In re: Jason M. Lee AND Janice Chen
FARIS, Bankruptcy Judge:
INTRODUCTION
Debtors Jason M. Lee and Janice Chen proposed a chapter 131 plan
Mission Hen appeals, arguing that the plan violated the anti-modification provision оf
Mission Hen does not establish reversible error. We AFFIRM.
We publish to address the effect of
FACTS
A. Prepetition events
In December 2006, Mr. Lee executed a promissory note in the sum of $846,359 (the “First Mortgаge“) in favor of IndyMac Bank, F.S.B. The note was secured by a deed of trust encumbering the residence of Mr. Lee and Ms. Chen (the “Property“). IndyMac Bank transferred its beneficial interest
Around the same time, Mr. Lee took out a home equity line of credit (the “HELOC“) with IndyMac Bank, which was secured by a second deed of trust on the Property. The original credit limit was $211,589, and the maturity date was January 15, 2027. Mission Hen is the current holder of the HELOC and deed of trust.
Beginning in 2020, Mr. Lee defaulted on both the First Mortgage and the HELOC. Both lenders recorded notices of default. Mission Hen also recorded a notice of trustee‘s sale.
B. The bankruptcy petition
On January 26, 2022, Mr. Lee and Ms. Chen jointly filed a chapter 13 petition and schedules. In their Schedule A/B, they scheduled the Property and stated that its current value was $1.045 million. They did not claim any exemption in the Property.
The Debtors scheduled claims secured by the Property. They identified the First Mortgage as a $952,510.26 secured claim and scheduled the HELOC as a “disputed” secured claim of $465,670.41, of which $373,180.67 was unsecured (meaning that $92,489.74 was secured). The Debtors also scheduled two community association claims secured by the Property ($21,030.39 and $11,060.08), both of which they indicated were unsecured. Additionally, they scheduled $83,185.04 of unsecured nonpriority claims.
The Debtors reported that their combined monthly income was
C. The proposed chapter 13 plan
The Debtors’ proрosed chapter 13 plan provided that the Debtors would cure and maintain payments on the First Mortgage. The plan would bifurcate Mission Hen‘s second-position claim into secured and unsecured portions and pay only the secured portion at five percent interest. The plan did not include payment of any other debt.
The Debtors indicated that they would file a motion to value the Property and avoid Mission Hen‘s lien. They also intended to avoid the community association liens.
D. The valuation motion
Mr. Lee filed a motion for an order determining the value of the Property (“Valuation Motion“). He sought the value determination because he intended to bifurcate Mission Hen‘s claim under
Mission Hen objected to the proposed plan. First, it asserted that the fair market value of the Property was significantly higher and that its claim was fully secured. Second, it argued that the plan failed to properly calculate the interest due on its claim. Third, it argued that the plan was not feasible because the Debtors would not be able to fund the plan. Finally, it contended that the Debtors had not established that all of the expenses in their schedules were “reasonably necessary.”
Mission Hen similarly opposed the Valuation Motion. It contended that the Property‘s true value was $1.36 million.
The bankruptcy court held an evidentiary hearing and issued an order (“Valuation Order“) finding that the value of the Property on the petition date was $1.225 million. Accordingly, it ruled that the secured portion of Mission Hen‘s claim was $265,473.06 and the unsecured portion was $204,030.50.
F. First amended plan
The Debtors filed a first amended plan. Based on the higher value of the Property fixed by the court, they increased their plan payments to pay the secured portion of the HELOC in full. Because their income had not increased, they accomplished the higher plan payment by increasing Ms. Chen‘s parents’ monthly contribution from $1,200 to $4,900.
Ms. Chen‘s mother, Linda Chen, filed a declaration in support of the
G. Second amended plan
Mission Hen objected to the amended plan, so the Debtors filed a second amended plan in response. Mission Hen objected to the second amended plan, arguing (for the first time) that the Debtors were ineligible to proceed as chapter 13 debtors because they exceeded the unsecured debt limits. It calculated that the unsecured claims on the claims register ($195,287.72), the unsecured portion of its HELOC claim ($204,030.50), and the two community association liens ($32,679.31 and $10,281.66) totaled $442,279.19, which exceeded the statutory limit of $419,275 set forth in
H. Third amended plan and objections
The Debtors filed a third amended plan that provided for periodic increases in the monthly plan payments.
