530 B.R. 621
Bankr. M.D.N.C.2015Background
- Debtors Don and Patti Varner filed a Chapter 13 petition on December 30, 2014; their home in Pilot Mountain, NC is their principal residence.
- In 2003 they executed a mortgage note to CitiFinancial; CitiFinancial filed a proof of claim asserting a secured claim with a 9.08% interest rate and maturity around August 2018.
- Debtors’ proposed Chapter 13 plan would pay CitiFinancial in full over the plan term (estimated ≥3 years) but at a reduced interest rate of 5.25% (modifying the contractual rate).
- The Chapter 13 Trustee objected to plan confirmation and sought guidance on the appropriate interest rate treatment for the mortgage claim under 11 U.S.C. § 1322.
- The court considered whether § 1322(c)(2) permits modification of the contractual interest rate on a claim secured only by the debtor’s principal residence when the loan matures during the plan.
Issues
| Issue | Debtors' Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether § 1322(c)(2) permits modifying a mortgage creditor’s contractual interest rate on a claim secured solely by the debtor’s principal residence when the loan matures during the plan | Debtors: § 1322(c)(2) allows restructuring/payment modification (including reamortizing at a lower interest rate) when the claim matures during the plan | Trustee: § 1322(c)(2) only allows modification of payment timing/terms, not the underlying claim (including contractual interest) | Court: Following Fourth Circuit precedent in Witt, § 1322(c)(2) permits modification of payments but not modification of the creditor’s claim (including contractual interest); plan denied |
Key Cases Cited
- In re Witt, 113 F.3d 508 (4th Cir. 1997) (interprets § 1322(c)(2) as allowing modification of payment terms but not the creditor’s underlying claim, and does not overrule Nobelman)
- Nobelman v. American Savings Bank, 508 U.S. 324 (1993) (holds § 506(a) does not allow bifurcation of a mortgage on a debtor’s principal residence)
- Am. Gen. Fin., Inc. v. Paschen (In re Paschen), 296 F.3d 1203 (11th Cir. 2002) (criticizes Witt’s statutory reading and interprets § 1322(c)(2) differently)
- In re Hubbell, 496 B.R. 784 (Bankr. E.D.N.C. 2013) (allowed reamortization/interest-rate restructuring under § 1322(c)(2) but court here found it unpersuasive)
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (recognizes Congress intended a broad definition of "claim")