LARRY ALBERT HURLBURT, Plaintiff - Appellant, v. JULIET J. BLACK, Defendant - Appellee, and JOSEPH A. BLEDSOE, III, Trustee.
No. 17-2449
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
May 24, 2019
ON REHEARING EN BANC
PUBLISHED
NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS; NATIONAL CONSUMER BANKRUPTCY RIGHTS CENTER, Amici Supporting Appellant.
Appeal from the United States District Court for the Eastern District of North Carolina, at Wilmington. Louise Flanagan, District Judge. (7:17-cv-00169-FL)
Argued: March 20, 2019 Decided: May 24, 2019
Before GREGORY, Chief Judge, and WILKINSON, NIEMEYER, MOTZ, KING, AGEE, KEENAN, WYNN, DIAZ, FLOYD, THACKER, HARRIS, RICHARDSON, and QUATTLEBAUM, Circuit Judges.
Reversed and remanded by published opinion. Judge Wynn wrote the opinion, in which Chief Judge Gregory and Judges Niemeyer, Motz, King, Agee, Diaz, Floyd, Harris, Richardson, and Quattlebaum joined. Judge Wilkinson wrote a dissenting opinion, in which Judges Keenan and Thacker joined.
Richard Preston Cook, RICHARD P. COOK, PLLC, Wilmington, North Carolina, for Appellant. James O. Carter, CARTER & CARTER, P.A., Wilmington,
WYNN, Circuit Judge:
In this bankruptcy case, we are asked to overrule a twenty-two-year-old decision of this Court holding that Chapter 13 debtors may not bifurcate a narrow subset of undersecured home mortgage loans into separate secured and unsecured claims and “cram down” the unsecured portion of such loans. See Witt v. United Cos. Lending Corp. (In re Witt), 113 F.3d 508 (4th Cir. 1997). As explained further below, we now align our circuit with every other court that has considered this issue to hold that the plain text of
The facts material to this appeal are not in dispute. In May 2004, debtor Larry Albert Hurlburt purchased real property located at 130 South Navassa Road, Leland, North Carolina (the “Property“), from Juliet J. Black for $136,000. Hurlburt paid Black $5,000 in cash at closing. Black financed the remaining $131,000 of the purchase price through a promissory note executed by Hurlburt in Black‘s favor, which note was secured by a purchase-money deed of trust naming Black as beneficiary. Under the mortgage agreement between Hurlburt and Black, the $131,000 principal accrued interest at 6% per annum, payable over 119 months in installments of $785.41, with a balloon payment of all remaining principal and accrued interest due on May 26, 2014. In the event of default, interest on the balance would begin to accrue at a rate of 8% per annum. Hurlburt used the property as his primary residence from the purchase date until the present day.
Hurlburt failed to pay the balance owed upon maturation of the loan. On January 29, 2016, Black initiated a foreclosure action in Brunswick County, North Carolina, claiming Hurlburt owed her approximately $136,000 under the mortgage. On April 13, 2016, Hurlburt filed a petition for relief under Chapter 13 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of North Carolina, which petition stayed Black‘s foreclosure action. In his petition, Hurlburt valued the Property at $40,000. That same day, Hurlburt brought an adversary proceeding against Black seeking to quiet title in the Property. On June 13, 2016, Black filed a proof of claim totaling $131,000, comprising a $40,000 secured claim and a $91,000 unsecured claim. The next day, Black filed an amended proof of claim totaling $180,971.721 but declined to identify the amount of the claim that was secured or unsecured as she “[did] not know the value of the collateral.” J.A. 88. Hurlburt filed an objection to Black‘s proof of claim.
On June 24, 2016, Hurlburt filed an amended complaint in the adversary proceeding seeking to acquire quiet title or avoid the deed of trust, while maintaining his statutory objection to Black‘s claim. Approximately six months later, the bankruptcy court granted partial summary judgment in favor of Black, finding the deed of trust was valid. See Hurlburt v. Black (In re Hurlburt), No. 16-00031-5-SWH-AP, 2016 WL 7076980, at *3 (Bankr. E.D.N.C. Dec. 5, 2016).
