In re Sierra

• Decision Date: 27 October 2016
• Docket Number: CASE NO: 15–70603
• Citation: 560 B.R. 296
• Parties: In re: Jose Elias Sierra Sr., et al., Debtors
• Court: U.S. Bankruptcy Court — Southern District of Texas

560 B.R. 296

In re: Jose Elias Sierra Sr., et al., Debtors

CASE NO: 15–70603

United States Bankruptcy Court, S.D. Texas, McAllen Division.

Signed October 27, 2016

Roberto A. Guerrero, Attorney at Law, McAllen, TX, for Debtors.

Cindy Boudloche, Chapter 13 Trustee, Corpus Christi, TX, for Trustee.

MEMORANDUM OPINION DENYING CONFIRMATION OF DEBTORS' SIXTH AMENDED CHAPTER 13 PLAN

[Resolving ECF No. 99 ]

Eduardo V. Rodriguez, United States Bankruptcy Judge

I. INTRODUCTION

Pending before this Court is Jose Elias Sierra Sr. (the “Debtor ”) and Norma Alicia Gonzalez's (individually, “Joint Debtor ,” and collectively, the “Debtors ”) Sixth Amended Chapter 13 Plan, which was filed on June 28, 2016. [Case No. 15–70603, ECF No. 99] (the “Sixth Amended Plan ”). The Debtors seek confirmation of their Sixth Amended Plan, which includes treatment of Debtors' home mortgage claim to be paid in full and pro-rata at 5.5% interest per annum. Id. Notably, the Debtors' mortgage is set to mature approximately one year after which the final payment under the plan is due and is subject to a contract interest rate of 17% per annum. [Claim No. 11–1]. Standing in solidarity on the issue, both the Debtors and the chapter 13 trustee (“Trustee ”) present this Court with a matter of first impression, to wit: can this Court confirm a chapter 13 plan which proposes to pay a mortgage claim on Debtors' principal residence on a pro-rata basis and at a non-contractual rate of interest notwithstanding the fact that the last payment is due on the mortgage is after the date on which the final payment under the plan is due? This Court now considers the parameters of the Bankruptcy Code,¹ specifically 11 U.S.C. §§ 1322 & 1325, and the arguments lodged by both the Debtors and the Trustee.

II. FINDINGS OF FACT

This Court makes the following Findings of Fact and Conclusions of Law pursuant to Fed. R. Bankr. P. 7052, which incorporates Fed. R. Civ. P. 52, and 9014. To the extent that any Finding of Fact constitutes a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law constitutes a Finding of Fact, it is adopted as such. This Court made certain oral findings and conclusions on the record. This Memorandum Opinion supplements those findings and conclusions. If there is an inconsistency, this Memorandum Opinion controls.

On November 29, 2015, Debtors filed their original petition under title 11, chapter 13 of the Bankruptcy Code. On December 14, 2015, Debtors filed a list of schedules to supplement their petition. [ECF No. 13] (the “Schedules ”). On Schedule A/B, Debtors listed “310 Apollo Dr., Donna, Texas” (the “Property ”) as Debtors' principal residence. Id. at 3. The Schedules reflect the current value of the Property as $56,280.00. Id. On Schedule D, Debtors listed Villa Donna Development Corp. (“Villa Donna ”) as the mortgage holder of the note on the Property. Id. at 12–13. Debtors incurred the Mortgage debt on March 28, 2007. Id. On Schedule D, Debtors indicated that Villa Donna had an $11,000.00 secured, albeit disputed claim. Id.

Contemporaneous to their filing of the Schedules, Debtors filed their original chapter 13 plan which included a provision for the payment of the mortgage payable to Villa Donna in the amount of $11,000.00 at 5.25% per annum. [ECF No. 15]. On February 16, 2016, Villa Donna filed a proof of claim for the Mortgage in the amount of $14,220.65, listing an interest rate of 17%. [Claim No. 11–1]. (the “Claim ”). On the addendum attached to the Claim, when asked if the loan matures during the Plan, Villa Donna indicated that it does not. Id. at 4. However, on the subsequent line, where the form reads “If yes, due date,” Villa Donna wrote “note accelerated 10–30–15.” Id. The attached Deed of Trust states that the mortgage matures on April 1, 2022. [Claim No. 11–1, Ex. 1 at 1] (the “Mortgage ”). In bold typeface on the addendum, Villa Donna indicated that the “ENTIRE CLAIM TO BE PAID IN PLAN.” [Claim No. 11–1 at 4].

