Grubbs v. Houston First American Sav. Ass'n

• Decision Date: 19 April 1984
• Docket Number: No. 82-2544,82-2544
• Citation: 730 F.2d 236,10 C.B.C.2d 549,11 B.C.D. 1081
• Parties: 10 Collier Bankr.Cas.2d 549, 11 Bankr.Ct.Dec. 1081, Bankr. L. Rep. P 69,851 Ronald E. GRUBBS, Plaintiff-Appellant, v. HOUSTON FIRST AMERICAN SAVINGS ASSOCIATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 236

730 F.2d 236

10 Collier Bankr.Cas.2d 549, 11 Bankr.Ct.Dec. 1081,

Bankr. L. Rep. P 69,851

Ronald E. GRUBBS, Plaintiff-Appellant, v. HOUSTON FIRST AMERICAN SAVINGS ASSOCIATION, Defendant-Appellee.

No. 82-2544.

United States Court of Appeals Fifth Circuit.

April 19, 1984.

Michael J. Pledger, Houston, Tex., for plaintiff-appellant.

Calvin, Dylewski, Gibbs, Maddox & Russell, Don F. Russell, Houston, Tex., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before CLARK, Chief Judge, BROWN, GEE, RUBIN, REAVLEY, POLITZ, RANDALL, TATE, JOHNSON, WILLIAMS, GARWOOD, JOLLY, HIGGINBOTHAM and DAVIS, Circuit Judges.

TATE, Circuit Judge:

The issues before us on en banc rehearing require an interpretation of some provisions of Chapter 13 of the Bankruptcy Code of 1978, 11 U.S.C. Secs. 101 et seq. (hereafter, "the Code"). This chapter provides for the adjustments of the debts of an individual with regular income, through extensions and composition plans, usually extending no more than three years, Sec. 1322(c) of the Code, funded out of the Chapter 13 petitioner's future income (which is submitted to the court for the payment of the debts as provided for by the plan, Sec. 1322(a) of the Code). The adjustments and extensions so allowed, however, are subject to provisions that protect the interests of creditors, including, inter alia, their secured interests.

The precise issue, as presented to the trial courts and to this court, is whether a bankruptcy court may decline to approve a Chapter 13 plan solely because a debtor proposes to pay off in installments during the term of the plan past-due amounts on a promissory note (secured by a lien on the debtor's principal residence) that was properly accelerated and became fully due under state law prior to the filing of the debtor's Chapter 13 petition. Affirming the bankruptcy and district courts, on original hearing, a panel of this court held that the Chapter 13 petitioner Grubbs' "plan could not be confirmed for the reason that it proposed to cure a pre-petition default and acceleration on a debt on Grubbs' principal residence contrary to Section 1322(b) of the Code." 718 F.2d 694 (5th Cir.), reh'g en banc granted, 718 F.2d 699 (5th Cir.1983).

We hold to the contrary. Consistent with the only circuit court decision that has thus far addressed this issue, In re Taddeo, 685 F.2d 24 (2d Cir.1982), we find, for reasons to be stated, that Section 1322(b) of the Code, construed in the light of its legislative history and of its context within Chapter 13 as a whole, evinces no legislative intent that a home-mortgagor debtor is barred either (a) from curing a pre-petition acceleration into maturity of the unpaid installments due upon his home mortgage, or (b) from proposing (in his Chapter 13 plan for consideration by the bankruptcy court) that all past due or matured amounts secured by his home mortgage be paid during the term of his plan, if approved by the court--so that, thereby, proceedings upon foreclosure of his home mortgage may properly be stayed, while permitting the debtor to pay off his arrearages in accordance with the terms of a plan confirmed by the court.

Facts and Issues Presented

For present purposes, the salient facts are these:

In April 1979, the debtor Grubbs borrowed some $12,500 from the creditor-appellee ("Houston First"), a savings and loan association. The promissory note in that amount, payable in monthly installments, was secured by a second lien encumbrance upon Grubbs' principal residence. In February 1980, as authorized by the note's terms, Houston First notified Grubbs that, because of his delinquency in payment of the monthly installments, it had elected to accelerate into maturity the full balance of the note. In June 1981, Houston First instituted foreclosure proceedings in state court. In July 1981, Grubbs filed a Chapter 13 petition in federal bankruptcy court, which had the consequence of staying the foreclosure proceedings. Sec. 362(a) of the Code. ¹ In February 1982, Grubbs filed an amended Chapter 13 petition, in which he proposed to pay off all delinquent and matured amounts by monthly installments over the 36 months of the proposed plan.

