, admitted as Debtors’ Exhibit 3, contains the following
language:
“Your plan obligates you to pay a minimum amount called a base.
This amount is established at $48,736. You have paid a total of $9,287.20.
Thus, the balance on your ‘base’ is $39,448.80... The balance is approximate.
Interest, late filed claims, regular mortgage payments, if any, or other variables
may affect the total amount to be paid.”
See Debtors’ Exhibit 3, pp. 2-3 (emphasis added).
Further, it is not unreasonable to expect that amounts provided in advance of closing on a
Case 04-26258 Doc 94 Filed 03/09/07 Page 6 of 7

-7-
real estate transaction such as the refinance in this case would change somewhat by the time of
settlement. The Trustee received the net proceeds from the settlement, which were insufficient
to pay all allowed claims in full. The Court finds that the payments received by the Chapter 13
Trustee and then distributed to creditors was proper under the Order Approving Secured Debt.
Finally, the Court denies the Request insofar as the relief expressly sought therein, a cessation of
the automatic payroll deductions, has occurred and the Trustee has returned to the Debtor the
final payment made under the Wage Order. A separate Order will issue.
Case 04-26258 Doc 94 Filed 03/09/07 Page 7 of 7