Mission Hen objected to the third amended plan, maintaining that the Debtors were ineligible because they had too much unsecured debt.
Mission Hen further argued that the plan was not feasible. Among other things, Mission Hen argued that there was insufficient evidence to support Ms. Chen‘s parents’ ability to make the contribution. Furthermore, even with the contribution, the Debtors’ income was insufficient: from the tenth month of the plan, the plan payments would exceed the Debtors’ monthly net income by approximately $400.
For the first time, Mission Hen argued that the plan violated the anti-modification provision of
I. Fourth amended plan and response to objections
The Debtors filed a fourth amended plan that fixed typographical and calculation errors but otherwise left the bulk of the prior plan intact.
Second, as to feasibility, the Debtors contended that Linda Chen‘s declaration was sufficient.
Third, the Debtors argued that recent case law explicitly allows a debtor to strip down a secured lien that matures during the life of the chapter 13 plan under
J. Confirmation of the fourth amended plan
The bankruptcy court held a hearing on plan confirmation and other matters. The chapter 13 trustee indicated that he had no objection to the feasibility of the fourth amended plan. The bankruptcy court expressed concern about Linda Chen‘s declaration regarding her monthly contribution to the Debtors’ plan рayments. It stated that she had attached her closing statement to her declaration, but it was not authenticated; furthermore, the declaration only offered a conclusory statement that she would continue making the payments, without discussing her financial ability to do so. Nevertheless, the court found that the plan was feasible for
The court next rejected Mission Hen‘s argument that the anti-modification provision in
The bankruptcy court confirmed the fourth amended plan over Mission Hen‘s objection. Mission Hen timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under
ISSUE
Whether the bankruptcy court erred in confirming the Debtors’ chapter 13 plan over Mission Hen‘s objections regarding: (1) the bifurcation and cramdown of its lien; (2) the Debtors’ chapter 13 eligibility; and (3) the feasibility of the plan.
STANDARDS OF REVIEW
We review a decision to confirm a plan for abuse of discretion. Comput. Task Grp. v. Brotby (In re Brotby), 303 B.R. 177, 184 (9th Cir. BAP 2003). To determine whether the bankruptcy court has abused its discretion, we conduct a two-step inquiry: (1) we review de novo whether
“Of course, a determination that a plan meets the requisite confirmation standards necessarily requires a bankruptcy court to make certain factual findings and interpret the law.” In re Brotby, 303 B.R. at 184.
“We review the bankruptcy court‘s factual findings regarding whether a plan satisfies confirmation requirements for clear error.” Legal Serv. Bureau, Inc. v. Orange Cnty. Bail Bonds, Inc. (In re Orange Cnty. Bail Bonds, Inc.), 638 B.R. 137, 145 (9th Cir. BAP 2022). Fаctual findings are clearly erroneous if they are illogical, implausible, or without support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). If two views of the evidence are possible, the court‘s choice between them cannot be clearly erroneous. Anderson v. City of Bessemer City, 470 U.S. 564, 573-74 (1985).
We review the bankruptcy court‘s interpretation of the Bankruptcy Code de novo. Additionally, “[e]ligibility determinations under
DISCUSSION
A. The bankruptcy court did not err in allowing the Debtors to modify Mission Hen‘s claim.
Missiоn Hen argues that its claim was protected by the anti-modification provision of
Section 1322(b)(2) provides that a 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, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims[.]” (Emphasis added.) The highlighted portion of this section is known as the “anti-modification provision.”
Section 1322(c)(2) provides an exception to the anti-modification provision:
(c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law—
. . .
(2) in a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor‘s principal residence is due before the date on which the final
payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5)2 of this title[.]
