640 B.R. 781
Bankr. D. Mass.2022Background
- Two Chapter 13 debtors (Gnaman and Materne) proposed "sale" plans: retain principal residence during the plan term and cure prepetition mortgage arrears by paying the creditor in full from proceeds when the house is sold at an unspecified time within the plan term (Gnaman: 60 months; Materne: 36 months).
- Gnaman proposed to make contractual mortgage payments directly to the servicer and to pay arrears/claim in a lump sum from sale proceeds; Wilmington Trust objected. The Chapter 13 Trustee also objected to Gnaman on means-test/best-efforts grounds.
- Materne proposed lower "adequate protection" payments (via the Trustee) that did not cover contractual payments/escrow and to pay all allowed mortgage claims from a future sale; Bank of America objected to both first and second mortgages.
- Neither debtor supplied a timeline, specific marketing/listing steps, broker employment, or concrete sale milestones; no imminent sale appeared to be in prospect.
- The court consolidated the overlapping legal issues and sustained the secured creditors’ objections, denying confirmation of both plans.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do balloon/lump‑sum payoffs after periodic payments violate §1325(a)(5)(B)(iii)(I)? | Creditors (Wilmington/BoA): equal‑payment rule forbids balloon payments following periodic payments. | Debtors: payoff on sale is not a "periodic payment" or plan does not "provide for" periodic payments, so §1325(a)(5)(B)(iii)(I) is inapplicable. | Court: §1325(a)(5)(B)(iii)(I) applies to periodic maintenance/adequate‑protection payments and prohibits a plan that combines periodic payments with a balloon lump‑sum payoff over objection. |
| Does an indefinite cure/sale window during the plan violate §1322(b)(2)/(b)(5) (anti‑modification; cure within reasonable time & maintenance)? | Creditors: indefinite delay modifies mortgagee rights in violation of §1322(b)(2); §1322(b)(5) requires cure within a reasonable time and maintenance of contractual payments. | Debtors: full payment on sale (via §1322(b)(8) / §1325(a)(5)) or label of payments ("adequate protection"/direct payments) avoids §1322(b)(5)/anti‑modification concerns. | Court: Plans must either (a) provide cure within a reasonable time and maintain contractual payments, or (b) show a concrete sale in prospect (with reasonable timing). Unspecified, indefinite sale timing impermissibly risks modification and fails the §1322 framework. |
| Are postpetition "adequate protection" payments immune from §1325(a)(5)(B)(iii) because of their label? | Debtor (Materne): calls the payments "adequate protection," so they are not the periodic payments covered by §1325(a)(5)(B)(iii). | Creditor: substance controls—regular payments are "periodic payments" regardless of label. | Court: Labels do not control. Regular postpetition payments (including so‑called adequate protection payments proposed in the plan) are treated as periodic payments under §1325(a)(5)(B)(iii). |
| Can a sale plan lacking sale detail meet feasibility and good‑faith (§1325(a)(6) & (a)(3)) requirements? | Creditors: absence of listing, broker, timeline, and shortfalls in payments show infeasibility and lack of good faith. | Debtors: statutory plan‑term limit is the only temporal constraint; sale may occur anytime within plan term. | Court: Without a concrete sale process, milestones, marketing evidence, and reasonable timing, the court cannot find feasibility or good faith; such plans fail confirmation. |
Key Cases Cited
- Rake v. Wade, 508 U.S. 464 (1993) (treats cure/maintenance under §1322(b)(5) as providing for a claim and informs §1325 analysis)
- Nobelman v. American Savings Bank, 508 U.S. 324 (1993) (§1322(b)(2) protects mortgagee's contractual rights against modification)
- In re Hamilton, 401 B.R. 539 (B.A.P. 1st Cir. 2009) (balloon payment at plan end violates §1325(a)(5)(B)(iii)(I))
- In re Cochran, 555 B.R. 892 (Bankr. M.D. Ga. 2016) (minority view: balloon payoff is not a "periodic payment" and may be permissible)
- In re Lopez, 372 B.R. 40 (B.A.P. 9th Cir. 2007) (maintenance/direct postpetition payments may not be "provided for by the plan")
- Dukes v. Suncoast Credit Union (In re Dukes), 909 F.3d 1306 (11th Cir. 2018) (mortgagee rights and "provided for" language construed in discharge/repayment context)
- Ameriquest Mortg. Co. v. Nosek (In re Nosek), 544 F.3d 34 (1st Cir. 2008) (discusses §1322(b) flexibility for chapter 13 plans)