In February 2017, following the bankruptcy court‘s decision, Hurlburt filed a proposed Chapter 13 repayment plan, seeking to bifurcate Black‘s claim into secured and unsecured components. Under the proposed plan, Black would hold a fully secured claim for $41,132.19, which amount Hurlburt calculated by subtracting a senior Brunswick County tax lien totaling $5,867.81 from the Property‘s recently appraised value of $47,000.2 The plan proposed treating the remainder of Black‘s claim as unsecured, with Black receiving no payment for that portion of her claim. On February 23, 2017, Black filed an objection to the amended plan contending that Witt barred the plan‘s proposed modification and bifurcation of her claim and asserting that she was entitled to a secured
The parties filed cross motions for summary judgment. In an opinion filed June 7, 2017, the bankruptcy court first held that Hurlburt‘s plan would “modify” Black‘s rights under the note and deed of trust. In reaching that conclusion, the bankruptcy court first noted that “whereas the note itself requires repayment of $131,000 at 6 percent, the proposed plan would require only repayment of $41,132.19 at 4.5 percent.” Hurlburt v. Black (In re Hurlburt), 572 B.R. 160, 169 (Bankr. E.D.N.C. 2017). The plan‘s proposed changes to the loan principal and interest rate also had the effect of modifying “what constitutes a default under the note,” the court explained. Id. Having found that Hurlburt‘s proposed plan modified Black‘s rights under the note and deed of trust, the bankruptcy court further held that the plan violated
The district court affirmed the reasoning and judgment of the bankruptcy court in an opinion and order entered December 19, 2017. Hurlburt v. Black (In re Hurlburt), No. 7:17-CV-169-FL (E.D.N.C. Dec. 19, 2017). Two days later, Hurlburt filed a timely Notice of Appeal. A Fourth Circuit panel affirmed the district court‘s order in an unpublished, per curiam opinion issued on August 8, 2018. Hurlburt v. Black (In re Hurlburt), 733 F. App‘x 721 (4th Cir. 2018) (unpublished) (per curiam). On January 8, 2019, this Court granted Hurlburt‘s request for a rehearing en banc, thereby vacating the panel opinion. Hurlburt v. Black (In re Hurlburt), 747 F. App‘x 168 (4th Cir. 2019) (mem.).
II.
Hurlburt‘s appeal requires that we construe several provisions in the Bankruptcy Code. When construing a statute, we “first and foremost strive to implement congressional intent by examining the plain language.” Minor v. Bostwick Labs., Inc., 669 F.3d 428, 434 (4th Cir. 2012) (citation omitted). “[U]nless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning.” Kennedy v. St. Joseph‘s Ministries, Inc., 657 F.3d 189, 192 (4th Cir. 2011) (citation omitted). In interpreting the plain language of the statute, we also look to “the specific context in which the language is used, and the broader context of the statute as a whole.” Minor, 669 F.3d at 434-35. We review de novo questions of statutory construction. In re Sunterra Corp., 361 F.3d 257, 263 (4th Cir. 2004).
A.
Congress enacted the 1978 Bankruptcy Reform Act with the overarching goal of providing debtors with a “fresh start.” H.R. Rep. No. 95-595, at 118 (1978). Among other changes, Congress significantly revamped Chapter 13 to better “facilitate adjustments of the debts of individuals with regular income through flexible repayment plans funded primarily from future income.” 8 Collier on Bankr. (MB) ¶ 1322.01 (2018). To that end, a debtor seeking relief under Chapter 13 may file with the bankruptcy court a proposed plan for repaying claims, like Black‘s, asserted against the debtor. See Assocs. Comm. Corp. v. Rash, 520 U.S. 953, 956 (1997). Subject to confirmation by the court, that plan may “modif[y] the rights of secured and unsecured creditors.” Tidewater Fin. Co. v. Kenney, 531 F.3d 312, 316 (4th Cir. 2008).
Section 506(a)(1), which governs the value of the allowed secured claim, provides, in relevant part:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor‘s interest in the estate‘s interest in such property . . . and is an unsecured claim to the extent that the value of such creditor‘s interest . . . is less than the amount of such allowed claim.
