91 A.L.R.Fed. 501,
Collier Bankr.Cas.2d 106,
In re Robert S. SEIDEL, Charlotte A. Baggerman, Debtors.
Rоbert S. SEIDEL, Charlotte A. Baggerman, Debtors-Appellants,
v.
Judy LARSON and Dale Larson, Creditors-Appellees.
No. 84-3572.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted Nov. 8, 1984.
Decided Jan. 29, 1985.
Magar E. Magar, Portland, Or., for debtors-appellants.
Timothy J. Vanagas, Gresham, Or., for creditors-appellees.
Appeal from the United States District Court for the District of Oregon.
Before SKOPIL, FARRIS, and BEEZER, Circuit Judges.
FARRIS, Circuit Judge:
Robert Seidel and Charlotte Baggerman purchased a home. A promissory note secured by a mortgage was given in partial payment. The note provided for interest-only payments for a period of three years, at which timе the principal in full would come due. The purchasers defaulted when the principal came due, and the sellers commenced foreclosure proceedings in state court. Prior to final judgment of foreclosure and sale, the purchasers filed a Chapter 13 petition and plan under the Bankruptcy Code. Under the plan the purсhasers proposed to pay the debt then in default in sixty monthly installments, culminating in a final balloon payment of $4,000. The Bankruptcy Court for the District of Oregon refused to confirm the proposed plan because the plan attempted to "modify" the rights of creditors in violation of 11 U.S.C. Sec. 1322(b)(2). In re Seidel,
On review, the district court considered the statute and its legislative history and concluded that a debtor may not delay payment of an already-matured debt by filing a Chapter 13 petition. The purchasers appealed.
We have jurisdiction over the timely filed appeal under 28 U.S.C. Sec. 1291. The single issue on appeal--can a debtor use a Chapter 13 petition to delay payment of аn unaccelerated debt that matured prior to the filing of the petition?--is a question of law subject to de novo review. See United States v. McConney,
This issue is one of first impression in this circuit; similar but not identical issues have been considered by other circuit courts. See In re Clark,
When a creditor is secured only by the debtor's principal residence, a Chapter 13 plan is barred from "modifying" the rights of the secured creditor. 11 U.S.C. Sec. 1322(b)(2). Seidel's plan proposes to pay off a note, which had already reached its due date before he filed for bankruptcy, in installments over the next five years with a balloon payment at the end of that period. His plan therefore affects the rights of the creditor who holds both the note and the security interest in Seidel's home mortgage. We must decide whether the plan will so affect the creditor's rights that it amounts to "modifying" them, in violation of Sec. 1322(b)(2).
In deciding whether a plan rises to the level of "modifying" rights we first cоnsider whether that plan merely "cures" a default. Section 1322(b)(3) authorizes "the curing or waiving of any default," while section 1322(b)(5) authorizes the curing of a default when "the last payment is due after the date on which the final payment under the plan is due." We hold that Seidel's plan "modifies" his creditor's rights in violation of subsection b(2), and that the "cure" provisions of subsections b(3) and b(5) are inapplicable when a debt has reached its maturity date in the absence of acceleration, prior to the filing of the Chapter 13 petition.
I. Delay in payment of an already-matured debt is a "modification."
The distinctive feature of Seidel's plan is that it extends the time for complete payment of a note far beyond the time originally contemplated by the parties. In contrast to the bulk of section 1322(b) cases, in which a creditor has exercised its power to accelerate payment before a debt came naturally due, this case involves a note which had already fully matured and was immediately due and payable even before the plan was filed. Furthermore, Seidel proposes to delay payment of the matured debt over the next five years--the maximum period allowable under the statute, and only permitted when the court is convinced that unusual circumstances exist, 11 U.S.C. Sec. 1322(c)--with a large balloon payment postponed until the end of that period.
