455 B.R. 896
9th Cir. BAP2011Background
- Debtors filed for Chapter 13 in 2009 with the Las Palomas Drive property listed as their address and claimed zero exemption on it.
- BAC holds a secured claim of approximately $739,748 on the Property, which also has a second mortgage in favor of Countrywide for about $176,000.
- Debtors moved to modify BAC's claim, arguing the Property was not their principal residence and thus modification was allowed.
- Debtors later converted to Chapter 11 and proposed a plan to value the Property at $425,000 and bifurcate BAC's claim, with the second mortgage to be avoided.
- BAC contended the Property was the Debtors’ principal residence and subject to the anti-modification provision of § 1123(b)(5); they disputed the residency status and value.
- The bankruptcy court ultimately valued the Property at $440,000, found no bad faith, and allowed modification; the order was appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When is the determinative date for §1123(b)(5) residence status? | BAC: determine at petition date (or when security interest attached) as fixed. | Debtors: determine at plan confirmation since modification occurs then. | Petition date is determinative for residence status under §1123(b)(5). |
Key Cases Cited
- Nobelman v. Am. Sav. Bank, 508 U.S. 324 (1993) (valuation under §506(a) fixes secured status; protection from modification when secured)
- In re Zimmer, 313 F.3d 1220 (9th Cir. 2002) (how §506(a) valuation affects 'principal residence' status)
- In re Scarborough, 461 F.3d 406 (3d Cir. 2006) (interpretation of 'principal residence' language in §1123(b)(5))