In re Macaluso, Bankruptcy No. 00-10618 B.

• Decision Date: 02 November 2000
• Docket Number: Bankruptcy No. 00-10618 B.
• Citation: 254 BR 799
• Parties: In re Camillo MACALUSO d/b/a Greco's Tailor Shop, Debtor.
• Court: U.S. Bankruptcy Court — Western District of New York

254 B.R. 799 (2000)

In re Camillo MACALUSO d/b/a Greco's Tailor Shop, Debtor.

Bankruptcy No. 00-10618 B.

United States Bankruptcy Court, W.D. New York.

November 2, 2000.

Hiscock & Barclay, LLP (Timothy J. Walker, of counsel) Buffalo, NY, for Wallingford Financial Group, Inc.

David A. Curtin, Williamsville, NY, for debtor.

CARL L. BUCKI, Bankruptcy Judge.

Camillo Macaluso, the debtor herein, has proposed a Chapter 13 plan which contemplates a strip-down of the mortgage that encumbers a multi-use parcel of real property. This parcel contains a tailor shop and two residential apartments, one of which is occupied by the debtor. The mortgage secures a debt owed to Wallingford Financial Group, Inc., for an amount that exceeds $128,000. Asserting that the property has a value of only $75,000, Macaluso wishes to limit Wallingford's secured claim to this amount, and to treat the balance of the claim as an unsecured debt. In objecting to confirmation of this plan, Wallingford contends that the proposed treatment violates the anti-modification provisions of 11 U.S.C. § 1322(b)(2).

Section 1322(b)(2) states that a Chapter 13 plan may "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. . . ." Initially upon enactment of the bankruptcy code, courts disagreed about how to reconcile this section with the language in 11 U.S.C. § 506(a), that a claim is secured "to the extent of the value of such creditor's interest in the estate's interest in such property." Whereas some bankruptcy courts rejected any proposal to strip down a mortgage on the residence of a debtor in Chapter 13, others held that section 1322(b)(2) merely precluded a modification beyond the delineation of secured status under section 506. Ultimately, the Supreme Court resolved this conflict in its decision in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993). Declining "to give effect to § 506(a)'s valuation and bifurcation of secured claims", the Court ruled that "section 1322(b)(2) prohibits such a modification where . . . the lender's claim is secured only by a lien on the debtor's principal residence." 508 U.S. at 332, 113 S.Ct. 2106.

The present dispute focuses not on the holding of Nobelman, but on the scope of its application. Macaluso argues that section 1322(b)(2) prohibits only the modification of a mortgage on property that a debtor uses exclusively as a principal residence. Because his real estate includes additionally a second residential unit and a store, Macaluso would allow a bifurcation of Wallingford's claim into secured and unsecured components. Wallingford urges a different interpretation, that section 1322(b)(2) prohibits modification of any debt secured only by a mortgage that encumbers property used as the debtor's principal residence.

Bankruptcy and appellate courts have given inconsistent interpretation to that language of section 1322(b)(2) which restricts the modification of the rights of holders of claims "secured only by a security interest in real property that is the debtor's principal residence." Within the Western District of New York, one of my two colleagues on the bankruptcy bench has held that the anti-modification provisions of section 1322(b)(2) do not protect "a mortgage secured by a multi-family structure where only one unit is used as the debtor's residence." In re Kimbell, 247 B.R. 35, 38 (Bankr.W.D.N.Y.2000). Meanwhile, my...