496 B.R. 784
Bankr. E.D.N.C.2013Background
- Chapter 13 debtor Betty Hubbell's plan treats RBS Citizens' secured loan as fully secured and pays it over 58 months at 5.25% interest; monthly payment about $226.02.
- Promissory note originally dated 1986 with 9.5% interest, due 2016, accelerated in May 2012 before petition date.
- Deed of trust encumbers 141 Carriage House Trail, Garner, NC; loan assigned to RBS Citizens’ predecessor in 1991.
- Loan maturity (August 1, 2016) occurs before plan's final payment date, enabling §1322(c)(2) modification if allowed.
- RBS Citizens objects that modifying interest rate violates §1322(b)(2)'s anti-modification; debtor and trustee contend §1322(c)(2) allows modification so long as §1325(a)(5) is satisfied.
- Court to first decide if §1322(c)(2) permits modification, then set appropriate rate; ultimately overrules objection and allows confirmation with modified rate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §1322(c)(2) permits modifying a mortgage rate on a principal-residence lien. | RBS Citizens: §1322(c)(2) cannot overrule Nobelman; no bifurcation or rate modification. | Debtor/Trustee: §1322(c)(2) allows rate modification when §1325(a)(5) is satisfied. | Yes; rate modification permitted under §1322(c)(2) if §1325(a)(5) criteria are met. |
| Whether the plan complies with §1325(a)(5) for secured claims when the rate is modified. | RBS Citizens: modification may not affect lien rights; plan must preserve value. | Debtor/Trustee: modification can restructure payments while preserving lien and value. | Plan satisfies §1325(a)(5) with lien preserved and value not less than allowed amount. |
| Whether Wittapplicability constrains applying §1322(c)(2) to mortgage claims on principal residence. | RBS Citizens: Witt bars modification of mortgage terms. | Debtor/Trustee: Witt is limited and does not bar §1322(c)(2) modification where last payment falls during plan. | Witt does not control; §1322(c)(2) modification allowed here. |
Key Cases Cited
- Nobelman v. American Savings Bank, 508 U.S. 324 (U.S. 1993) (establishes anti-modification scope of §1322(b)(2) for principal-residence liens)
- Witt v. United Companies Lending Corp., 113 F.3d 508 (4th Cir. 1997) (limits §1322(c)(2) to payment terms, not bifurcation of the underlying claim; overruled only to extent of bifurcation)
- Griffin (Fed. Md. 2013), 489 B.R. 638 (Bankr.D. Md. 2013) (reaffirms limitations on §1322(c)(2) and supports modification of payment terms)
- Paschen, 296 F.3d 1203 (11th Cir. 2002) (interprets §1322(c)(2) as permitting certain modifications without bifurcation)
- Bagne, 219 B.R. 272 (Bankr.E.D. Cal. 1998) (permits modification of interest rate under §1322(c)(2) in appropriate context)
- Ibarra, 235 B.R. 204 (Bankr.D.P.R. 1999) (emphasizes protection of creditor interests under §1325(a)(5))
- Davis (TD Bank v. Davis), 716 F.3d 331 (4th Cir. 2013) (endorses use of §1322(c)(2) in certain mortgage-modification scenarios)
- Monroy, 650 F.3d 1300 (9th Cir. 2011) (discusses protections for mortgage lenders in home-secured plans)