In re Randell

• Citation: 638 B.R. 104
• Decision Date: 19 January 2022
• Docket Number: Case No. 21-25175-beh, Case No. 21-25284-beh
• Parties: IN RE: Barbara RANDELL, Debtor. In re: Alberta Sellers, Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Eastern District of Wisconsin

638 B.R. 104

IN RE: Barbara RANDELL, Debtor.

In re: Alberta Sellers, Debtor.

Case No. 21-25175-beh

Case No. 21-25284-beh

United States Bankruptcy Court, E.D. Wisconsin.

Signed January 19, 2022

Scott Lieske, Chapter 13 Trustee, Milwaukee, WI, for Trustee Scott Lieske.

Michael J. Watton, Milwaukee, WI, for Debtor.

DECISION AND ORDER ON DEBTORS’ MOTIONS FOR RECONSIDERATION

Beth E. Hanan, United States Bankruptcy Judge

These cases concern the same legal question: Does the right to cure prepetition mortgage default "within a reasonable time" under 11 U.S.C. § 1322(b)(5) obviate 11 U.S.C. § 1325(a)(5)(B)(iii)(I) ’s requirement that secured claims be satisfied in equal monthly payments? The Court initially sustained—without a hearing—the mortgage creditors’ objections to the debtors’ plans based on In re Enders , Case No. 15-21737-gmh, ECF No. 24, 2015 WL 5772199 (Bankr. E.D. Wis. Sept. 30, 2015), because the debtors proposed to satisfy prepetition mortgage arrears via pro rata payments (and, relatedly, to pay attorney's fees before curing the mortgage defaults). On October 27, 2021, the debtors filed motions for reconsideration under Fed. R. Civ. P. 60(b)(6) (incorporated by Fed. R. Bankr. P. 9024 ), arguing the requirements under § 1325(a)(5) are inapplicable because the debtors propose to treat the mortgage creditors’ claims under § 1322(b)(5) —not § 1322(b)(2). According to the debtors: "Section 1328(a)(1) makes it clear that long-term claims treated under § 1322(b)(5) are different than those treated under § 1322(b)(2) by making them non-dischargeable." In other words, the debtors’ position is that "cure-and-maintain" claims paid in accordance with section 1322(b)(5) are not "allowed secured claims provided for by the plan" within the scope of section 1325(a)(5).

The Court held a preliminary hearing on January 11, 2022, at which the affected mortgage creditors verbally objected to the motions to reconsider. Creditors’ counsel cited cases where courts have held that debtors are required to make equal monthly payments on secured claims, including prepetition mortgage arrears, to nonconsenting creditors. See In re Schultz , 363 B.R. 902 (Bankr. E.D. Wis. 2007) ; In re Romero, 539 B.R. 557 (Bankr. E.D. Wis. 2015). The Court also directed the parties to another case, In re Miceli , 587 B.R. 492 (Bankr. N.D. Ill. 2018), where the bankruptcy court similarly concluded that the equal-monthly-payment requirement of section 1325(a)(5) applied to prepetition mortgage arrears paid in accordance with section 1322(b)(5).

The debtors argued that Romero and Enders are inapplicable here because those cases concerned claims secured by vehicles instead of residential mortgages. The debtors maintain that requiring mortgage defaults to be satisfied "within a reasonable time" is sufficient to protect the mortgagees’ rights, and that mortgagees actually benefit from the possibility of the debtors paying off prepetition arrearages earlier than if they were required to pay the debt in equal payments over the full course of a 60-month plan. The debtors further argue that § 1325(a)(5) is not triggered because their plans do not provide for a secured (mortgage) claim, but only for an arrearage on a secured claim.

ANALYSIS

A. Reconsideration

The debtors moved for reconsideration under Fed. R. Civ. P. 60(b)(6), which allows a court to relieve a party from a "final judgment [or] order" in certain circumstances. But an order denying confirmation of a plan is not a final, appealable order, see Bullard v. Blue Hills Bank , 575 U.S. 496, 502, 135 S.Ct. 1686, 191 L.Ed.2d 621 (2015), so Rule 60(b) is not directly applicable here. Nor is Rule 59(e) (incorporated by Bankruptcy Rule 9023) directly applicable, even though litigants frequently invoke it as a basis for "reconsideration." Rule 59(e) likewise applies only to "[j]udgments"—i.e. , "appealable orders," see Bankruptcy Rule 9001(7).

