Michael Jacques Jacobs
On March 16, 2022, the United States Trustee (“UST“) filed a motion to convert this chapter 11 to a case under chapter 7 or alternatively to dismiss the case (“Motion to Convert or Dismiss“).1 The UST requests the Court to convert Debtor‘s bankruptcy case to chapter 7 or dismiss the case under
Having considered the evidence and the relevant case law, the Court finds and concludes that cause exists to either convert Debtor‘s chapter 11 bankruptcy case to chapter 7 or dismiss the case because Debtor‘s plan, filed more than two and a half years after Debtor commenced this bankruptcy case, does not comply with the Code‘s requirements for treatment of a claim secured only by Debtor‘s principal residence. Under the circumstances, dismissal is in the best interests of creditors and the estate.
GENERAL BACKGROUND AND PROCEDURAL HISTORY
Debtor commenced this voluntary case under chapter 11 of the Code on November
DLJ filed proof of claim No. 6-1 in Debtor‘s bankruptcy case on May 6, 2020 and a motion for relief from stay (“Stay Relief Motion“)5 on April 2, 2020. The Stay Relief Motion included a request for in rem relief under
On May 24, 2021, the Court entered an Order Granting In Rem Stay Relief under
On May 24, 2021, the Court entered an order allowing DLJ‘s claim and overruling Debtor‘s objection to DLJ‘s claim (the “Order Allowing DLJ‘s Claim“)12 based in part on the Court‘s prior determination that the Foreclosure Judgment is entitled to preclusive effect.13 The Court allowed DLJ‘s claim as a secured claim in the amount of $497,457.45, the amount claimed in DLJ‘s proof of claim No. 6-1.14
Debtor and DLJ participated in mediation in November of 2021.15 The mediation did not result in settlement.16 Debtor filed five motions seeking to alter or amend or
Opinion.17 All of these efforts were unsuccessful.18 The Court determined that it is bound by the Foreclosure Judgment and cannot look behind it.19
Debtor filed a Notice of Appeal20 of the Court‘s Memorandum Opinion Regarding Debtor‘s Motion for Relief from a Judgment or Order21 and a Notice of Appeal22 of the Court‘s denial of Debtor‘s request for Rule 60(b) relief.23 Both appeals remain pending with the Tenth Circuit Bankruptcy Appellate Panel.
Debtor has filed four plans over the course of this case: 1) Debtor‘s Reorganization Plan, dated June 21, 2021 (Doc. 168);24 2) Debtor‘s Reorganization Plan attached as Exhibit A to Disclosure Statement for Small Business Under chapter 11 filed September 30, 2021 (Doc. 206); 3) an Amended Proposed Plan of Reorganization attached as Exhibit A to Amended Disclosure Statement for Small Business under chapter 11 filed March 5, 2022 (Doc. 227); and 4) Second Amended Reorganization chapter 11 Plan dated July 11, 2022 (the “Second Amended Plan” - Doc. 284). The UST filed the Motion to Convert or Dismiss shortly after Debtor filed the Amended Proposed Plan of Reorganization. Following the preliminary hearing on the UST‘s Motion to Convert or Dismiss, the Court fixed a deadline of June 20, 2022 for Debtor to file the Second Amended Plan.25 On Debtor‘s request, the Court extended that deadline to July 11, 2022.26 Debtor timely filed the Second Amended Plan. The Amended Chapter 11 Small Business
Disclosure Statement (Doc. 283) filed in conjunction with the Second Amended Plan has not yet been approved, and no confirmation hearing has yet been set on the Second Amended Plan. The Court deferred setting a hearing on approval of the disclosure statement pending a ruling on the UST‘s Motion to Convert or Dismiss.