In other words, Section 506(a)(1) “provides that a claim is secured only to the extent of the value of the property on which the lien is fixed,” whereas “the remainder of that claim is considered unsecured.” United States v. Ron Pair Enters., Inc., 489 U.S. 235, 239 (1989). Accordingly, when an allowed claim is undersecured—when the claimed amount exceeds the value of the property securing the claim—“Section 506(a)(1) requires the bifurcation of the claim into two components: a secured claim for the value of the collateral, and an unsecured claim for the balance.” In re Price, 562 F.3d 618, 623 (4th Cir. 2009); see also In re Young, 199 B.R. 643, 649 (Bankr. E.D. Tenn. 1996) (“Section 506(a) simply governs the allowance process for the secured status of a claim by supplying the method or formula for valuation, the result of which is bifurcation or separation of the secured claim into its secured and unsecured components.“). Once Section 506(a)(1) bifurcates an allowed claim into secured and unsecured components, Section 1325(a)(5)(B) may then be used to cram down the bifurcated claim to its secured amount, effectively “stripping the lien from the portion of the claim that exceeds that value.” In re Young, 199 B.R. at 648.
The Bankruptcy Code, however, does not permit bifurcation and cram down of all undersecured claims. In particular, Section 1322(b)(2) generally prohibits Chapter 13 discharge plans from “modify[ing] the rights of holders of secured claims . . . secured only by a security interest in real property that is the debtor‘s principal residence.”
The bankruptcy court and the district court held—and we agree—that Hurlburt‘s proposed Chapter 13 “modified” Black‘s “rights” under the promissory note and deed of trust. Among other modifications, the proposed plan reduced the principal due on the loan and reduced the interest rate at which Hurlburt must repay that principal, and thereby constrained the circumstances in which Black can exercise her right to foreclose on the property. See In re Hurlburt, 572 B.R. at 169-70; see also Nobelman, 508 U.S. at329 (recognizing that a creditor‘s rights under mortgage instruments may include, without limitation: the right to repayment of the principal at a specified interest rate, the right to retain the lien until the debt is paid off, and the right to proceed against the debtor‘s property via foreclosure and public sale); Anderson v. Hancock, 820 F.3d 670, 675 (4th Cir. 2016) (holding that a debtor‘s Chapter 13 proposal to reinstate a 5% pre-default interest rate in lieu of a 7% interest rate that was triggered by default ran afoul of § 1322(b)(2)‘s anti-modification provision); Litton v. Wachovia Bank (In re Litton), 330 F.3d 636, 643-44 (4th Cir. 2003) (holding that Section “1322(b)(2) prohibits modifications that would alter at least one fundamental aspect of a claim,” including “lowering monthly payments, converting a variable interest rate to a fixed interest rate, . . . extending the repayment term of a note, . . . [altering] the nature and rate of interest, and [changing] the maturity features of the loan“).3
Because the proposed plan modified Black‘s rights under the loan documents, the sole issue before this Court is whether Black‘s claim falls into the narrow exception to Section 1322(b)(2) set forth in Section 1322(c)(2), which provides:
Notwithstanding subsection (b)(2) and applicable nonbankruptcy law . . . 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) of this title.
Witt concluded that the meaning of that phrase is ambiguous because “[i]t cannot be determined, merely from the statute‘s text, whether the words ‘as modified’ should apply to ‘payment’ or to ‘claim.‘” 113 F.3d at 511. In finding ambiguity, Witt first recognized that “under the ‘rule of the last antecedent,’ a phrase“—in this case “as modified“—generally “should be read to modify its immediate antecedent“—in this case “claim“—and therefore that interpreting Section 1322(c)(2) as permitting modification of claims was “‘quite sensible as a matter of grammar.‘” Id. (quoting Nobelman, 508 U.S. at 330). Nevertheless, Witt held that that reading “is not compelled” because “the term ‘claim’ is part of the phrase ‘of the claim,’ which modifies ‘payment.’ It is quite plausible as a matter of common sense, we believe, that the phrase ‘as modified’ also modifies ‘payment’ and not ‘claim.‘” Id. In light of this purported ambiguity, Witt looked to Section 1322(c)(2)‘s legislative history and determined that Congress intended “that only payment may be modified.” Id. at 512.