Mission Hen asserts that the reasoning of Nobelman v. American Savings Bank, 508 U.S. 324 (1993), prohibits the bankruptcy court from modifying anything other than the repayment terms of its claim. In Nobelman, the bankruptcy court denied confirmation of a chapter 13 plan that would have allowed the debtors to bifurcate the secured creditor‘s lien on their real property into unsecured and secured claims and to make payments on only the secured portion.
The U.S. Supreme Court concluded that the proposed bifurcation and cramdown were impermissible:
[T]o give effect to
§ 506(a) ‘s valuation and bifurcation of secured claims through a Chapter 13 plan in the manner petitioners propose would require a modification of the rights of the holder of the security interest. Section 1322(b)(2) prohibits such a modification where, as here, the lender‘s claimis secured only by a lien on the debtor‘s principal residence.
Mission Hen‘s argument based on Nobelman fails. The Court‘s decision was founded on statutory interpretation. About a year after the Nobelman decision, Congress amended the statute by enacting current
Although the Ninth Circuit has not squarely addressed whether
Originally, the Fourth Circuit agreed with Mission Hen‘s position. In Witt v. United Companies Lending Corp. (In re Witt), 113 F.3d 508 (4th Cir. 1997), it held that
Over twenty years later, the Fourth Circuit overruled Witt in Hurlburt v. Black, 925 F.3d 154 (4th Cir. 2019) (en banc). It noted that “other courts universally have criticized Witt‘s finding of ambiguity and attendant
the specific context in which the language is used, and the broader context of the statute as a whole, establishes that Section 1322(c)(2) is best read to authorize modification of “claim[s],” not just “payment[s],” and therefore thаt a Chapter 13 plan may bifurcate a claim based on an undersecured homestead mortgage, the last payment for which is due prior to a debtor‘s final payment under a repayment plan, into secured and unsecured components and cram down the unsecured component.
Id. (cleaned up). It stated that “the phrase ‘payment of the claim as modified’ is most naturally read as permitting the modification of claims, not payments . . . .” Id. at 162.
The Fourth Circuit also stated that the introductory phrase “[n]otwithstanding subsection (b)(2)” “indicates Congress intended for Section 1322(c)(2) to be an exception to or limitation on Section 1322(b)(2)‘s anti-modification provision.” Id. Finally, the court highlighted the phrase “pursuant to section 1325(a)(5) of this title[.]” It reasoned that,
[b]y referencing a provision dealing with the modification of claims—and with the modification of claims by cramming down the unsecured component of an undersecured secured claim, in particular—as the source of authority for modification, Congress further indicated that it intended for Section 1322(c)(2) to authorize the modification of claims—not just
payments—including by bifurcating covered claims into secured and unsecured components and cramming down the unsecured component.
Other courts have reached the same conclusion as Hurlburt. See, e.g., Am. Gen. Fin., Inc. v. Paschen (In re Paschen), 296 F.3d 1203, 1207 (11th Cir. 2002) (“[T]he plain language of the statute indicates a clear congressional intent to except certain short-term mortgages from the general rule prohibiting the modification of claims secured only by an interest in a debtor‘s primary residence in a Chapter 13 proceeding.“); First Union Mortg. Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 474 (6th Cir. BAP 1998) (stating that “[r]esort to legislative history is not necessary to understand
Mission Hen largely ignores the above authority and argues that we should follow the overturned Witt decision and Hurlburt‘s dissent. The dissent in Hurlburt accused the majority of effectively overruling Nobelman and contended that, under the “rule of the last antecedent,” the phrase “‘as modified pursuant to section 1325(a)(5)’ immediately follows the phrase ‘payment of the claim,’ so the rule of the last antecedent comfortably supports the reading that only payments (of the claim) сan be modified.” 925 F.3d at 172-73 (Wilkinson, J., dissenting).
We are not persuaded by Mission Hen‘s reliance on an overruled case and a dissenting opinion. Rather, we agree with the overwhelming weight of authority that
Our analysis begins with the statutory language of
We will only consult additional guides to interpretation, such as legislative history and the statute‘s context, if the statutory language is ambiguous. Searcy v. Ada Cnty. Prosecuting Att‘y‘s Off. (In re Searcy), 463 B.R. 888, 892 (9th Cir. BAP 2012), aff‘d, 561 F. App‘x 644 (9th Cir. 2014). A term is ambiguous if it is fairly susceptible to different reasonable interpretations. Woods v. Carey, 722 F.3d 1177, 1181 (9th Cir. 2013).
