512 B.R. 498
Bankr. S.D.N.Y.2014Background
- Chapter 13 debtors filed to avoid liens on the Blueberry Hill property and bifurcate a first mortgage, seeking to value the property at $545,000 and treat the first mortgage as secured to that amount.
- Debtors no longer claim the Blueberry Hill property as principal residence, raising the question whether the anti-modification provision applies to the first mortgage lien.
- Creditor OneWest holds a first mortgage encumbering the Blueberry Hill property and a second mortgage; the alleged totals are approximately $1,223,033.54 and $153,981.81 respectively.
- A prior individual chapter 7 discharge for Mr. Wimmer creates an in-rem claim for deficiency on the liens, while Mrs. Wimmer has no personal liability on the notes.
- Debtors filed a second motion to reclassify the first mortgage as $545,000 secured and $678,033.54 unsecured, arguing the unsecured portion should be void due to the chapter 7 discharge.
- The court ultimately dismisses the case for debtor ineligibility under § 109(e) and denies confirmation, moot-ing the avoidance motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can liens be avoided when property is investment property, not a principal residence? | Wimmer argues Pond Moore allow avoidance of investment-property liens despite lack of principal residence. | Creditor argues 1322(b)(2) protects liens on the principal residence; since this is investment property, modification should be barred. | Liens may be avoided if property is not principal residence; Pond applies. |
| May a plan cram down a secured claim while curing and maintaining payments over the plan term? | Wimmer contends cram down and maintaining original term is permissible under 1322(b)(5) with 506(a) valuation. | Creditor argues plan cannot modify secured debt and maintain term; Till-based interest required. | Debtors cannot cram down and maintain the original loan term; plan confirmation denied. |
| Do unsecured portions of liens count toward the Chapter 13 debt limit after a prior Chapter 7 discharge? | Wimmer argues unsecured portions should be excluded due to prior discharge. | Creditor argues unsecured portions still count as claims for § 109(e) eligibility. | Unsecured portions count toward the debt limit even with prior discharge. |
| Is dismissal appropriate when the debtor is ineligible for Chapter 13 relief? | Wimmer seeks relief under 109(e) but argues for possible relief via plan. | Creditor contends dismissal is warranted due to ineligibility if debt limits are exceeded. | Dismissal is appropriate; case is dismissed for ineligibility. |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (U.S. 2004) (establishes Till interest for cram-down valuation)
- Pond, 252 F.3d 122 (2d Cir. 2001) (limits anti-modification to principal-residence context)
- Nobelman v. Am. Sav. Bank, 508 U.S. 324 (U.S. 1993) (anti-modification applies to principal residence only)
- Taranto (In re Taranto), 365 B.R. 85 (6th Cir. BAP 2007) (Till interest; value must be present value of claim)
- Johnson v. Home State Bank, 501 U.S. 78 (U.S. 1991) (discharge does not extinguish in rem claims; debt as claim remains)
- In re Wapshare, 492 B.R. 211 (Bankr.S.D.N.Y. 2013) (chapter 20 viability; lien avoidance and discharge interplay)
- In re Scotto-DiClemente, 459 B.R. 558 (Bankr.D.N.J. 2011) (in rem discharged claims; treatment as claims for 109(e))
- In re Dabrowski, 257 B.R. 394 (Bankr.S.D.N.Y. 2001) (distinguishes discharge vs. elimination of debt; in rem vs personal liability)
- In re Scovis, 249 F.3d 975 (9th Cir. 2001) (unsecured portion counted for §109(e) eligibility)
- Universal American Mortgage Co. v. Bateman, 331 F.3d 821 (11th Cir. 2003) (1361; confirms curing and maintaining; present value treatment)