In June 1982, a hearing before the bankruptcy court was held on the confirmation of Grubbs' Chapter 13 plan. At this hearing, the sole urged objection by Houston First to confirmation of the plan was that when "a secured note on a homestead has been accelerated and matured prior to the filing of the bankruptcy petition, it is not subject to being reinstated and cured under a Chapter 13 petition plan." The bankruptcy court sustained this objection, based upon Sec. 1322(b) of the Code. It ordered Grubbs' Chapter 13 petition be dismissed, unless within ten days he either met Houston First's objection (which, in effect, required immediate payment by Grubbs of the entire matured balance of the note, in order for him to avoid foreclosure of his home) or else moved to convert the case to a Chapter 7 (liquidation) proceeding under the Code.

The issues of this appeal arise of a provision of Section 1322(b) of the Code, to be quoted below, to the effect that a proposed plan may not "modify" the rights of holders of claims secured by only a security interest in real property that is the debtor's principal residence. The precise question thus posed for our review by the bankruptcy court's ruling is whether a Chapter 13 petitioner is barred by Section 1322(b) from proposing a plan that provides for cure of a pre-petition acceleration into maturity of the entire debt due; but this issue, in turn, implicates the question of whether Sec. 1322(b) bars--as a "modification" of the creditor's security interest--the bankruptcy court's approval of a Chapter 13 plan that provides for the payment (in thirty-six monthly installments over the term of the proposed plan, rather than immediately) from future income of past matured amounts due on a home mortgage. Reversing the bankruptcy court, we answer both questions, "No."

I.

The precise issue before us involves a determination of the legislative intent expressed by the wording of Sec. 1322(b), to be quoted below. Before we parse the terms of this section, however, an understanding of its meaning may be furthered by brief reference to some relevant general provisions and purposes of Chapter 13 of the 1978 Code, of which Sec. 1322 forms a part. In the light of these--and of the particular legislative history of Section 1322(b), see III, infra --, any seeming ambiguity of the provision is dispelled or, at the least, must be resolved against the creditor appellee's contention that was upheld by the bankruptcy court.

The Bankruptcy Code of 1978 was enacted as the result of a legislative process that commenced in 1970. In that year, Congress created the Commission on the Bankruptcy Laws of the United States, which in 1973 issued a report containing (Part I) its finding and recommendations and (Part II) a draft of a bill to implement them. ² Legislation to implement the Commission's recommendations was introduced in both houses of Congress and extensive hearings held thereon in the 93rd, 94th, and 95th Congresses.

The final enactment of the Code in the 95th Congress resulted from the passage of H.R. 8200 of the House and S. 2266 by the Senate (passed as an amendment to H.R. 8200), followed by mutual amendments made by each body, and the enactment by them of a final conformed bill in October, 1978. 1 Collier on Bankruptcy p 1.03 (15th ed., 1983); Klein, The Bankruptcy Reform Act of 1978, 53 Am.Bankr.L.J. 1, 3 (1979). With regard to Chapter 13 of the 1978 Code, both Senate and House bills adopted in presently pertinent aspects the Commission's recommendations and statutory scheme. S.Rep. No. 989, 95th Cong., 2d Sess. 1, 2, 12-13, 141-42 (1978); H.Rep. No. 595, 95th Cong., 1st Sess. 1, 2, 4-5, 116-125, 180-81 (1977), U.S.Code Cong. & Admin.News, p. 5787.

The House Report accompanying the introduction of H.R. 8200, which substantially incorporated the provisions that were finally enacted as Chapter 13 of the Code, explained the Chapter's purpose:

The purpose of chapter 13 is to enable an individual, under court supervision and protection, to develop and perform under a plan for the repayment of his debts over an extended period. In some cases, the plan will call for full repayment. In others, it may offer creditors a percentage of their claims in full settlement. During the repayment period, creditors may not harass the debtor or seek to collect their debts. They must receive payments only under the plan. This protection relieves the debtor from indirect and direct pressures from creditors, and enables him to support himself and his dependents while repaying his creditors at the same time.

The benefit to the debtor of developing a plan of repayment under chapter 13, rather than opting for liquidation under chapter 7, is that it permits the debtor to protect his assets. In a liquidation case, the debtor must surrender his nonexempt assets for liquidation and sale by the trustee. Under chapter 13, the debtor may retain his property by agreeing to repay his creditors. Chapter 13 also protects a debtor's credit standing far better than a straight bankruptcy, because he is viewed by the credit industry as a better risk. In addition, it satisfies many debtors' desire to avoid the stigma attached to straight bankruptcy and to retain the pride attendant on being able to meet one's obligations. The benefit to creditors is self-evident: their losses will be significantly less than if their debtors opt for straight bankruptcy.

H.R.Rep. No. 595, 95th Cong., 1st Sess. 118 (1977), U.S.Code Cong. & Admin.News, p. 6079.

Of context relevance to present issues, by the new Chapter 13 the legislation as introduced sought to cure deficiencies of the Chapter XIII of the former (now repealed) Bankruptcy Act of 1898 (as amended),...