In re Koper

• Citation: 284 B.R. 747
• Decision Date: 31 October 2002
• Docket Number: No. 99-30277.,99-30277.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — District of Connecticut
• Parties: In re George I. KOPER, Debtor.

Page 747

284 B.R. 747

In re George I. KOPER, Debtor.

No. 99-30277.

United States Bankruptcy Court, D. Connecticut.

October 31, 2002.

Frederick A. Dlugokecki, Naugatuck, CT, for Debtor.

Martha E. Croog, West Hartford, CT, for Objector, Bank of America, FSB.

Alan P. Rosenberg, Rosenberg & Rosenberg, P.C., West Hartford, CT, for Objector, Chase Manhattan Bank.

Molly T. Whiton, Hartford, CT, Chapter 13 Trustee.

MEMORANDUM OF DECISION ON OBJECTIONS TO CONFIRMATION OF PLAN

ALBERT S. DABROWSKI, Bankruptcy Judge.

I. INTRODUCTION

This matter presents the question whether a Chapter 13 debtor's plan can provide for payment of the secured component of a bifurcated, non-homestead mortgage claim over a time period greater than the five-year maximum plan term allowed under Bankruptcy Code Section 1322(d).

This Court construes the relevant provisions of Chapter 13, as interpreted by the United States Supreme Court, to compel payment of the present value of the secured component of an undersecured creditor's bifurcated claim within the five-year term of a debtor's plan. Because the Debtor's present plan does not provide for such treatment, the pending objections must be SUSTAINED, and confirmation of such plan DENIED.¹

II. JURISDICTION

The United States District Court for the District of Connecticut has jurisdiction over the instant matter by virtue of 28 U.S.C. § 1334(b); and this Court derives its authority to hear and determine this matter on reference from the District Court pursuant to 28 U.S.C. §§ 157(a), (b)(1) and the District Court's General Order of Reference dated September 21, 1984. This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(L).

III. FACTUAL AND PROCEDURAL BACKGROUND

For the purposes of this matter only, the Court finds that the following facts are uncontested or incontestable in the present case:

1. The Debtor commenced the present bankruptcy case on January 26, 1999 (hereafter, the "Petition Date"), through the filing of a voluntary petition under Chapter 13.

2. According to the Debtor's Schedules, he is the owner of six parcels of real property. All but one of such parcels are investment properties not occupied by the Debtor.

3. Among the investment properties owned by the Debtor is a multi-family home known as and numbered 36 Gilbert Street, Waterbury, Connecticut (hereafter, the "Gilbert Property"). The fair market value of the Gilbert Property is $35,000.00. The Gilbert Property is not the principal residence of the Debtor.

4. Bank of America, FSB (hereafter, "BA"), holds a mortgage interest in the Gilbert Property to secure indebtedness owed to it by the Debtor in the Petition Date amount of $79,784.88 (hereafter, the "BA Claim").

5. As of the Petition Date there was a payment arrearage on the BA Claim in the amount of $6,933.95 (hereafter, the "BA Arrearage Claim").

6. The Debtor's Second Amended Chapter 13 Plan (Doc. I.D. No. 74) (hereafter, the "Plan") treats the BA Claim in the following manner:

a. the BA Claim is deemed to be a secured claim in the amount of $35,000.00 (hereafter, the "BA Secured Claim"), and unsecured for the balance of $44,784.88 (hereafter, the "BA Unsecured Claim");²

b. the Debtor is to continue to make current payments due on the BA Claim per the subject mortgage contract outside the Plan;

c. the BA Arrearage Claim is treated as a secured claim and paid in full with 6% interest within the Plan; and

d. BA is to retain its mortgage lien on the Gilbert Property.

7. Also among the investment properties owned by the Debtor is a multi-family home known as and numbered 35 Fairview Street, Waterbury, Connecticut (hereafter, the "Fairview Property"). The fair market value of the Fairview Property is $50,000.00. The Fairview Property is not the principal residence of the Debtor.

8. The Chase Manhattan Bank (hereafter, "Chase") holds a mortgage interest in the Fairview Property to secure indebtedness owed to it by the Debtor in the approximate Petition Date amount of $110,000.00 (hereafter, the "Chase Claim").

