In re Thompson
Decision Date | 18 February 1982 |
Docket Number | 81 0632 and 81 620.,No. HK 81 02117,NG 81 03222 and NK 81 01340,Adv. No. 81 1317,HK 81 02117 |
Citation | 17 BR 748 |
Parties | In re Gary F. THOMPSON, Debtor. Gary F. THOMPSON, Plaintiff, v. GREAT LAKES FEDERAL SAVINGS AND LOAN ASSOCIATION, Defendant. In re James R. ENSLEY and Barbara J. Ensley, Debtors. MUTUAL HOME FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. James R. ENSLEY and Barbara J. Ensley, Raymond Johnson, Trustee, Defendants. In re Vernon WADE, Debtor. Vernon WADE, Plaintiff, v. WATERFIELD MORTGAGE COMPANY, Defendant. COLONIAL MORTGAGE COMPANY OF INDIANA, Plaintiff, v. Vernon WADE, Defendant. |
Court | U.S. Bankruptcy Court — Western District of Michigan |
Edward R. Barton, Allegan, Mich., for Gary F. Thompson.
David K. Ryan, Battle Creek, Mich., for Great Lakes Federal Sav. and Loan Ass'n.
Warner, Norcross & Judd, Patrick E. Mears, Grand Rapids, Mich., for Mut. Home Federal Sav. and Loan Ass'n.
Sprik & Anderson, David C. Anderson, Grand Rapids, Mich., for James R. Ensley and Barbara J. Ensley, Raymond Johnson.
Philip A. Brown, St. Joseph, Mich., for Vernon Wade.
Russell & Batchelor, James W. Batchelor, Grand Rapids, Mich., for Waterfield Mortg. Co. and Colonial Mortg. of Indiana.
Before DAVID E. NIMS, Jr. and LAURENCE E. HOWARD, Bankruptcy Judges.
These cases are before the court on the same question involving the construction of 11 U.S.C. § 1322(b)(5) which provides for the treatment of real estate mortgages in a Chapter 13 plan. In each case the debtor gave a mortgage on real estate which was the subject of a foreclosure sale prior to the filing of the debtor's petition. These debtors seek to protect their interests in the real estate by paying off any arrearage through their Chapter 13 plan and resuming the regular mortgage payments. In each case the mortgagee has objected to this treatment as contrary to the treatment of secured creditors provided for in 11 U.S.C. § 1322.
The facts of the cases are as follows: GARY THOMPSON: This case is before the court on an objection to the debtor's Chapter 13 plan and a motion for rehearing on an order disallowing and/or reducing a claim. Great Lakes Federal Savings and Loan Association (Great Lakes) foreclosed on debtor's real estate mortgage and conducted a sale of the property on May 7, 1981. Great Lakes was the purchaser in an amount equal to the balance due it, $25,280.33. Two weeks later the debtor filed proceedings in Chapter 13. Great Lakes filed a proof of claim in the amount of $25,280.33, plus interest. Debtor objected to this claim and an order was entered on August 21, 1981, allowing the claim as a priority claim only insofar as it would pay off the arrearage due on the mortgage. Debtor proposes to pay the mortgage arrearage to the date of filing through the plan, and make current payments outside the plan. Great Lakes has objected to the confirmation of the plan, and asked for reconsideration of this court's order reducing its claim.
11 U.S.C. § 1322(b) provides in part for the treatment of secured claims in a Chapter 13 plan:
The disputes in the present actions arise from the debtors' attempts to apply subsection (b)(5) to claims secured by real estate where a foreclosure sale was held prior to the order for relief. The court is essentially being asked to determine the limits of the debtors' power to cure a default. The mortgagees argue that the section does not provide for any deviation from state law which limits the debtors' interest to the right of redemption within a statutorily prescribed period. While the mortgagees are correct in asserting that Michigan law limits a mortgagor's ability to cure a default where a debt has been accelerated1 or a sale held,2 case law under 11 U.S.C. § 1322(b) indicates that the courts are in disagreement on the question of whether the Bankruptcy Code deviates from state law in allowing a post-default cure. Some courts have held that where a mortgage by its terms permitted the creditor to accelerate the debt, (b)(5) does not apply.3 Other courts have similarly denied the use of (b)(5) where a state court judgment of foreclosure had been obtained before filing4 or where a foreclosure sale had been held.5
On the other hand, a number of courts have read (b)(5) as unaffected by certain state laws limiting cure.6 This court would join with the latter cases and read 11 U.S.C. § 1322(b)(5) as allowing the cure of arrearages and the reinstating of the original mortgage terms where the debtor files a petition prior to such time as state law cuts off the debtor's interest in the mortgaged property, namely the running of the statutory redemption period under Michigan law.
In attempting to construe 11 U.S.C. § 1322(b) the court has examined the treatment of secured debts under the Bankruptcy Act of 1898.
Under § 652 of the Act, secured creditors could not be required to participate in a Chapter XIII plan without their consent:
The Act further provided in § 606 that real estate mortgages were not claims:
Nevertheless, courts held that secured creditors could be delayed in the enforcement of their liens where the effectuation of the Chapter XIII plan so required. In Hallenbeck v. Penn Mutual Life Insurance Company, 323 F.2d 566 (4th Cir. 1963) it was held that a bankruptcy court could properly exercise its equity powers to enjoin the foreclosure of a mortgage on the debtor's residence.7 The debt in Hallenbeck had been accelerated pursuant to the terms of the contract. The court reasoned, however, that the prohibition of "dealing with" a secured creditor in a Chapter XIII plan did not assure the mortgagee all of the rights it had under the contract, but rather held that a more limited protection was provided:
"(1) The injunction or stay must be necessary to preserve the debtor\'s estate or to carry out the Chapter XIII plan; (2) the granting of the injunction must not directly or indirectly impair the security of the lien; and (3) the owner of the secured indebtedness must not be required to accept less than the full periodic payments specified in his contract." 323 F.2d at 572.
The court held that this test was met by a plan which would pay any arrearage by the end of the plan and continue regular payments. some later decisions now embodied in 11 U.S.C. § 1322(b)(2) allowed for modification of the contract terms in the case of...
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