A significant portion of the UST‘s Motion to Convert or Dismiss is based on its assertion that Debtor did not file this bankruptcy case in good faith. After the UST filed the Motion to Convert or Dismiss, the Court fixed an optional briefing deadline regarding the effect of
To decide the Motion to Convert or Dismiss, the Court need not consider evidence of Debtor‘s good faith or bad faith in filing and prosecuting this bankruptcy case and prior bankruptcy cases because, as explained below, cause to dismiss or convert exists based on the
Code‘s requirement under
FACTS
A. DLJ‘s Claim, Prepetition Arrears, and Regular Monthly Mortgage Payment
Debtor and Mrs. Jacobs executed a Mortgage dated November 9, 2005 (the “Mortgage“) against Debtor‘s principal residence securing the indebtedness under an Adjustable Rate Note of the same date (the “Note“). DLJ holds an allowed secured claim in this bankruptcy case secured only by the Mortgage in the amount of $497,457.45 as of the petition date. This figure is based on the amount of the in rem Foreclosure Judgment entered against Debtor and Mrs. Jacobs on June 5, 2018 in the State Court Action, plus interest accrued to the petition date, and the preclusive effect of the Foreclosure Judgment. The Foreclosure Judgment includes interest accrued through May 6, 2016 and provides that interest accrues thereafter at the fixed rate of 3.5% per annum.29 DLJ holds an allowed claim secured solely by Debtor‘s principal residence in the amount stated above.
The regular monthly mortgage payment as stated in an attachment to DLJ‘s proof of claim is $1,655.04 plus monthly escrow of $525.69.30 The loan payment history attached to DLJ‘s proof of claim No. 6-1 begins as of March 31, 2011, and shows no payments received.31
Notes
HAMP
Debtor and Mrs. Jacobs entered into negotiations with EMC Mortgage Corp., a predecessor in interest to DLJ with respect to the Note and Mortgage, for a modification to the
loan under the Home Affordable Modification Program (“HAMP“). Under the proposed HAMP loan modification, Debtor‘s mortgage payments on the Property would be approximately $1,500, including taxes and insurance. Debtor and Mrs. Jacobs testified that Nationstar Mortgage, LLC (“Nationstar“), a successor in interest to EMC Mortgage Corp. with respect to the Note and Mortgage, refused to honor the HAMP loan modification. No evidence of a fully executed HAMP loan modification was presented to the Court.
Escrow Payments
As a 100% disabled veteran, Debtor is currently exempt from paying property taxes on the Property.32 Debtor also pays his own property insurance for the Property.33 The amount of the Foreclosure Judgment includes $26,692.10 for “Escrow Advances [for property taxes and insurance] through May 6, 2016.”34
Arrearage Amount
The Foreclosure Judgment contains a breakdown of the $442,555.93 judgment amount as of May 6, 2016, comprised of principal, interest, escrow advances, pre-acceleration late charges, property inspection fees, attorney‘s fees, and litigation costs,35 but there is no evidence before the Court of a finding by the State Court regarding the amount of arrearages owing under the Note and Mortgage had the due date of the debt not been accelerated.36
An attachment to DLJ‘s proof of claim reflects a total pre-petition arrearage of $239,195.44.37 Debtor disputes whether DLJ properly credited the last payment he and Mrs. Jacobs made on the Note and Mortgage sometime in the fall of 2011.38 Debtor could not recall the exact date when he and Mrs. Jacobs stopped making payments because house sitters destroyed certain papers and documentation, but he believes the last payment to Nationstar was in September of 2011. Debtor and Mrs. Jacobs maintain that they were current on the loan payments as of September of 2011. Debtor testified further that he and Mrs. Jacobs later attempted to make some mortgage payments that were returned. Debtor and Mrs. Jacobs have made no post-petition mortgage payments to DLJ.