Instead, whether to reconsider these nonfinal orders is a matter left to the Court's discretion. See, e.g., In re Kinney , No. BR 13-27912 EEB, 2019 WL 7938816, at *1 (Bankr. D. Colo. Nov. 22, 2019), aff'd, 5 F.4th 1136 (10th Cir. 2021) ("[T]he standards of review applicable to Rule 59 and Rule 60(b) motions do not apply [to reconsideration of nonfinal orders].... A court ‘can use whatever standard it wants to review a motion to reconsider an interlocutory order.’ ") (citing Patterson v. Nine Energy Serv., LLC , 355 F. Supp. 3d 1065, 1110 (D.N.M. 2018) (noting that the "law of the case" doctrine does not limit a court's review of its own prior non-final order)); Orozco v. Butler , No. 16-CV-01179-SPM, 2020 WL 6710299, at *1 (S.D. Ill. Nov. 16, 2020) ("The district court has the ability to reconsider nonfinal orders, both as an exercise of its own discretion and pursuant to Federal Rule of Civil Procedure 54(b).").

The debtors assert that there is a basis for reconsideration because this Court—consistent with the practice of the other judges in this district—sustained the secured creditors’ objections to confirmation based on In re Enders and 11 U.S.C. § 1325(a)(5)(B)(iii)(I), without providing the debtors an opportunity to respond or holding hearings on the objections. (Both debtors acknowledge their plans must be amended to become feasible to cure the prepetition defaults.) The creditors did not object to reconsideration itself, but they maintain their substantive objections to confirmation.

After considering the record and the arguments of counsel, the Court will exercise its discretion and entertain the debtors’ requests for reconsideration, to allow the debtors to present their positions and the Court to decide the matter after a more thorough examination of the applicable legal authority.

B. The Applicability of § 1325(a)(5)(B)

Section 1322 of the Bankruptcy Code identifies both mandatory and permissive contents of a Chapter 13 plan. Under § 1322(b)(2), a 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." And section 1322(b)(5) allows a plan, "notwithstanding paragraph (2) of this subsection," to "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." 11 U.S.C. § 1322(b)(5).

Section 1325 of the Bankruptcy Code, in turn, sets forth the requirements for confirmation of a Chapter 13 plan. Under § 1325(a)(5), which dictates the treatment of "each allowed secured claim provided for by the plan," one of three requirements must be satisfied before a plan may be confirmed: (1) the holder of the secured claim has accepted the plan, § 1325(a)(5)(A) ; (2) the debtor surrenders the property securing such claim to the secured creditor, § 1325(a)(5)(C) ; or (3) the plan meets the "cramdown" requirements of § 1325(a)(5)(B), which include that the holder of the secured claim retains the lien securing such claim until payment of the debt under nonbankruptcy law or discharge, § 1325(a)(5)(B)(i)(I), that "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," § 1325(a)(5)(B)(ii), and that, if "property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts," § 1325(a)(5)(B)(iii)(I).

Here, the secured creditors have not accepted the plans, the debtors have not proposed to surrender the collateral, and the plans do not propose to pay the creditors’ mortgage arrearages in "equal monthly amounts," so the plans do not meet the confirmation requirements of § 1325(a)(5).

No matter, says the debtors’ counsel, because § 1325(a)(5) does not apply to mortgage arrearages cured through a plan under § 1322(b)(5). This same argument, however, was considered—and rejected—by the U.S. Supreme Court in Rake v. Wade , 508 U.S. 464, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993), which held that mortgage arrearages paid through a Chapter 13 plan were "provided for" by the plan, and therefore oversecured mortgage creditors were entitled to interest under § 1325(a)(5)(B)(ii). In Rake , the debtors had argued—like the debtors do here—that § 1325(a)(5) does not apply when the debtor cures a default on a home mortgage under § 1322(b)(5), and that § 1325(a)(5)(B)(ii) "applies only to secured claims which have been modified in the Chapter 13 plan, and which, by reason of Section 1322(b)(2), may not include home mortgages." 508 U.S. at 472, 113 S.Ct. 2187 (internal quotation marks omitted). The Supreme Court disagreed:

[The debtors’] interpretation of §§ 1322(b) and 1325(a)(5) is refuted by the plain language of the Code. Section 1325(a)(5) applies by its terms to "each allowed secured claim provided for by the plan." The most natural reading of the phrase to "provid[e] for by the plan" is to "make a provision for" or "stipulate to" something in a plan. See, e. g., American Heritage Dictionary 1053 (10th ed. 1981) ("provide for" defined as "to make a stipulation or condition").

[The debtors]’ plans clearly "provided for" [the mortgage creditor]’s home mortgage claims by establishing repayment schedules for the satisfaction of the arrearages portion of those claims. As authorized by § 1322(b)(5), the plans essentially split each of [the mortgage creditor]’s secured claims into two separate claims—the underlying debt and the arrearages. While payments of principal and interest on the underlying debts were simply "maintained" according to the terms of the mortgage documents during the pendency of [the debtors]’ cases, each plan treated the arrearages as a distinct claim to be paid off within the life of the plan pursuant to repayment schedules established by the plans. Thus, the arrearages, which are a part of [the

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