In re Bumgarner, Bankruptcy No. 97-05523.

• Citation: 225 BR 327
• Decision Date: 20 January 1998
• Docket Number: Bankruptcy No. 97-05523.
• Parties: In re Robert Dale BUMGARNER, Debtor.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina

225 B.R. 327 (1998)

In re Robert Dale BUMGARNER, Debtor.

Bankruptcy No. 97-05523.

United States Bankruptcy Court, D. South Carolina.

January 5, 1998.

As Amended January 20, 1998.

Beth C. Grzybowski, Drose & Rhoades, N Charleston, SC, for debtor.

Leonard R. Jordan, Jr., Berry, Adams, Quackenbush & Dunbar, P.A., Columbia, SC, for creditor.

ORDER

WM. THURMOND BISHOP, Bankruptcy Judge.

This matter comes before the Court upon the objection of First Federal Savings and Loan ("First Federal") to the debtor's plan, filed July 16, 1997. First Federal objects because the plan does not provide for interest on the cure of the mortgage default to this mortgage creditor. Debtor has proposed that the default be cured during the term of the plan without interest, as permitted by 11 U.S.C. § 1322(e), because the contract does not provide for interest on defaults.

In 1994, 11 U.S.C. § 1322(e) was amended to provide

Notwithstanding subsection (b)(2) of this section and sections 506(b) and 1325(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.

The effective date of the provision is October 10, 1994, and applies only to agreements or refinancings entered after that date. The Legislative History to § 1322(e) provides that this section has the effect of overruling Rake v. Wade, 508 U.S. 464, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993) which gave interest on all elements of a mortgage arrearages, including principal, interest, late charges, and escrow fees, cured by debtors in bankruptcy.

This had the effect of giving secured creditors interest on interest payments, and interest on the late charges and other fees, even when it was something that was not contemplated by either party in the original transaction.

Legislative History, 11 U.S.C. § 1322(e).

8 Collier on Bankruptcy, 15th Ed. revised, ¶ 1322.18 at p. 1322-54, provides

Under section 1322(e), the amount necessary to cure a default is the same amount as would be required to cure if the debtor were not in bankruptcy. Two conditions must be met before interest or other charges can be requires as part of the bankruptcy cure. First, the interest or charges must be required under the original agreement, and second, they cannot be prohibited by state law. In other words, the bankruptcy court will never require interest in excess of that permitted by state law, and will require none unless the agreement provides for interest.

The contract, introduced into evidence at the hearing, mentions interest in several places. The first page of the document sets forth the rate of 10.50% per year "until paid in full." The payment of interest is more fully explained on the second page where the note indicates that "Interest accrues on the unpaid balances of principal remaining from time to time, until paid in full."

First Federal admits that the note does not, in any specific terms, require that interest be paid on the cure of any default in bankruptcy, nor that interest be paid on interest. First Federal apparently relies upon the phrase "paid in full" to show that the note provides for interest based upon the case of In re Mitchell, Case # 91-00139 (Bankr.D.S.C.6/25/91) which was decided in 1991.

In In re Mitchell, Case # 91-00139 (Bankr.D.S.C.6/25/91) (JBD), the Court addressed the issue of whether interest on the arrearage must be included in a chapter 13 plan. The Court stated that interest on arrearage must be paid if the loan agreement and South Carolina law permit it. In the Mitchell ca...