For purposes of ruling on the Motion to Convert or Dismiss, the Court will construe the evidence in favor of Debtor and Mrs. Jacobs and assume that Debtor and Mrs. Jacobs were current on the loan payments as of October of 2011, that the monthly mortgage payment is $1,500 (the amount they testified was the negotiated monthly mortgage payment under the HAMP loan modification), that they have not made any payments on the Note and Mortgage since November of 2011, and that the prepetition arrearages are $142,500.39 In addition, $52,500 in unpaid post-petition mortgage payments will have accrued post-petition by the effective date
of a confirmed plan in this case (which assumes a plan will be confirmed by the end of November 2022) resulting in a total preconfirmation arrearage in the amount of $195,000.40
B. Treatment of DLJ‘s Claim in Debtor‘s Second Amended Plan
Debtor classifies DLJ‘s claim in the Second Amended Plan as “Unimpaired.”41
The Second Amended Plan proposes treatment of DLJ‘s claim as follows:
Debtor offers as indubitable equivalent cаsh payments and a Promissory Note secured by real property totaling $519,044.75. Debtor shall pay $22,044.75 as an initial payment and monthly mortgage payments of $1,469.65 along with minimum monthly Promissory Note payments of $414.75 (toward arrearages), totaling $1,887.40. This offer stands until if and/or when outstanding adjudication is concluded and may require reexamination by the Court.42
Debtor also asserts in the Second Amended Plan that he will be eligible for a Veteran‘s Loan “after the customary waiting period.”43 The evidence does not establish when the customary waiting period will end or the likelihood of Debtor obtaining such a loan. The Second Amended Plan contemplates that the result of Debtor‘s appeal of the Foreclosure Judgment and his appeal of this Court‘s Memorandum Opinion and Orders might require further amendment.44 The Second Amended Plan asserts that the value of the Property is $576,000. The disclosure statement accompanying the Second Amended Plan states that the pre-petition arrearage on DLJ‘s secured claim is $239,195.44.45 This amount matches the pre-petition arrearage reported in DLJ‘s proof of claim.46
C. Debtor‘s Income Sources
Monthly Operating Reports and Bankruptcy Schedules
Debtor‘s monthly operating reports (“MORs“) reflect average total monthly income of approximately $5,000.47 After subtracting Debtor‘s monthly expenses as reported in Debtor‘s MORs, Debtor‘s cumulative total net income from December of 2021 through August of 2022 is negative.48
Debtor‘s Schedule I49 reflects total monthly income of $4,833.20, including a contribution from Mrs. Jacobs, Debtor‘s non-filing spouse, in the amount of $763.20, pension or
retirement income of $3,227.00, and social security income of $843.00.50 Schedule J reflects a monthly mortgage expense of $1,500.00, and total net monthly income of $396.20. 51
Oregon Property
Debtor owns real property in Oregon located at 6333 SW Buckskin Lane, Terrebonne, OR 97760 (the “Oregon Property“). Debtor scheduled the Oregon Property with a value of $150,000.52 Debtor‘s Second Amended Plan values the Oregon Property at $483,400.53 The Oregon Property is unencumbered. Debtor anticipates receiving rental income of between $1,600 and $2,200 per month for the Oregon Property.
Storage Units
Debtor currently rents several storage units where he has been storing some of his personal property. The monthly storage expense reflected in Debtor‘s Schedule J is $650.00. Debtor intends to clear out some of those units, which he anticipates will free up an additional $400.00 per month available to make plan payments.
Photography Business
Debtor is an accomplished photographer. In the past he has photographed several Presidents of the United States, presidential candidates, and many celebrities.54 In 2021, Debtor served as Staff Photographer for Albuquerque, The Magazine.55 Debtor hopes to revitalize his photography business as a source to fund his chapter 11 plan. He is actively seeking to sell his
photographs and secure assignment work. Debtor presented no documentary evidence to support any amount of anticipated revenues from his photography business and related projects.
Litigation
The Second Amended Plan identifies several litigation matters as a possible source of funding for the plan: 1) Adversary Proceeding No. 20-1053-j filed September 15, 2020 against DLJ‘s servicer, Selene Finance LP; 2) a copyright infringement action filed by Debtor against Journal Publishing Company, et al., Case No. 21-cv-00690-MF-SCY filed in the United States District Court for the District of New Mexico on July 21, 2021; and 3) a counter-claim filed by Debtor against United Van Lines for theft of property as Case No. 20-cv-03741 filed in the United States District Court for the Central District of California on April 23, 2020. Other than the statements for potential recoveries from these lawsuits as stated in the Second Amended Plan, no evidence was presented to the Court to support the likelihood of success of any of the lawsuits, any likely recovery amounts, or the anticipated time frame for recovery.
