578 B.R. 792
Bankr. N.D. Ill.2017Background
- Debtor Robert LaPorta filed Chapter 11 on Sept. 30, 2017, after a Chapter 13 case earlier in 2017 had been dismissed; automatic stay would expire absent extension under 11 U.S.C. § 362(c)(3).
- Debtor sought extension of the stay; Wells Fargo (mortgagee) objected and moved to lift or annul the stay, alleging a judicial foreclosure sale occurred Oct. 2, 2017 (after the petition) and seeking retroactive annulment.
- Parties disputed facts (good faith, feasibility, notice of bankruptcy to the creditor) and a key legal question: whether a Chapter 11 debtor may cure and reinstate an Illinois mortgage after foreclosure judgment and expiration of the statutory redemption period but before judicial sale.
- The court temporarily extended the stay as to Wells Fargo pending further hearings and briefing; sale occurred after the petition date and without court approval, which the court suggested may violate the automatic stay absent annulment.
- The court held there are factual disputes bearing on annulment and stay relief (creditor’s knowledge and good faith, debtor’s bad faith and feasibility), and scheduled an evidentiary hearing.
Issues
| Issue | Plaintiff's Argument (Debtor) | Defendant's Argument (Wells Fargo) | Held |
|---|---|---|---|
| Whether Chapter 11 may cure and reinstate an Illinois mortgage after foreclosure judgment and expiration of redemption period but before judicial sale | Chapter 11 plan power (§1123(a)(5)(G)) permits curing and reinstating mortgage debt by plan installments; debtor need not rely on state-law redemption rights | Absent §1322(c)(1) in Chapter 11, cure after judgment is limited by state law and merger doctrine; remedy not available post-judgment/redemption period | Held: Chapter 11 may cure and reinstate an Illinois mortgage post-judgment and post-redemption so long as petition is filed before judicial sale. Court follows Seventh Circuit and district/bankruptcy precedents allowing cure in Chapter 11. |
| Whether the anti-modification clause in §1123(b)(5) bars curing/reinstating a principal-residence mortgage | Cure/de-acceleration is not a prohibited modification but a restoration to status quo ante; §1124 treatment can render the claim unimpaired | §1123(b)(5) mirrors §1322(b)(2) and was intended to prevent modification of residential mortgages in Chapter 11 | Held: §1123(b)(5) does not bar cure/reinstatement; cure is distinct from impermissible modification and may be accomplished in Chapter 11 (including by installments where appropriate). |
| Whether the post-petition foreclosure sale is void or should be annulled | Sale occurred after petition without court approval and likely violated the automatic stay; relief should not be retroactively validated absent equitable factors favoring annulment | Sale should be annulled if creditor acted in good faith and without notice; Wells Fargo claims it lacked knowledge and acted in good faith | Held: Whether to annul involves disputed factual issues (notice, good faith, debtor’s bad faith/feasibility); court did not grant annulment and set an evidentiary hearing. |
| Whether absence of §1322(c)(1)-type provision in Chapter 11 limits cure authority | Debtor: §1322(c)(1) merely clarifies Chapter 13 timing; Chapter 11 has independent cure authority and broader timing flexibility | Wells Fargo: §1322(c)(1) shows Congress limited cure timing in bankruptcy; lacking that in Chapter 11 does not create a broader cure right | Held: §1322(c)(1) was not intended to restrict Chapter 11 cure powers; Chapter 11 cure authority remains and is not constrained by the absence of a §1322(c)(1) analogue. |
Key Cases Cited
- Colon v. Option One Mortg. Corp., 319 F.3d 912 (7th Cir. 2003) (interpreting §1322(c)(1) and limits on cure timing relative to foreclosure sale)
- In re LaMont, 740 F.3d 397 (7th Cir. 2014) (treatment of secured claim through plan versus formal redemption)
- In re Lennington, 288 B.R. 802 (Bankr. C.D. Ill. 2003) (Chapter 11 cure and reinstatement of Illinois mortgage through plan)
- In re Clark, 738 F.2d 869 (7th Cir. 1984) (cure and de-acceleration are distinct from prohibited modification under §1322(b)(2))
- Madison Hotel Associates v. 749 F.2d 410 (7th Cir. 1984) (Chapter 11 cure/reinstatement authority discussed)
- In re Tynan, 773 F.2d 177 (7th Cir. 1985) (post-judgment cure inapplicability turned on intervening sale satisfaction, not merger doctrine)
- Bank of America, N.A. v. Caulkett, 135 S. Ct. 1995 (U.S. 2015) (canon against giving identical statutory language different meanings)