Debtors filed their First Amended Chapter 13 Plan (“First Amended Plan ”) on March 7, 2016. [ECF No. 42]. In the First Amended Plan, Debtors proposed treating the Mortgage under Section 4 stating that the amount to be paid was $14, 220.65, pro-rata at 17% per annum. Id. at 3. Shortly thereafter on March 17, 2016, Debtors filed their Second Amended Chapter 13 Plan (“Second Amended Plan ”) proposing to treat the Mortgage under Section 8 of the plan to be paid pro-rata at 17% per annum. [ECF No. 49]. Debtors amended the chapter 13 plan three more times all of which treated the Mortgage in the same fashion as the Second Amended Plan. Compare [ECF Nos. 64, 73, 86] with [ECF No. 49]. The three subsequent amended plans were filed on April 26, 2016, May, 11, 2016, and June 4, 2016, respectively. [ECF Nos. 64, 73, 86]. The plan filed June 4, 2016, came before this Court for confirmation on June 22, 2016. [ECF No. 86] (“Fifth Amended Plan ”). Throughout this process, Villa Donna has not objected to any version of the Debtors' amended plans.

Initially, during the June 22, 2016 hearing, the Trustee did not recommend confirmation of the Fifth Amended Plan as Debtor's original affidavit indicated that he had not paid all domestic support obligations since the date of filing. Debtors' Counsel indicated that an updated affidavit establishing that the Debtor was current on all domestic support obligations had been filed with the Trustee. Debtor testified that he was managing with the budget and was current on plan payments. Based on the Debtor's testimony, the Trustee recommended confirmation of the Fifth Amended Plan. No objections to confirmation were filed and Villa Donna did not appear in opposition at the hearing. The Court questioned the Mortgage's treatment under the Fifth Amended Plan, specifically due to the high interest rate of 17%. The Court inquired as to whether the Mortgage matured within the life of the Plan. Debtor's Counsel indicated that he believed the Mortgage matured within the life of the plan, however, did not provide evidence to substantiate that assertion. The Trustee referenced the addendum attached to Villa Donna's Claim, which states that the Mortgage was accelerated to October 2015. See [Claim No. 11–1]. This Court referenced the same Claim where the documents state that the Mortgage does not mature until April 2022. See id. The Court expressed concern about the “contradictory” nature of Villa Donna's Claim. The Court requested Debtor clarify the contradiction on the Claim. Concerned about the high interest rate and the lack of clarity provided by Debtor on the Claim, this Court denied confirmation of the Fifth Amended Plan. [ECF No. 93].

In response to the Court's concerns, on June 28, 2016, Debtors filed their Sixth Amended Chapter 13 Plan, which remains pending before this Court. [ECF No. 99] (“Sixth Amended Plan ”). The Sixth Amended Plan treats the Mortgage as a pay in full claim to be paid pro-rata, but at 5.5% per annum. Id. at 7. The Sixth Amended Plan came up for confirmation before the Court on August 16, 2016. No objections to the Sixth Amended Plan were filed and Villa Donna did not appear in opposition. Again, the Trustee recommended confirmation of the Sixth Amended Plan. Debtors' Counsel argued that the Sixth Amended Plan should be confirmed. Both this Court and the Trustee observed that the Mortgage matures approximately one year after completion of all payments under the Sixth Amended Plan or April 1, 2022. See [Claim No. 11–1 at 4]. This Court expressed concern that treatment of Villa Donna's Claim under the Plan was proscribed by 11 U.S.C. § 1322(b)(2). This Court invited Debtors' Counsel and the Trustee to file briefs addressing the issue on or before September 15, 2016. Both Debtors and Trustee submitted timely briefs. [ECF Nos. 112, 113]. The Sixth Amended Plan came before this Court for confirmation again on September 22, 2016. At that hearing, Debtors' Counsel requested additional time to file a supplemental brief, which this Court freely granted. [ECF No. 117]. On October 6, 2016, Debtors' Counsel filed a supplemental brief again addressing the treatment of the Mortgage under the Sixth Amended Plan. [ECF No. 119]. Upon receiving Debtors' supplemental brief, this Court considered the parameters of the Code, the briefs submitted and arguments of the parties.

III. LEGAL STANDARD

Confirmation of a plan of reorganization in chapter 13 is governed by both 11 U.S.C. §§ 1322, and 1325. Mandatory plan requirements are governed by § 1322(a), whereas permissive requirements are governed by § 1322(b). 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.” § 1322(b)(2). The Code also provides that “notwithstanding paragraph (2) ..., [the plan may] provide for the curing of any default within a reasonable time ... on any ... secured claim on which the last payment is due after the date on which the final payment under the plan is due.” § 1322(b)(5). Notwithstanding the Code's anti-modification provision:

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).

§ 1322(c)(2). This Court shall confirm a chapter 13 plan when “the plan complies with the provisions of this chapter and with the other applicable provisions of this title.” § 1325(a)(1).

IV. CONCLUSIONS OF LAW

A. Jurisdiction & Venue

This Court holds jurisdiction pursuant to 28 U.S.C. § 1334, which provides “the district courts shall have original and exclusive jurisdiction of all cases under title 11.” Section 157 allows a district court to “refer” all bankruptcy and related cases to the bankruptcy court,...