DISCUSSION
A. “Cause” under § 1112(b)
The UST seeks conversion of this chaрter 11 case to a case under chapter 7 or, in the alternative, dismissal for “cause” under
Hall v. Vance, 887 F.2d 1041, 1044 (10th Cir. 1989) (“This list is not exhaustive.” (citing the legislative history)); In re Autterson, 547 B.R. 372, 409 (Bankr. D. Colo. 2016) (“Section 1112(b)(4) identifies 16 examples of cause; but the list is illustrative, not exhaustive.” (citations omitted)). Though not specifically enumerated in the statute, “cause” for dismissal or conversion includes a debtor‘s bad faith in filing or prosecuting a chapter 11 case, In re S-Tek 1, LLC, No. 20-12241-j11, 2021 WL 4006019, at * 7 (Bankr. D.N.M. Sept. 2, 2021) (“‘[C]ause’ under
The party requesting dismissal or conversion bears the burden of demonstrating “cause” by a preponderance of the evidence. In re Sunnyland Farms, Inc., 517 B.R. 263, 266 (Bankr.
D.N.M. 2014) (“The party requesting dismissal or conversion under
For the reasons stated below, “cause” exists to dismiss or convert this case based on Debtor‘s inability to effectuate a plan that complies with the anti-modification prohibition in
inability to effectuate a plan, it is unnecessary for the Court to address the UST‘s alternate bad faith filing ground for dismissal.
B. Summary of the § 1123(b)(5) issue
Debtor‘s ability to effectuate the Second Amended Plan depends in part on whether Debtor‘s proposed treatment in the plan of DLJ‘s claim secured only by Debtor‘s principal residence violates the anti-modification prohibition in
Whether
a claim secured only by the debtor‘s principal residence in full, and satisfy
C. The Second Amended Plan violates the anti-modification prohibition in § 1123(b)(5)
The Court will begin its analysis of
1. Legislative history and overview of sections 1123(b)(5) and 1124(2) and how they compare with sections 1322(b)(2) and (5) as applied to home mortgages
The Code was amended in 1994 to add
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.
The legislative history for the 1994 Amendment that added
This amendment conforms the treatment of residential mortgages in chapter 11 to that in chapter 13, preventing the modification of the rights of a holder of a claim secured only by a security interest in the debtor‘s principal residence.
H.R. Rep. No. 103-835 at 46 (1994), as reprinted in 1994 U.S.C.C.A.N. 3340, 3354. Although the language in the legislative history is generalized, the target of the amendment was to conform treatment of residential mortgages in chapter 11 to that in chapter 13 with respect to the bifurcation of home mortgage loans under
However, the enactment of
secured only by the debtor‘s principal residence. Those Code sections permit a chapter 13 debtor to cure prepetition arrearages (as “determined in accordance with the underlying agreement and applicable nonbankruptcy law”
Unlike chapter 13, chapter 11 does not include any requirement, with respect to a claim secured only by the debtor‘s principal residence, to maintain payments on the mortgage while the chapter 11 case is pending or to pay arrearages in equal monthly installments pursuant to a plan.63 Nor does chapter 11 require that arrearages on the claim must be paid over a period not to exceed five years after plan confirmation.64
Section 1124(2) was enacted as part of the Bankruptcy Reform Act of 1978, long before the 1994 Amendment to the Code that adopted the anti-modification prohibition in
intended to be read in conjunction with the later enacted
2. Section 1123(b)(5), when read together with section 1124, requires payment of home mortgage arrearages in full by the plan effective date
Section 1123(b)(5)‘s anti-modification prohibition must be read together with
Section 1123(b)(5), which was added to the Code in 1994, provides that a chapter 11 plan may not “modify the rights of holders of secured claims” that are secured only by the debtor‘s principal residence. Section 1123(b)(5) provides further that, as an alternative to “modifying” the rights of a holder of the claim, the plan may “leave [those] rights unaffected” (emphasis added).
Under Nobelman, 508 U.S. at 329-30, the “rights” of the home mortgage lender referenced in
include the right to repayment of the principal in monthly installments over a fixed term at specified . . . rates of interest, the right to retain the lien until the debt is paid off, the right to accelerate the loan upon default and to proceed against petitioners’ residence by foreclosure and public sale, and the right to bring an action to recover any deficiency remaining after foreclosure.
