In re Jablonski, Bankruptcy No. 85-03026K
| Decision Date | 20 June 1988 |
| Docket Number | Civ. A. No. 87-1904.,Bankruptcy No. 85-03026K |
| Citation | 88 BR 652 |
| Parties | In re Kathleen A. JABLONSKI a/k/a Kathleen A. Peterson, Debtor. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Irwin Trauss, Philadelphia, Pa., for Community Legal Services.
Lawrence T. Phelan, Philadelphia, Pa., for Meritor Mortgage.
This case involves cross-appeals from orders of the bankruptcy court in an action brought pursuant to 11 U.S.C. § 1301, et seq. (Chapter 13). The debtor here, Kathleen Jablonski, a/k/a Kathleen Peterson, appeals from that portion of the order which allows to the creditor a secured claim equal to the entire value of the debtor's residential property, despite her contention that her interest in the property, and hence the estate's interest and the creditor's secured interest, extends to only half of the full value of the property. The creditor, Meritor Mortgage Corp., appeals from the court's determination that its secured claim, which arose from its grant of a mortgage to the debtor for the purchase of her residence, extends only to the value of the property, with the remainder of the debt allowed only as an unsecured claim. The creditor also appeals from an order which eliminated from its proof of claim attorney's fees and other costs associated with a state foreclosure proceeding.
The parties' contentions on these issues will be considered following a brief procedural history and examination of this Court's jurisdiction.
The case arose when the debtor moved the bankruptcy court to determine the value of her interest in her residence and to avoid the creditor's lien pursuant to 11 U.S.C. § 506(a) and (d). She also filed a motion objecting to the proof of claim of Central Mortgage Corporation, predecessor in interest to Meritor. At the same time, the bankruptcy court had before it the Trustee's motion to dismiss the bankruptcy case for lack of feasibility of the plan. At the request of the debtor and with the acquiescence of Meritor, the court stayed action on the Trustee's motion pending the outcome of the debtor's motions. Thereafter, the court held a hearing for argument on the motions and later rendered a decision thereon. Insofar as can be determined from the record before this Court, no plan has ever been presented to the bankruptcy court for confirmation. The docket entries reveal, however, that the Trustee's motion to dismiss the case was withdrawn.
The bankruptcy court made its determinations on the basis of stipulated facts which included the following: the debt owed to Meritor exceeds $24,000; the real property in issue has a value of $21,000; the debtor is entitled to a recoupment penalty of $1,000 for a violation of the Truth in Lending Act (TILA) by Meritor; the City of Philadelphia has prior liens against the property in the amount of $650. From these facts and after consideration of the arguments of counsel, the court concluded that the debtor, who owns the property with her husband as tenants by the entireties, has an interest in the property equal to its entire stipulated value of $21,000. The court further concluded, under § 506(a), that the creditor has a secured claim in the amount of $19,350, representing the stipulated value of the property with the TILA penalty and $650 in prior liens deducted therefrom. The creditor also has an unsecured claim in the amount of $3,923, which represents the remainder of the total debt of $24,273.541. The creditor's proof of claim for counsel fees and costs related to a mortgage foreclosure proceeding was first allowed but later disallowed when the debtor moved for reconsideration. The stated reason for the court's actions was that it initially believed that the creditor had obtained a mortgage foreclosure judgment, but later realized that its belief was erroneous. Thereupon, the court reversed its prior order, noting that the contract which gave Meritor the right to recover fees and costs did so only in connection with a foreclosure.
Because it appears that no plan has been presented to the bankruptcy court for confirmation, and because the debtor's attempt to avoid Meritor's lien was done by means of a § 506(a) motion rather than through an adversary proceeding, this case is in a somewhat unique procedural posture. Although both parties state that they are appealing from a final order of the bankruptcy court, this Court feels compelled to inquire into our jurisdiction since it does not appear that either the parties or the bankruptcy court gave due regard to complying with the plain language of the Bankruptcy Code provisions put in issue here by the arguments of the parties and the bankruptcy court's decision.