Emphasizing that other aspects of Section 1322(c)(2)—not highlighted in Witt—indicate that Congress intended for the exception to permit modification of “claims,” not just “payment[s],” other courts universally have criticized Witt‘s finding of ambiguity and attendant reliance on the statute‘s legislative history. See, e.g., In re Paschen, 296 F.3d at 1209; In re Eubanks, 219 B.R. at 471-73; In re Tekavec, 476 B.R. 555, 556, n. 2 (Bankr. E.D. Wis. 2012); Geller v. Grijalva (In re Grijalva), No. 4:11-bk-25386-EWH, 2012 WL 1110291, at *3-4 (Bankr. D. Ariz. Apr. 2, 2012); In re Reeves, 221 B.R. 756, 760 (Bankr. C.D. Ill. 1998); In re Mattson, 210 B.R. 157, 158-59 (Bankr. D. Minn. 1997). Commentators have reached the same conclusion—the plain language of Section 1322(c)(2) authorizes Chapter 13 plans to modify claims, not just payment schedules. See Nat‘l Bankr. Rev. Comm‘n, Report of the National Bankruptcy Review Commission 237 (1997) (“[S]ection 1322(c)(2) authorizes a stripdown of an undersecured residential mortgage if final payment would become due during the course of the Chapter 13 plan.“); 8 Collier on Bankr. (MB) ¶ 1322.17 (2018) (opining that “the plain language of [§ 1322(c)(2)] permits the modification of a claim on [a qualifying] home mortgage through the bifurcation of that claim into secured and unsecured components, with the unsecured component crammed down pursuant to section 1325(a)(5),” and characterizing Witt as a “strained reading of the language” that runs “contrary to accepted canons of statutory construction, as well as the great weight of authority, and inconsistent with other language in the subsection that specifically referred to section 1325(a)(5)“).
Although we do not lightly overrule our precedent, we agree with these courts and commentators that “the specific context in which the language is used, and the broader context of the statute as a whole,” Minor, 669 F.3d at 434-35, establishes that Section 1322(c)(2) is best read to authorize modification of “claim[s],” not just “payment[s],” and therefore that 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.
The dissenting opinion maintains that Section 1322(c)(2) is most naturally read as allowing modification of only payments, not claims, because the provision uses the term “payment” “four times,” whereas it uses the term “claim” just once. Post at 30. But we do not interpret a statute‘s meaning simply by tallying up the number of uses of one term and then comparing that figure to the number of times Congress uses other terms. And all but one of Congress‘s four references to “payment” in Section 1322(c)(2) are used to define the class of homestead mortgage claims excluded from Section 1322(b)(2)‘s reach—those that mature before the final payment due on a repayment plan—and do not deal with the type of modifications permissible under Section 1322(c)(2)—the question this Court must resolve.
Second, we find it significant that Section 1322(c)(2) includes the prefatory phrase “[n]otwithstanding subsection (b)(2),” which indicates Congress intended for Section 1322(c)(2) to be an exception to or limitation on Section 1322(b)(2)‘s anti-modification provision. Put differently, “[t]he prefatory phrase ‘[n]otwithstanding subsection (b)(2)’ is a plain statement that subsection (b)(2)‘s prohibition on the modification of loans secured only by an interest in a debtor‘s primary residence does not have any application to the class of claims that fall under § 1322(c)(2).” In re Paschen, 296 F.3d at 1207 (emphasis added); see also In re Eubanks, 219 B.R. at 470 (“The introductory phrase, ‘[n]otwithstanding subsection (b)(2),’ clearly signals the drafter‘s intention that the provisions of the ‘notwithstanding’ section override conflicting provisions of any other section.” (citation and quotations omitted)). Notably, the prefatory language Congress used in Section 1322(b)—which identifies its provisions as “[s]ubject to subsections (a) and (c) of this section,”
Importantly, Section 1322(b)(2)—the provision to which Congress expressly made Section 1322(c)(2) an exception—deals with the “modif[ication of] the rights of holders of secured claims.”
Third—and most significantly—Section 1322(c)(2) provides that a Chapter 13 plan “may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this title.”
The dissenting opinion maintains that Section 1325(a)(5)(B) deals not with modification of secured claims through bifurcation and cram down, but instead is a “procedural” provision that deals with “payment timing and scheduling.” Post at 30-31. The dissent errs in characterizing Section 1325(a)(5)(B) as a “procedural” provision.