We join the above-cited cases in holding that
Next, we consider the application of the “rule of the last antecedent” to the phrase “as modified pursuant to section § 1325(a)(5) . . . .” Mission Hen contends that this phrase applies to the phrase ”payment of the claim” as opposed to just the word ”claim.” We disagree; the rule of the last antecedent dictates that the “as modified” phrase modifies the word “claim.” As Paschen points out, had Congress intended “as modified” to apply to “payment,” it could have made its intention clear “by placing the modifier next to the phrase to be modified, such as through ‘payments as modified on the claim,’ or ‘modified payments on the claim.‘” In re Paschen, 296 F.3d at 1209; see Hurlburt, 925 F.3d at 161, 162 (holding that
Furthermore, we agree with Paschen that the ending phrase “payment of the claim as modified pursuant to section 1325(a)(5)” reflects “an explicit statement of
[s]ection 1322(c)(2) incorporates
§ 1325(a)(5) to definе the new power to modify real estate secured claims within its reach. The plain meaning of the phrase “provide for payment of the claim as modified pursuant to section 1325(a)(5)” includes that undersecured claims will be valued, bifurcated and crammed down consistent with well-settled interpretations of§ 1325(a)(5) .
In re Eubanks, 219 B.R. at 471-72 (citations omitted); see also Hurlburt, 925 F.3d at 163. The rationale employed in the Fourth Circuit‘s Witt decision “advances no convincing explanation for the meaning of the reference to
Finally, Mission Hen‘s interpretation cannot be squared with other provisions of
Therefore, because Mission Hen‘s secured claim matures during the plan term, the plain language of
B. The bankruptcy court did not err in determining that the Debtors were eligible for chapter 13 relief.
Mission Hen contends that the bankruptcy court erred in ruling that the Debtors were eligible chapter 13 debtors under
Section 109(e) defines who is eligible to be a dеbtor under chapter 13 of the Bankruptcy Code. When the Debtors filed their petition in January 2022, the limit for noncontingent, liquidated, unsecured debt was $419,275, and the limit for noncontingent, liquidated, secured debt was $1,257,850.6 We have stated that “eligibility debt limits should be strictly construed.” Soderlund v. Cohen (In re Soderlund), 236 B.R. 271, 274 (9th Cir. BAP 1999).
When a debt is undersecured, the unsecured portion of the claim is counted as unsecured debt for eligibility purposes. Id. at 273-74. “Refusing to count the undersecured portion of a secured creditor‘s claim as unsecured debt ignores reality and could lead to absurd results.” Id. at 274.
As Mission Hen correctly points out, the Ninth Circuit has stated that “eligibility should normally be determined by the debtor‘s originally filed schedules, checking only to see if the schedules were made in good faith.”
In this case, there was no allegation that the Debtors did not file their schedules in good faith, so Mission Hen urges that the inquiry should cease there, and the bankruptcy court may only rely on the debt amounts listed in the Debtors’ schedules. If we accept Mission Hen‘s position, then the Debtors’ unsecured debt reрorted in their schedules exceeds the $419,275 limit for unsecured debt:
| $373,180.67 | Mission Hen unsecured portion |
| $21,030.39 | Stonetree Manor Community lien |
| $11,060.08 | Woodbury Community Ass‘n lien |
| +$83,185.04 | other unsecured debt |
| $488,456.18 | total unsecured debt |
However, we doubt that Scovis intended such inflexibility. It held that
This case has a feature that is not “normal.” In most cases, the question of eligibility is raised early in the case. In that context, it makes sense to allow the court to rely on the debtors’ schedules filed in good faith, so the court can dispose of the eligibility question quickly, before the parties hаve expended much time, effort, or money on the case. In this case, however, Mission Hen did not raise the eligibility issue until after the bankruptcy court held an evidentiary hearing and decided the true value of the Property. Mission Hen‘s theory would force the bankruptcy court to evaluate eligibility while completely ignoring all of the work that it and the parties had done to value the Property. In this procedural setting, it would be absurd to require the court to consider only the earlier-filed schedules and disregard its own finding of value.7
We emphasize that we see no indication that the Debtors filed their schedules in bad faith or attempted to manipulate their schedules tо create
Scovis should not be applied mechanically when, as here, the Debtors filled out the schedules in good faith and mistakenly indicated that they are not eligible for chapter 13 relief, but the bankruptcy court subsequently determined, after a full evidentiary hearing and before anyone raised an eligibility chаllenge, that they were indeed eligible. The bankruptcy court did not err.