9. As of the Petition Date there was a payment arrearage on the Chase Claim in the amount of $3,964.00 (hereafter, the "Chase Arrearage Claim").

10. The Plan treats the Chase Claim in the following manner:

a. the Chase Claim is deemed to be a secured claim in the amount of $50,000.00 (hereafter, the "Chase Secured Claim"), and unsecured for the balance of $60,000.00 (hereafter, the "Chase Unsecured Claim");³ b. the Debtor is to continue to make current payments due on the Chase Claim per the subject mortgage contract outside the Plan;

c. the Chase Arrearage Claim is treated as a secured claim and paid in full with 6% interest within the Plan; and

d. Chase is to retain its mortgage lien on the Fairview Property.

11. BA and Chase (hereafter collectively, the "Objectors") have objected to confirmation of the Plan.⁴ A hearing was held on those objections, and an opportunity was provided for the parties to file legal memoranda in support of their positions. Having now considered the entire record in this matter, the Court issues this Memorandum of Decision.

IV. DISCUSSION

In the Plan the Debtor proposes to bifurcate the claims of certain mortgage creditors consistent with the value of the secured and unsecured components of their claims, as determined pursuant to Code Section 506(a) in previous motion proceedings (hereafter, the "Bifurcation").⁵ See fns. 2 and 3, supra. The unsecured components of these undersecured claims receive no distribution, or other substantive treatment, under the Plan in view of the discharge of the Debtor's personal liability in a previous Chapter 7 bankruptcy case. The secured components of the mortgagee's Claims are addressed in the Plan as follows: (i) pre-petition arrearages in the payment of mortgage note installments are proposed to be cured within the Plan⁶ over the life of the plan, and (ii) current contractual mortgage payments are proposed to be maintained outside the Plan⁷ during the Plan's five-year term, and presumably thereafter.⁸ The composite effect of the foregoing treatment will be to satisfy the subject mortgage claims in full some time after the expiration of the term of the Plan, but well before their contractual terminus date.

The Objectors oppose treatment of their Claims in the foregoing manner; asserting, in essence, that if an undersecured claim is bifurcated in a plan, it must be paid, with interest, within the maximum five-year term of the plan. Despite the contrary conclusions of several courts without binding precedential authority over this Court, the Objector's position possesses a firm foundation under the governing statutory scheme.

A. Governing Statutory Framework.

The plan formulation and confirmation standards of the Code are the logical starting place for analysis of the question at bar. Those Sections provide in pertinent part as follows:

§ 1322. Contents of plan.

* * * * * *

(b) Subject to subsections (a) and (c) of this section, the plan may —

* * * * * *

(2) 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 leave unaffected the rights of holders of any class of claims;

(3) provide for the curing ... of any default;

* * * * * *

(5) notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

(c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law —

(1) a default with respect to, or that gave rise to, a lien on the debtor's principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law; and

(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.

(d) The plan may not provide for payments over a period that is longer than ... five years.

11 U.S.C. § 1322 (1999) (emphasis supplied).

§ 1325. Confirmation of plan.

(a) Except as provided in subsection (b), the court shall confirm a plan if —

* * * * * *

(5) with respect to each allowed secured claim provided for by the plan —

(A) the holder of such claim has accepted the plan;

(B) (i) the plan provides that the holder of such claim retain the lien securing such claim; and

(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; or

(C) the debtor surrenders the property securing such claim to such holder....

11 U.S.C. § 1325(a) (1999) (emphasis supplied).

B. Bifurcation as a Modification.

A Chapter 13 plan's bifurcation of a mortgagee's claim into secured and unsecured components is a modification of the rights of such creditor within the scope of Section 1322(b)(2). See Nobelman v. American Savings Bank, 508 U.S. 324, 331, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) (overruling In re Bellamy, 962 F.2d 176 (2d Cir.1992), inter alia, in this respect⁹). This is true even if a plan proposes to maintain current mortgage payments in the contractual amount during its term. In other words, even though a plan does not modify the contractual mortgage payment amount, and those payments are made when due during the term of a plan, the consequent shortening of the contractual repayment period produced by bifurcation is itself a modification of a mortgagee's rights even though the effect of such modification...