On the contrary, Section 1325(a)(5)(B) sets forth the substantive criteria a debtor‘s proposed plan must satisfy in order to be confirmed, including that any objecting creditor holding a secured claim—like Black—receive a distribution “under the plan on account of such claim [that] is not less than the allowed amount of such claim.”
Likewise, Section 1325(a)(5)(B) does indeed require that a confirmed plan set forth a payment schedule for repaying the value of the secured component of an undersecured claim. But contrary to the dissenting opinion‘s reasoning, the Supreme Court has recognized that the true “power” of Section 1325(a)(5)(B), Rash, 520 U.S. at 957, lies not in its requirement that the plan provide for payment of an allowed claim over a defined period, but rather in that it allows “a debtor to strip a secured creditor‘s lien down to the value of the collateral” and
In sum, the plain language of Section 1322(c)(2) exempts from Section 1322(b)(2)‘s anti-modification provision claims based on undersecured homestead mortgages for which “the last payment on the original payment schedule . . . is due before the date on which the final payment under the plan is due,” and therefore allows bifurcation of such claims into secured and unsecured components.
B.
Because the plain language of Section 1322(c)(2) authorizes modification of homestead mortgage loans subject to that provision, we do not believe that it is proper to rely on legislative history to “muddy [the] clear statutory language.” Milner v. Dep‘t of Navy, 562 U.S. 562, 572 (2011); see also United States v. Hatcher, 560 F.3d 222, 226 (4th Cir. 2009) (noting that a court may rely on a statute‘s legislative history “[o]nly if [the court] determine[s] that the terms of a statutory provision are ambiguous“). For the sake of argument, even if it was proper to look to the statute‘s legislative history, we do not believe that the legislative history carries much interpretive weight.
Witt points to two aspects of Section 1322(c)(2)‘s legislative history as supporting its conclusion that that provision authorizes modification of payments, not claims—(1) that the legislative history nowhere states that Congress intended to overrule Nobelman, notwithstanding that construing Section 1322(c)(2) as allowing bifurcation and cram down would “overrule” Nobelman‘s holding for the subset of homestead mortgages that mature before the end of a plan; and (2) that the legislative history is silent as to the modification of claims, notwithstanding that it expressly referenced a decision dealing with modification of payment schedules.
As to the first contention, it is correct that the statute‘s legislative history “makes no mention of the Nobelman decision or of any intention to overrule that decision” by enacting Section 1322(c)(2). In re Witt, 113 F.3d at 513 (noting that “[a]lthough the [House Committee] Report directly refers to forty cases, including three Supreme Court cases, that the Act was intended to overrule, Nobelman is not one of them“). According to Witt, “[i]f Congress intended such a revolutionary change in the law, . . . it would have made clear its intention to do so.” Id. (quoting United States v. Langley, 62 F.3d 602, 606 (4th Cir. 1995)) (alteration in original).
We believe Witt misplaced reliance on the absence of discussion of Nobelman in Section 1322(c)(2)‘s legislative history. To begin, “silence in the legislative history, no matter how clanging, cannot defeat the better reading of the text and statutory context.” Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1143 (2018) (citation and quotations omitted). “Even if Congress did not foresee all of the applications of [a] statute, that is no reason not to give the statutory text a fair reading.” Id. Therefore, the absence of any discussion of Nobelman in Section 1322(c)(2)‘s legislative history does not constitute a basis for rejecting the plain meaning of that provision, which, as explained above, authorizes the modification
More significantly, Witt‘s interpretive reliance on the absence of any discussion of overruling Nobelman in Section 1322(c)(2)‘s legislative history4 rests on a faulty premise—that Section 1322(c)(2), in fact, overruled Nobelman‘s holding that “Section 1322(b)(2)[] prohibited a Chapter 13 debtor from bifurcating home mortgage debt.” In re Witt, 113 F.3d at 509. But Section 1322(c)(2), as we construe it, does not overrule Nobelman.
