444 B.R. 538
Bankr. M.D.N.C.2011Background
- Debtors filed a Chapter 13 petition July 20, 2010, with the male debtor employed as a Chief Water Plant Operator and the female debtor unemployed; they have two dependents.
- Their under-median income is $4,288 per month, per their B22C.
- They own a primary residence consisting of a mobile home and lot at 325 Kimberly Lane, Siler City, NC, valued at $62,052.60 and encumbered by a deed of trust assertedly secured for $132,429.97.
- Colonial Savings filed a secured proof of claim for approximately $134,392, asserting a secured lien and detailing a note, up to $144,728, with monthly payments and an estimated pre-petition arrearage.
- Debtors proposed a Chapter 13 plan to modify the Colonial mortgage by re-amortizing the value of the property over 108 months at 3.5% and paying through the plan, asserting §1322(b)(2) anti-modification applies due to escrow status.
- Colonial did not object previously, and the confirmation hearing proceeded; Colonial did not appear or object at the confirmation hearing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the plan complies with §1322(b)(5) when modifying the mortgage terms | Martin argues plan preserves cure/maintain or modification within life of plan. | Colonial contends modification must comply with §1322(b)(5) and cannot reduce principal/interest as proposed. | Plan fails §1322(b)(5); must be denied. |
| Whether §1322(b)(2) anti-modification applies to a deed of trust on principal residence with escrow | Debtors rely on Bradsher that escrow-related collateral allows bifurcation and modification. | Colonial contends bifurcation allowed only if compliant with other sections; plan as proposed does not. | Anti-modification does not bar modification, but plan still fails other requirements. |
| Whether cram-down under §1325(a)(5) is satisfied when creditor receives a new deed of trust instead of periodic cash payments | Plan argues new deed equivalently satisfies §1325(a)(5)(B)(ii) per Rash. | New promissory note cannot substitute cash payments; does not satisfy §1325(a)(5)(B)(ii). | Cram-down not satisfied; new note cannot substitute for cash payments. |
| Whether creditor silence constitutes acceptance under §1325(a)(5)(A) in light of Espinosa | Silence may be treated as acceptance based on Espinosa. | Espinosa does not compel treating silence as acceptance here; proper procedures required. | Silence does not amount to acceptance; plan cannot be confirmed on this basis. |
| Whether the plan can be confirmed by alternative treatment of the claim (bifurcation or long-term debt) or must be denied | Debtors argue bifurcation or continued payment at contractual rate is possible. | Plan fails both options because terms are inconsistent with §1322(b)(5) and §1325. | Plan cannot be confirmed; denial appropriate. |
Key Cases Cited
- In re Bradsher, 427 B.R. 386 (Bankr. M.D.N.C. 2010) (escrowed funds may affect 'real property' status for 1322(b)(2) purposes)
- In re Plourde, 402 B.R. 488 (Bankr. D.N.H. 2009) (payments beyond plan require curing defaults and maintaining payments at contract rate)
- In re Enewally, 368 F.3d 1165 (9th Cir. 2004) (cannot combine §1322(b)(2) modification with §1322(b)(5) cure/maintain beyond plan)
- United States v. Rash, 520 U.S. 953 (1997) (cram-down requires present value payments equal to secured claim)
- Till v. SCS Credit Corp., 541 U.S. 465 (2004) (presumptive Till rate for interest in Chapter 13 debtors)
- In re Bateman, 331 F.3d 821 (11th Cir. 2003) (Rule 3007 procedures; secured creditor claims must be properly objected to)
- In re Mizell, 260 B.R. 586 (Bankr. S.D. Ga. 2000) (creditor’s claim objection procedures; silence not acceptance)