Id. at 329. Unless those contractual rights of a holder of a claim secured only by the debtor‘s principal residence are left unaffected by the plan, the plan violates the anti-modification prohibition in
Chapter 13 contains exceptions to its anti-modification prohibition not found in chapter 11. Section 1322(b)(5) provides that “notwithstanding”
When Congress added
In Lennington, the bankruptcy court held that whether a claim is unimpaired under
This Court agrees with Lennington insofar as it looks to
Alternatively, under
- cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section
365(b)(2) of this title or of a kind thatsection 365(b)(2) expressly does not require to be cured; - reinstates the maturity of such claim or interest as such maturity existed before such default;
- compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law;
- if such claim or such interest arises from any failure to perform a nonmonetary obligation, other than a default arising from failure to operate a nonresidential real property lease subject to
section 365(b)(1)(A) , compensates the holder of such claim or such interеst (other than the debtor or an insider) for any actual pecuniary loss incurred by such holder as a result of such failure; and - does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest.
The legislative history of
A claim or interest is unimpaired by curing the effect of a default and reinstating the original terms of an obligation when maturity was brought on or accelerated by the default. The intervention of bankruptcy and the defaults represent a temporary crisis which the plan of reorganization is intended to clear away. The holder of a claim or interest who under the plan is restored to his original position, when others receive less or get nothing at all, is fortunate indeed and has no cause to complain. Curing of the default and the assumption of the debt in accordance with its terms is an important reorganization technique for dealing with a particular class of claims, especially secured claims.
S. Rep. No. 95-989 at 120 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5906 (emphasis added).
The terms “cure” and “modify” are not defined in the Code. In the context of chapter 13, several circuit courts have addressed the distinction between modifying creditor rights and curing a default. A modification of a loan is a “fundamental alteration in a debtor‘s obligations, e.g., lowering monthly payments, converting a variable interest rate to a fixed interest rate, or extending the repayment term of a note.” In re Litton, 330 F.3d 636, 643 (4th Cir. 2003). By contrast, “a ‘cure’ merely reinstates a debt to its pre-default position, or it returns the debtor and creditor to their respective positions before the default.” Id. at 644. A cure will “remedy or rectify the default and restore matters to the status quo ante.” In re Clark, 738 F.2d 869, 872 (7th Cir. 1984). “Curing a default commonly means taking care of the triggering event and returning to pre-default conditions. The consequences are thus nullified.” Di Pierro v. Taddeo (In re Taddeo), 685 F.2d 24, 26-27 (2nd Cir. 1982).
Yet the concepts of modification and cure are not mutually exclusive. A plan can provide for the cure of defaults with or without modifying the rights of the holder of a claim. For example, if the cure of defaults requires payment of preconfirmation loan arrearages, and by the time the plan goes into effect those arrearages have been paid in full, the plan does not modify the lender‘s contractual rights to such payments. By contrast, if the cure of arrearages takes place over time after the plan goes into effect, the plan modifies the claim because it negates the claimholder‘s contractual right to immediate payment of the full arrearage amount following accelerаtion of the loan after default. Under this scenario, the “cure” will not be completed until payment of all arrearages in full under the plan, and the creditor‘s rights are modified pending completion of the cure.
The conclusion that preconfirmation arrearages must be paid in full by the plan effective date to effectuate a cure under
The prevailing view, developed mostly in the context of determining whether a commercial loan is deemed unimpaired under
In order to take advantage of
§ 1124(2) and unimpair an otherwise impaired class, the plan must “cure” any defaults that have occurred.11 U.S.C. § 1124(2) . By providing for a “cure” of all defaults, the plan places the impaired creditor back into its original position. It seems then that “cure” under§ 1124(2) must occur, in full, prior to or on the effective date of the plan in order to restore the parties to their pre-default state.
