In Re Cruz
MEMORANDUM OPINION:
Before the court is the debtors’ application to modify their confirmed Chapter 13 plan to reduce the payments being made to the second mortgagee from $6,859.03 to zero by retroactively applying the Third Circuit’s recent decision in
In re McDonald,
FACTS:
The facts of this case are uncontested. On April 8, 1998, the debtors filed a joint petition for Chapter 13 relief. In their schedules, they listed real property located
After being notified of the debtors’ bankruptcy, Cenlar filed a secured proof of claim in the amount of $37,446.14 and noted that the debtors were in arrears for $14,102.30. Foremost filed a secured proof of claim in the amount of $6,859.03. Subsequently, thе debtors filed an objection to Cenlar’s proof of claim and the claim was later amended to reflect arrears of $9,891.37. The debtors did not object to Foremost’s proof of claim.
On January 6, 1999, the debtors’ Chapter 13 plan was confirmed at $360 for seven months and then at $628 per month for fifty two months to be paid via wage order. Pursuаnt to the debtors’ plan, Cen-lar was to receive $9,891.37 for pre-petition arrears and Foremost was to receive $6,859.03 to pay the second mortgage in full. Regular payments were to be continued to Cenlar outside the plan. The debtors have now been making payments for twenty nine months.
Over one year later, on March 9, 2000, the Third Circuit decided
In re McDonald,
On July 12, 2000, eighteen months after confirmation of their plan, the debtors filed a motion to modify their Chapter 13 plan in order to modify the second mortgage claim held by Foremost which is presently being paid in full. According to the certification of service which accompanies the debtors’ motion, service was made to “Isabel Balboa, Trustee; Union Mortgage Company, Inc.; and the debtors”. This certification of service does not comply with • D.N.J. LBR 9013-3 which requires that all moving papers shall includе a certificate of service that shall identify the relationship to the case of each party served. As the 1998 comment to this rule provides, proper service is effected by identifying the name of the party served, the address of the party served, and the party’s relationship to the case. Assuming that the debtors served Uniоn at the address listed in the debtors’ schedules, which is also the address provided by Union’s servicing agent, Foremost, on its proof of claim, it appears that Union did receive service of the instant motion, despite the certification deficiencies.
Ignoring the scheduled value of $40,000 declared under penalty of perjury and upon which basis the plan was confirmed, the debtors assert that their home was worth only $26,900 based on the property tax assessment issued by the City of Camden for the year 2000. Since the balance due on the first mortgage held by Cenlar is $37,446.14 which exceeds this amount, the debtors contend that the second mortgage held by Foremost is wholly unsecured and cаn be modified to zero based on the McDonald decision. The debtors also urge this court to apply McDonald retroactively to permit this modification.
The Chapter 13 trustee objects to the debtors’ proposed modification on the grounds that the confirmed plan is res judicata on all issues that were or could have been decided at confirmation. Because prior to confirmation the debtor could have objected to Foremost’s proof of claim and any party could have challenged the $40,000 valuation, the trustee asserts that the debtor cannot now take a position contrary to the position taken at confirmation. The trustee also contends that § 1329 does not permit the proposed modi
For the following reasons, the debtors’ request to modify their Chapter 13 plan is denied.
DISCUSSION:
I. Effect of the Debtor’s Confirmed Plan and Modification of Foremost’s Secured Claim:
The requirements for confirmation of a Chapter 13 plan with respect to secured claims are found in §§ 1322(b)(2) and 1325(a) of the Bankruptcy Code. Pursuant to § 1322(b)(2), a debtor’s Chapter 13 plan may “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence.” 11 U.S.C. § 1322(b)(2). Pursuant to § 1325(a)(5)(B), a Chapter 13 plan must be confirmed if, among other requirements, it provides for the holder of an allowed secured claim to retain the lien securing such claim and provides for the payment of the value, as of the effective date of the plan, of any allowed secured claim. 11 U.S.C. § 1325(a)(5)(B). Alternatively, the plan shall be confirmed if the holder of the sеcured claim has accepted the plan. 11 U.S.C. § 1325(a)(5)(A). Accordingly, the value of each secured claim is fixed upon confirmation as of the effective date of the plan.
In re Meeks,
In relevant part, the Bankruptcy Code provides that:
The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.
11 U.S.C. § 1327(a). Once a plan is confirmed, it is res judicata to all issues that were or could have been brought prior to confirmation.
In re Szostek,
After a plan has been confirmed, the Code provides for specific circumstances in which a confirmed plan be modified.
Section 1329 provides:
(a) At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to—
(1) increase or reduce the amount of payments оn claims of a particular class provided for by the plan;
(2) extend or reduce the time for such payments; or
(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan, to the extent necessary to take account of any payment of such claim other than under the plan.
11 U.S.C. § 1329(a). This section explicitly sets forth the bases upon which a motiоn to modify a confirmed plan may be made. This section does not permit the debtor to change the classification of a creditor’s claim from secured to unsecured.