Nobelman construed Section 1322(b)(2), 508 U.S. at 325-26, 332, and that construction remains untouched and controlling by our interpretation of Section 1322(c)(2). All that Section 1322(c)(2) does is exempt a narrow class of homestead mortgages—those mortgages for which the final payment is due prior to a debtor‘s last payment on a repayment plan—from Section 1322(b)(2)‘s reach. See In re Eubanks, 219 B.R. at 477 (”Nobelman is not overruled by § 1322(c)(2)—it is still the law that a mortgage protected from modification by § 1322(b)(2) cannot be bifurcated. The 1994 enactment of § 1322(c)(2) changed the class of mortgages that are protected from modification by § 1322(b)(2) without overruling any aspect of the Supreme Court‘s holding in Nobelman.“). Congress could not have intended to overrule Nobelman in enacting Section 1322(c)(2) because that provision is premised upon Nobelman remaining the controlling construction of Section 1322(b)(2). Put simply, there would be
no need for Congress to exempt mortgages covered byWitt‘s and the dissenting opinion‘s reliance on the legislative history‘s express reference to an opinion dealing with modification of payment schedules, without mentioning modification of claims, is no more persuasive. It is true that the House Committee report stated that the enactment of
In Perry, a creditor obtained a foreclosure judgment following the borrower‘s home-mortgage default. 945 F.2d at 62, superseded by statute, Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106. Under relevant state and bankruptcy law, the borrower could “redeem his house by tendering the full amount due at any time . . . until sixty days after the order for relief.” Id. at 65. Put differently, because the foreclosure judgment had been entered, the borrower‘s obligation under the loan accelerated, and, in order to keep his home, the borrower was obliged to make a single lump sum payment within sixty days. After entry of the foreclosure judgment, the borrower filed a Chapter 13 petition, which proposed paying the foreclosure judgment over the life of a multi-year repayment plan, rather than within the sixty-day window. Id. at 62, 65. The Third Circuit held that in such circumstances payment spreading constituted an impermissible “modification” of the creditor‘s rights, in violation of
According to Witt, the Committee Report‘s reference to Perry indicates that
Again, “silence in the legislative history . . . cannot defeat the better reading of the text and statutory context.” Encino Motorcars, 138 S. Ct. at 1143. Therefore, the legislative history‘s express reference to payment modification—and silence as to claim modification—does not provide grounds for ignoring
This Court does not overturn its settled precedents lightly. Witt, however, runs contrary to the plain text of
REVERSED AND REMANDED
WILKINSON, Circuit Judge, with whom KEENAN and THACKER, Circuit Judges, join, dissenting:
Congress obviously has the last word on matters of statutory interpretation. It can overturn a Supreme Court decision interpreting an Act of Congress if it wants. The Supreme Court held in Nobelman v. American Savings Bank that
Whereas the majority reads
My dissent rests on a broader point than the particular bankruptcy provisions at issue, important as those provisions are. The majority has arrogated to itself the authority to overturn a Supreme Court decision in the absence of any clear desire by Congress to do so. This is not healthy. It is not the way our judicial system is supposed to work. See Rodriguez de Quijas v. Shearson/Am. Exp., Inc., 490 U.S. 477, 484 (1989).
I.
Chapter 13 of the Bankruptcy Code allows debtors to reorganize their debts and repay creditors from future income. To do so, debtors propose plans normally allocating their next three-to-five years of disposable income for confirmation by the court. See
The Nobelman decision interpreted the breadth of the anti-modification provision. That case, like the present one, involved an underwater mortgage where the debtors owed more money than their home was worth (in lending terms, the mortgage was “undersecured“). Debtors with undersecured mortgages may wish to modify the lender‘s contractual rights in any number of ways. Three are relevant here. First, a debtor may wish to extend how long he has to repay his mortgage, up to the length of the plan. While not changing the amount owed, this sort of change gives the debtor more time to make payments. Second, a debtor may wish to treat the portion of the mortgage that exceeds the value of the home separate from the remainder of the mortgage, which is called “bifurcation.” See
Nobelman interpreted
One year later, Congress passed and President Clinton signed the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106. The Act was not only a bipartisan effort to update the Code, but also uncontroversial—it passed both chambers of Congress by voice vote. The present case involves § 301 of the Act, entitled “Period for Curing Default Relating to Principal Residence.” 108 Stat. at 4131. That section added Bankruptcy Code
(c) Notwithstanding [
§ 1322(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) of this title.