In re Schatz, 426 B.R. 24, 27 (Bankr. D.N.H. 2009). This Court agrees. Consequently, if a “cure” under
Debtor‘s bankruptcy case in particular illustrates why the cure under
Construing the evidence in a light favorable to Debtor for purposes of its ruling on the Motion to Convert or Dismiss, the Court has assumed that the preconfirmation arrearages are $195,000 and that the monthly mortgage payment is $1,500.78 The loan maturity date without acceleration is December 1, 2035.79 If the cure of preconfirmation arrearages under
Debtor‘s Second Amended Plan proposes to make an initial payment of $22,044.75 and then pay $417.75 per month to be applied to the preconfirmation arrearage. That is insufficient to cover interest only payments on a $172,955.25 arrearage (the assumed $195,000 preconfirmаtion arrearage less the $22,044.75 initial payment proposed under the plan) that accrues interest at the nondefault rate.82 To complete the cure by the maturity of the loan, a balloon payment would be due December 1, 2035 in an amount close to the assumed $195,000 preconfirmation arrearage. It would take over thirty years to pay the principal amount of the arrearage at $417.75 per month after the initial $22,044.75 payment even without accrual of any interest on the arrearage. Even if the Second Amended Plan were to require a balloon payment on the maturity date of the loan, Debtor‘s proposed treatment of DLJ‘s claim impermissibly modifies DLJ‘s contract rights under the Mortgage.83
3. The reasoning of cases holding section 1123(b)(5) permits a plan to provide for a cure of arrearages in installments is not persuasive
A few courts have held that a chapter 11 plan does not modify the rights of a holder of a claim secured by the debtor‘s principal residence in violation of
In Lennington, the bankruptcy court concluded that
But as explained above, the concepts of modification and cure are not mutually exclusive. A plan can provide for the cure of defaults with or without modifying the contractual rights of the holder of a claim. It simply is not the case that the concepts of modification and cure are mutually exclusive because cure deals only with past defaults whereas the modifiсations permitted (or prohibited) by
Second, the Lennington court observed that:
Section 1123(b)(5) was enacted to equalize the treatment of residential mortgages in Chapters 11 and 13, by preventing Chapter 11 debtors from “modifying” the mortgagee‘s rights by bifurcating an undersecured residential mortgage into a secured claim and an unsecured claim, thereby stripping down the mortgage to the value of the house.
288 B.R. at 806. This Court agrees with that statement of the law. But the Lennington court goes on to say that “[s]ection 1123(b)(5) was not intended to usurp the longstanding right of reinstatement in Chapter 11 which, consistent with that under Chapter 13, permitted the cure of a prepetition mortgage arrearage on an installment basis.” Id. The legislative history of
Finally, the Lennington court states:
[T]his Court doеs not perceive any reason why Congress would want to deprive those few individual Chapter 11 debtors from saving their homes by curing a prepetition arrearage in installments, when the same thing happens in the majority of the multitude of Chapter 13 filings. Prohibiting a debtor proceeding under Chapter 11 from curing a prepetition mortgage default in installment payments, while a similarly situated debtor proceeding under Chapter 13 is permitted to do so, would be contrary to the intent of Congress to conform the treatment of residential mortgages under Chapter 11 to that under Chapter 13.
Lennington, 288 B.R. at 806. However, the legislative history does not specifically address conforming chapter 11 to chapter 13 with respect to payment of mortgage arrearages in installment payments.86 And
In LaPorta, the bankruptcy court makes three additional аrguments beyond the ones in Lennington in support of its conclusion that
[T]he absence of a [] provision in Chapter 11 [similar to
§ 1322(b)(5) ] is not an indication that cure in installments is not permitted. . . . Chapter 13 places strict limits on the length of a plan not found in Chapter 11. A bankruptcy court may not approve a period for payments under a Chapter 13 plan that is longer than 5 years. . . .Section 1322(b)(5) provides a mechanism to cure and maintain a long-term debt within the maximum five-year term of the plan even though repayment of the remaining portion of the debt will extend beyond that term. Such a mechanism plainly is not needed for the more flexible Chapter 11, where even a long-term debt can be provided for ‘within’ the plan.
Id. at 799 (internal quotation marks omitted). But these and other differences between chapter 11 and chapter 13 support the opposite conclusion. An immediate cure of loan arrearages is more necessary to protect a mortgage lender in chapter 11 than in chapter 13 because chapter 11 does not contain chapter 13‘s safeguards, including a maximum repayment period of five years, curing arrearages in equal monthly payments, and maintaining mortgage payments during the pendency of the bankruptcy cаse prior to plan confirmation.