While § 1329 permits debtors to seek modification in order to increase or decrease monthly payments to a secured creditor so long as the full аmount of the allowed secured claim is paid in full, nothing in the language of § 1329 permits debtors to reclassify a secured claim.
In re Meeks,
A construction of § 1329(a) that allows reclassification of secured claims to unsecured claims reads the requirements
Since thе amount and status of a claim is fixed at confirmation and § 1329 does not permit revaluation of collateral or reclassification of claims post-confirmation, the parties are bound by the amount of a secured claim under § 1327 and the amount of the claim must be paid in full.
In re Coleman,
This court holds that § 1329 does not permit a debtor to modify the classification of a creditor’s allowed secured claim from secured to unsecured. Confirmation of the debtor’s plan is res judicata as to the amount and classification of a secured creditor’s claim.
This court is mindful that a few other courts, including
In re Day,
This court notes, however, that the rationale of these cases has been rejected by other courts across the country and this court also respectfully disagrees with those decisions which permit the post-confirmation modification of a secured creditor’s claim to an unsecured claim. “Conversion or dismissal, while effectively allowing the debtor to reclassify a secured creditor’s claim, also exposes the debtor to other risks and responsibilities, whereas no such tradeoff exists if the debtor is allowed to simply modify the plan.”
In re Coleman,
In the instant case, the debtors provided in their schedules that their reаl property had a valued of $40,000 and was subject to two mortgages. After each mortgagee
The debtors now want to ignore their prior statement of vаlue made under penalty of perjury and base the value of their home on a 2000 tax assessment by the City of Camden which values their home at $26,900. Their position is rejected for two reasons. First, the petition was filed in 1998 and the plan was confirmed in 1999, so the 2000 value is not in issue. Second, the issue of value could have and should have been litigatеd prior to confirmation of the debtors’ plan. As a result, the debtors are bound by their statement, upon which all parties relied at confirmation, that their home was worth $40,000.
See In re Wolf,
The debtors’ do correctly note that § 1329 provides an exception to the binding effect of a confirmed plan in certain situations. However, none of thosе situations exist in the instant case. First, the debtors are not proposing to change the payments to an entire “class” of claims. They are seeking to change the classification of an individual creditor’s claim and, as a result, how that creditor will be treated under the plan. Second, they are not proposing to extend оr reduce the time for payments. Third, the debtors are not proposing to alter the amount being paid to a creditor to account for payments made outside of the plan.
The debtors assert that they are merely attempting to reduce the payments to Foremost from $6,859.03 to zero. Aside from the fact that confirmation of the debtors’ plan fixed the amount of Foremost’s secured claim at $6,859.03, the only basis for reducing the payments to zero would be the reclassification of Foremost’s claim to unsecured. As the above authorities provide, § 1329 does not permit debtors to modify a secured claim by reclassifying it as an unsecured claim.
Based on the facts of this case, the debtors are bound by their confirmed plan which provides for the full payment of Foremost’s secured claim in the amount of $6,859.03.
See In re Szostek,
II. Retroactive Application of McDonald:
Even if the debtors could modify the rights of Foremost under § 1329 as they propose, there is no basis to do so because the Third Circuit’s decision in McDonald is not subject to retroactive application.
Prior to the
McDonald
decision, this court and several others in this jurisdiction interpreted § 1322(b)(2) to prеclude debtors from modifying the rights of any mortgagee which held a security interest in the debtors’ residence whether or not the mortgage was secured by any value in the collateral. The
McDonald
decision changed the interpretation in this jurisdiction by holding that a wholly unsecured mortgage was not subject to the anti-modification provision of § 1322(b)(2) and could be stripped off. However, nothing in that decision held that it was to be applied retroactively. As the Supreme Court has explained, retroactivity is limited by finality and “ ‘once suit is barred by res judicata or by statutes of limitation or repose, a new rule cannot reopen the door already closed.’ ”
In re
In the instant case, this court confirmed the debtors’ Chapter 13 plan based on the then current law in this jurisdiction which precluded a debtor from modifying the rights of holders of claims secured only by the debtors’ principal residence. The debtors chose not to appeal this decision and the confirmation order is nоw final. The debtors are bound by the provisions of their confirmed plan and the McDonald decision cannot be retroactively applied where an order of confirmation has become final.
CONCLUSION:
For the foregoing reasons, this court denies the debtors’ application to modify their confirmed Chapter 13 plan. The debtors’ confirmеd plan is res judicata to all matters which were or which could have been determined prior to confirmation, including the value of their residence and the amount and nature of the second mortgagee’s claim. The proposed post-confirmation modification impermissibly changes the treatment of the second mortgagee’s allowed secured claim to a general unsecured claim which would receive a dividend of zero. This type of modification is not contemplated by 11 U.S.C. § 1329.