There can be no doubt that Congress meant for this new provision to limit the breadth of Nobelman‘s holding for “short-term” mortgages, where the final payment is due before the end of the plan. The majority and I agree that the new provision allows modification to the timing of payments on these mortgages. Our disagreement centers on whether
As the majority is willing to read
The Supreme Court has long acknowledged that this presumption has two features. First, it leads us to respect Congress‘s decision to override or endorse a particular holding; second, we do not lightly toss aside Supreme Court precedents that Congress has not squarely addressed. See Smith v. City of Jackson, 544 U.S. 228, 240-41 (2005) (rejecting argument that congressional disapproval of a holding with respect to one statute applied to its holding with respect to another). Taken together, the Supreme Court has set forth the presumption that when Congress means to override a recent, and highly relevant, Court decision, it tells us so. The corollary is that we ought not infer such a departure when Congress has not clearly evinced a desire to do so.
This presumption has even greater force in contexts, like bankruptcy law, where Congress actively polices judicial interpretations of substantive statutes. See Zuber v. Allen, 396 U.S. 168, 185 n.21 (1969) (“[The] significance [of congressional silence] is greatest when the area is one of traditional year-by-year supervision . . . where watchdog committees are considering and revising the statutory scheme.“); see also Christiansen & Eskridge, supra, at 1361-62 (describing active congressional supervision over the bankruptcy code and related interpretive
II.
Applying this simple proposition, I share with my colleagues the view that Congress intended debtors to be able to modify the timing of their mortgage payments. But I do not believe that Congress intended to eviscerate Nobelman altogether, as the majority would have it. It is instead my belief that a narrower reading of the statute, which would preserve a part of Nobelman‘s holding, is the superior one.
A.
It is clear that Congress meant for
The majority wishes to dismiss these references to payments as mere descriptors, arguing that many of those references to “payments” describe when a debtor will qualify for treatment under
Along those same lines, “the title of a statute and the heading of a section are tools available for the resolution of a doubt about the meaning of a statute.” Almendarez-Torres v. United States, 523 U.S. 224, 234 (1998) (internal quotation marks omitted); see Yates v. United States, 135 S. Ct. 1074, 1089-90 (2015) (Alito, J., concurring in judgment). The section heading relevant to the present case reads: “Period for Curing Default Relating to Principal Residence.” 108 Stat. at 4131. What the text of
B.
To say that
But Congress did none of those things. It instead used specific language: “notwithstanding subsection (b)(2)” the debtor can do one particular thing—namely, “provide for the payment of the claim” under the modified payment scheduling described in
The presumption in favor of respecting a Supreme Court decision is a strong one. Rather than honor that presumption, the majority chooses to go thrashing in the weeds. The majority advances several arguments in support of overturning Nobelman for short-term mortgages. None is persuasive. First, the majority argues that the phrase “notwithstanding subsection (b)(2)” is a plain statement that
The second argument pressed by the majority turns on the language, “the plan may provide for the payment of the claim as modified pursuant to
But that argument misapplies the rule of the last antecedent. First off, the rule ordinarily applies to lists. For example, in the phrase “cats, dogs, or gerbils that are brown,” the “that are brown” limitation would only apply to gerbils. The language would thus encompass a white cat, just not a white gerbil. Without a list,
Finally, the majority attempts to use the statutory reference to
It is of course true that
C.
The majority would like to believe that its interpretation of
It is also easy to see how today‘s decision will lead to mischief in bankruptcy courts. Debtors have some measure of control over whether their mortgage will qualify as a short-term one. Debtors near the margins will have obvious incentives to delay filing for bankruptcy or stall proceedings until their final mortgage payment is less than sixty months away. That is, after all, the key to avoid paying the full amount owed on the mortgage under the majority‘s view.
Worse yet, these consequences will fall hardest on lower-income debtors. Plans proposed by lower-income debtors, by default, cannot last for more than three years. See
Putting it all together, I am persuaded that Congress acted clearly in peeling back Nobelman‘s prohibition against modifying the timing of mortgage repayment. But I remain unconvinced that Congress also intended to totally overrule Nobelman by allowing debtors with short-term mortgages to modify the amount of those mortgages through stripdown or bifurcation. When interpreting a bankruptcy provision in light of pre-existing precedent, that clarity makes all the difference.