Accordingly, using the unsecured amount of the Mission Hen claim as determined by the Valuation Order, the Debtors’ unsecured debts fall within the unsecured debt limit:
| $204,030.50 | Mission Hen unsecured portion |
| $21,030.39 | Stonetree Manor Community lien |
| $11,060.08 | Woodbury Community Ass‘n lien |
| +$83,185.04 | other unsecured debt |
| $319,306.01 | total unsecured debt |
Therefore, the bankruptcy court did not err in holding that the Debtors were eligible for chapter 13 relief.
Finally, Mission Hen argues that the bankruptcy court erred in determining that the plan was feasible, because Ms. Chen‘s parents’ contribution was not adequately supported. We discern no error.
Section 1325(a)(6) requires that, before confirming a plan, the bankruptcy court find that “the debtor will be able to make all payments under the plan and to comply with the plan[.]” “To demonstrate that their proposed plan is ‘feasible,’ Chapter 13 debtors have to show that their plan has a ‘reasonable chance of success.‘” In re Mycek, Case No. 5:12-CV-00369-JGB, 2013 WL 9994332, at *3 (C.D. Cal. Oct. 22, 2013) (quoting In re Bassett, 413 B.R. 778, 788 (Bankr. D. Mont. 2009)).
A feasibility determination “is a finding of fact, which we may not disturb on appeal unless it is clearly erroneous.” In re Gavia, 24 B.R. 573, 574 (9th Cir. BAP 1982).
When considering the effect of a promised family contribution, there are no hard and fast standards. We have stated that, “[a]lthough family contributions may be considered in determining the feasibility of a plan, the court may require evidence of a ‘firm commitment by the family member to make the сontributions and a long and undisputed history of providing for the debtor.‘” Richards v. Marshack (In re Richards), BAP No. CC-21-1178-LTF, 2022 WL 884593, at *7 (9th Cir. BAP Mar. 24, 2022)
We defer to the bankruptcy court‘s findings concerning the plan‘s feasibility. The bankruptcy court considered the proposed parental
Mission Hen also argues that, even if allowing the parental contribution was appropriate, the Debtors’ net monthly income was insufficient to cover the plan payments beginning in the tenth month of the plan. Again, the bankruptcy court considered this argument but nevertheless found the plan feasible. The bankruptcy court must have implicitly found that Ms. Chen‘s parents could and would increase their contributions as necessary to cover the monthly plan payments; that finding was reasonable in light of the large amount of cash that the parents controlled.
Accordingly, the bankruptcy court did not clearly err in determining that the plan was feasible.
The bankruptcy court did not abuse its discretion in confirming the Debtors’ chapter 13 plan. We AFFIRM.
Notes
- (1) the nondebtor‘s relationship to the debtor and motivation in making the contributions;
- (2) the nondebtor‘s long and undisputed history of making the contributions or otherwise providing support for the debtor;
- (3) the unqualified commitment of the nondebtor to make the contributions in a specific amount for the duration of the chapter 13 plan; and
- (4) the financial ability of the nondebtor to make the proposed contributions, including expenses and liabilities of the nondebtor that might take precedence over the contributions.
Mission Hen implies that the bankruptcy court erred by not explicitly considering each of these factors. It does not cite any authority that the court must always consider any or all of these factors or give these factors equal weight.