At the heart of the issues raised herein is § 506(a) of the Bankruptcy Code, providing for valuation of the property of the estate of the debtor and the determination of how much of an allowed claim of a creditor is an allowed secured claim.2 Problems with the finality of the order arise from that portion of § 506(a) which requires that value be determined, inter alia, "in conjunction with any hearing . . . on a plan affecting such creditor's interest." Both the language of the statute and commentary thereon (See, 3 Collier ¶ 506.0412, S.REP. No. 95-989, U.S.Code Cong. & Admin.News 1978, p. 5787), suggest that the valuation of property before a plan has been presented to the bankruptcy court for confirmation is not a final determination of value.
Other courts which have considered the issue of whether a claim secured by a mortgage on a Chapter 13 debtor's principal residence may be bifurcated into secured and unsecured claims pursuant to § 506(a) have done so in the context of proceedings relating to confirmation of a Chapter 13 plan or in an adversary proceeding.3 Thus, the finality issue we face has not arisen before and likely would not arise unless, as here, no plan has been presented but a decision on a § 506(a) motion has been appealed to the district court.
There are, in fact, two aspects to our concern with the finality of the bankruptcy court's order. First, having invoked this Court's jurisdiction over final orders of the bankruptcy court pursuant to 28 U.S.C. § 158(a), neither party moved for leave to appeal an interlocutory order, raising a question of subject matter jurisdiction. Under Bankruptcy Rule 8003(c), we may grant leave to appeal interlocutory orders even though neither party in interest has requested it. As the Court of Appeals has recently held, however, we must make clear our intention to do so if we conclude that the bankruptcy court's order is not, in fact, a final order but we wish to review it. In re: White Beauty View, Inc., 841 F.2d 524 (3d Cir.1988).
Having determined that we can assure ourselves of subject matter jurisdiction over these appeals, we address our second finality concern, viz., whether this Court should grant leave to appeal the order at this time, notwithstanding our determination that the order is not completely final and our further determination that several issues decided by the bankruptcy court should not have been considered in the context of a § 506(a) motion when the debtor's plan was not before the court.
Our review of the record, the Bankruptcy Code and related case law leads to the conclusion that the bankruptcy court's order has resolved several troublesome legal issues which have heretofore prevented the presentation of a plan, which will not be affected by further development of the case and which have arisen frequently in similar cases. For example, the portion of the order from which the debtor appeals is a final resolution of the issue of whether the bankruptcy estate's interest in the residence, which the debtor owns with her spouse as tenants by the entireties, extends to the entire property or to only half of the monetary value thereof.
Similarly, the court's determination that under § 506(a) Meritor's claim may be bifurcated into secured and unsecured portions falls into the category of a final resolution of a purely legal issue. While the specifics of the proper bifurcation of the claim may remain an open issue in the case until a plan is presented for confirmation, the applicability of § 506(a) to the claim of a residential mortgage holder, as a matter of legal principle, will not be affected by the debtor's plan. Moreover, the principle is applicable to many, if not most, Chapter 13 cases. Review of the bankruptcy court's decision will thus advance the ultimate resolution of this and many other Chapter 13 cases.
On the other hand, the legal conclusions reached by the bankruptcy court appear in the context of an order setting forth the specific dollar amounts of Meritor's secured and unsecured claims based upon the stipulated value of the property on the date the bankruptcy case was filed. Final valuation under § 506(a), however, should be made in the context of confirmation of a plan. See, In re: Blakey, 76 B.R. 465 (Bankr.E.D.Pa.1987). Thus, to the extent that the court placed specific dollar amounts on the secured claim and allowed the remaining debt as an unsecured claim, the order is not final. The specific amounts of the secured and unsecured claims depend upon the value of the property as of the date of confirmation of the debtor's plan, Id., a date and event which have not yet occurred.
Additionally, the bankruptcy court engaged in a rather lengthy discussion of whether, under the terms of the mortgage instrument, Meritor is a creditor whose secured claim may not be modified pursuant to 13 U.S.C. § 1322(b)(2). As will be discussed at length, infra., the bankruptcy court had no issue relating to § 1322(b)(2) before it. Consequently, this Court will not consider that basis for the bankruptcy court's order.
Thus, when a plan is presented for confirmation, issues relating to the monetary value of the property, the actual dollar amount of the secured and unsecured portions of Meritor's...
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