The majority asserts that this dissent‘s position rests on “legislative history.” Maj. Op. at 18-23. It somehow believes that by uttering the dread words “legislative history” it can inoculate itself from its refusal to consider evidence that fails to serve its purposes. See Hamilton, 560 U.S. at 517. Contrary to the majority‘s assertions, the dissent has nothing to do with legislative history. The inference to be drawn is not from the absence of some reference to Nobelman in a House or Senate Report; it is about the lack of modest clarity in the statute‘s own text.
To be sure, I think the interpretation of the text advanced in this dissent is the better one. But I do not rest upon that
III.
There can be no doubt that this is an issue of practical importance. The better interpretation of
Similarly, the great majority of mortgages have come to include acceleration clauses, which “require[] the debtor to pay off the balance sooner than the due date if some specified event occurs, such as failure to pay an installment . . . .” Acceleration Clause, Black‘s Law Dictionary (10th ed. 2014); see Delebreau v. Bayview Loan Servicing, LLC, 680 F.3d 412, 413-17 (4th Cir. 2012) (discussing acceleration clauses in home mortgages). Debtors in bankruptcy are uniquely vulnerable to acceleration clauses, as a single missed payment can sometimes cause the entire mortgage balance to become due. These sorts of mortgage instruments can push otherwise responsible borrowers toward bankruptcy because of one bounced check. The interpretation advanced herein empowers debtors with short-term mortgages to dig out from acceleration clauses and balloon payments over the course of the plan, just as Congress intended. For those homeowners, the opportunity to stretch payments over a 3-5 year plan, instead of paying every dime up front, can make all the difference. And in explicitly addressing the timing and scheduling of payments,
Indeed, two years before Nobelman, the Third Circuit had already interpreted
That said, the majority‘s interpretation has the salutary effect of providing even more relief to debtors, many of whom have been hurt by unforeseen circumstances outside of their control. Home ownership lies at the heart of the American Dream. No one wishes to snatch it just as people have begun to realize it. The ability to stay in your home by reducing how much you have to pay on your mortgage is a big deal for bankrupt homeowners. In this case, for example, Mr. Hurlburt may be able to use bifurcation to avoid foreclosure by giving Ms. Black payments worth only $41,132.19, instead of the $180,971.72 that under the loan documents he currently owes. That change likely represents the difference between keeping his home in bankruptcy, or not.
These undoubted benefits, however, come at a cost. Lenders are not blind to the effects of bankruptcy, and when the Code allows debtors to pay less than they
Ultimately, these trade-offs between protecting those in bankruptcy and encouraging a free-flow of capital for potential homeowners bottom out on a policy debate. I venture into this terrain only to show that, in light of unclear language, there are valid policy considerations on both sides. It is ultimately Congress‘s province to strike the “delicate balance” between the various interests in bankruptcy. Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1415 (2017) (internal quotation marks omitted). Bankruptcy is a field rife with unintended consequences when that “delicate balance” is disturbed.
We know how Congress struck that balance under the Code as interpreted by Nobelman. In areas with established precedent, we should respect the existing balance when Congress does not clearly wish to alter it. This does not mean that Congress must be crystal clear. Such a requirement would diminish the legislature‘s ability to reach compromises: Congress is a body with many members, and a little fuzziness may be necessary to come to an agreement. But that need does not obviate the presumption that Congress must speak with some modest clarity when nullifying on-point statutory Supreme Court precedents, particularly those in fields where Congress has its ear to the ground and casts an active eye. See Hamilton, 560 U.S. at 517.
The statutory text here supports a straightforward conclusion. Congress crafted a compromise that allowed debtors the time and space to get back on their feet without writing down debt to an extent that will restrict the flow of capital to prospective homebuyers. The majority runs far out in front of the statutory language. It charges forward without a note of caution and without a hint of doubt. The most basic task of judging is to understand when certitude is warranted and when certitude is perilous. The majority and I answer that question very differently today.
In recognition of Congress‘s clarity and its undoubted supremacy in matters of statutory interpretation, I agree that Nobelman‘s disallowance of modification as to the timing of loan repayments can no longer stand. In recognition of the absence of that same clarity in the face of obvious Supreme Court precedent, I believe that Nobelman‘s reading of
Notes
The debtor in Rash, for instance, could propose a plan involving bifurcation and stripdown of a security interest in his truck under