Second, the LaPorta court states that it is notable that the 1994 Amendment adding
Finally, the LaPorta court quotes In re Clark, 738 F.2d 869, 871-72 (7th Cir. 1984) for the proposition that it was “clear that Congress intended ‘cure’ to mean something different from ‘modify’ because the ‘cure of a past default and de-acceleration was “not a form of modification banned by [Section 1322(b)(2)]88 but rather is a permissible and necessary concomitant of the power to cure default.“‘” LaPorta, 578 B.R. at 798-99 (quoting Clark). LaPorta then reasons that the same is true of
The issue in Clark was not whether a debtor can make cure payments in installments but whether a chapter 13 debtor is entitled under the Code to “cure” a default on a residential mortgage loan after a prepetition state court foreclosure judgment has been entered. 738 F.2d at 870. This Court agrees that Congress intended “cure” to mean something different from “modify.” The terms are not synonymous. This Court also agrees that a cure of a past default and de-acceleration is a permissible and necessary concomitant of the power to cure a default. But that does not mean a chapter 11 debtor can cure arrearages in post-confirmation installments on a home mortgage loan. As explained above, in chapter 11 cases only if the cure is completed before the plan goes into effect and the plan does not otherwise modify the rights of the holder of the claim, the plan does not modify the rights of the holder of the claim in violation of
D. “Cause” exists under § 1112(b) to convert or dismiss this case
The Court concludes that “cause” exists under
Debtor has not demonstrated any “unusual circumstances” that would qualify as an exception to mandatory dismissal or conversion upon a finding of “cause.”
E. Dismissal vs. Conversion
Although the Motion seeks alternative relief, at closing argument, counsel for the United States Trustee requested dismissal of Debtor‘s bankruptcy case rather than conversion to chapter 7. Whether to dismiss or convert depends on which remedy is “in the best interests of creditors and the estate,”
Based on the foregoing, the Court will dismiss Debtor‘s bankruptcy case for “cause” under
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Date entered on docket: October 14, 2022
COPY TO:
Michael Jacques Jacobs
800 Calle Divina NE
Albuquerque, NM 87113
Ruby Jacobs
800 Calle Divina NE
Albuquerque, NM 87113
Jaime A. Pena
Office of the United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
Elizabeth Dranttel
Attorney for DLJ Mortgage Capital, Inc.
Rose L. Brand & Associates, PC
7430 Washington Street NE
Albuquerque, NM 87102
| MOR Reporting Month | Total Monthly Income | Living Expenses | Total Expenses/Disbursements | Net |
|---|---|---|---|---|
| August 2022 (Doc. 313) | $5,074.00 | $2,271.00 | $10,511.00 | ($5,437.00) |
| July 2022 (Doc. 311) | $4,206.00 | $1,467.00 | $8,390.00 | ($4,185.00) |
| June 2022 – None filed (Doc. 298 filed 7/28/22 is a duplicate of the May 2022 MOR filed as Doc. 274) | ||||
| May 2022 (Doc. 274) UST Exhibit 13 | $4,465.00 | $1,174.00 | $3,362.00 | $1,103.00 |
| April 2022 (Doc. 265) UST Exhibit 13 | $3,526.00 | $1,965.00 | $3,004.00 | $522.00 |
| March 2022 (Doc. 254) UST Exhibit 13 | $6,059.00 | $2,639.00 | $5,155.00 | $904.00 |
| February 2022 (Doc. 239) UST Exhibit 13 | $5,109.00 | $2,800.00 | $3,832.00 | $1,277.00 |
| January 2022 (Doc. 226) UST Exhibit 13 | $4,609.00 | $4,049.00 | $5,404.00 | ($795.00) |
| December 2021 (Doc. 225) UST Exhibit 13 | $8,415.00 | $2,563.00 | $5,237.00 | $3,178.00 |
Notwithstanding
subsection (b)(2) of this section andsections 506(b) and1325(a)(5) of this title, if it is proposed in a plan to cure a default, the amount necessary to cure the default shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.
Notwithstanding
subsection (a) of this section andsections 506(b) ,1129(a)(7) , and1129(b) of this title, if it is proposed in a plan to cure a default the amount necessary to cure the default shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.