When applying section 1322(b) to already-matured debts, courts have held that "by in effect creating a new payment schedule, such action would clearly involve 'modifying' the rights of the mortgagee." In re Maloney,
Other courts have held that no alteration of the creditor's rights will be considered a "modification," so long as a creditor receives regular payments and ultimately rеceives "100% of what he is due plus accruing interest up until the time of payment." In re McSorley,
In making our own determination of the meaning of the word "modification" in subsection b(2), we must look to the "plain meaning" rule. "Thе starting point in every case involving construction of a statute is the language itself," Blue Chip Stamps v. Manor Drug Stores,
Instead of viewing the power to modify as "the alteration ... of [any] provisions of the secured creditors' contract," Bankruptcy Laws Commission's Report, H.R.Doc. No. 137, pt. 2, 93rd Cong., 1st Sess. 205 (1973), reprinted in Collier on Bankruptcy App. 2 at 205, however, some courts suggest that modification means only the altering of the system of regular installment payments originally set up by the debt contract. See Grubbs,
The only suppоrt for finding that subsection b(2) is restricted to barring home mortgagors from reducing regular installment payments is the fact that creditor lobbyists were especially fearful that the power of modification might authorize debtors to reduce the amount of installment payments. Hearings Before the Subcommittee on Improvements of the Judicial Machinery of the Senate Committee on Judiciary, 94th Cong., 1st Sess. 130 (1975) (Statement of Walter Vaughan on behalf of the American Bankers Association and Consumer Bankers Association). Just because creditors perceived the power to modify as including the power to reduce installment payments, however, does not mean that Congress intended the power of modification to be restricted to reducing the amount of installment payments. Instead, the "plain meaning" rule suggests that Congress contemplated a broader, natural meaning for the power to modify--including, among other things, the power to delay payments on an already-matured debt. "Very strong" evidence or explicit language from legislative histоry is necessary to overcome the plain meaning naturally to be drawn from the language of the statute. See Tulalip Tribes of Washington v. FERC,
In defining "modify," courts have also invoked the general legislative purpose of allowing a debtor to preserve his home. In re McSorley,
In addition to the general legislative purpose, however, we must also consider contrary legislative intent. In the specific context of subsection b(2), an amendment was added to protect home lenders, rather than home owners, by prohibiting home owners from modifying debts wholly secured by home mortgages. Grubbs,
We note that the Fifth Circuit, sitting en banc, found that subsection (b)(2) was not intended to limit "the general provisions of Chapter 13, see Sec. 1322(a), that permitted a petitioner's plan to pay from future income over the term of the plan any matured pre-petition obligations." Grubbs,
The view of the Fifth Circuit, however, is unduly narrow and contrary to its own analysis of the legislative history. The Fifth Circuit bases its view of subsection b(2) on thе fact that the drafters of the earliest version of subsection b(2), the Bankruptcy Laws Commission of 1973, had suggested that the power of "modification" included the power to change "the size and timing of installment payments."
Our view is supported by other aspects of the legislative history. Subsection b(2) originally permitted a plan to modify the rights of any creditor. Grubbs,
The evolution of subsection b(2), then, shows a deliberate intention by Congress to insulate a certain subset of creditors--those wholly secured by home mortgages--from the general authority to modify which the Fifth Circuit finds in section 1322(a). This exemption is evident from the ordinary reading of the language of subsection b(2).
We do not ignore those circuits that have held that defaults arising out of the acceleration of home mortgage debts can bе "cured" under subsections b(3) and b(5). In re Clark,
The decisions rely on the fact that "the plain meaning of 'cure,' as usеd in Sec. 1322(b)(3) and (5), is to remedy or rectify the default and restore matters to the status quo ante." Clark,
II. Subsection b(2) governs' a security interest even after it has been converted into a judicial lien.
Seidel notes, however, that subsection 1322(b)(2)'s ban on modification only applies when a claim is "secured only by a security interest in the debtor's principal residence." 11 U.S.C. Sec. 1322(b)(2). When the creditor obtained a judgment of foreclosure after Seidel filed his petition, the security intеrest was converted into a judicial lien. Therefore, Seidel argues, the creditor no longer has a claim "secured only by a security interest," and the creditor's rights may be modified under subsection b(2)'s own terms.
A few courts have interpreted the "secured only by a security interest" language as Seidel suggests, permitting modification where the creditor's seсurity interest was converted into a judicial lien prior to the filing of the debtor's petition. See e.g., In re Garner,
These courts have interpreted subsection b(2) in an entirely different manner than Seidel suggests, by looking to the policy behind the language. Congress inserted the "secured only by a security interest" language because it intended to limit the ban on modification to lenders "engaged only in providing long-term home mortgage financing [,not] lenders primarily engaged in consumer or other areas of financing but who take security interests in a residence or homestead to secure non-home financing debts." United Companies Fin. Corр. v. Brantley,
This reading of legislative intent is more plausible than the purely conclusory interpretation Seidel puts forward. If Seidel's interpretation were adopted, a debtor could "race to the courthouse," file a Chapter 13 petition, and thereby effectively deter any home mortgagee from enforсing its security interest. Once the petition was filed, a home mortgagee would be deterred from reducing its security interest to a judicial lien, since to do so would be to open itself up to a wholesale modification of its rights under subsection b(2). See In re Ivory,
We are compelled by the legislative history and the plain meaning of subsection b(2) to uphold Congress' intention to protect home mortgage lenders. Although Chapter 13 empowers all other types of debtors to "cure" their outstanding debts and make payments out оf future income, in the specific context of home mortgage debts, the final amendments to subsection b(2) unequivocally favor the creditor. The district court's holding that Seidel's Chapter 13 plan "modifies" his creditors' rights in violation of 11 U.S.C. Sec. 1322(b)(2) is
AFFIRMED.
Notes
We do not reach the issue decided by the Second, Fifth, and Seventh Circuits, concerning the postponement of payments on a debt which was accelerated prior to the filing of the Chapter 13 petition