In re Wagner, 06-30130.

• Decision Date: 22 May 2006
• Docket Number: No. 06-30130.,06-30130.
• Citation: 342 B.R. 766
• Parties: In re Victoria Lynn WAGNER, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

342 B.R. 766

In re Victoria Lynn WAGNER, Debtor.

No. 06-30130.

United States Bankruptcy Court, E.D. Tennessee.

May 22, 2006.

Richard M. Mayer, Esq., Knoxville, TN, for Debtor.

Hodges, Doughty & Carson, PLLC, Keith L. Edmiston, Esq., Knoxville, TN, for New Falls Corporation.

Gwendolyn M. Kerney, Esq., Knoxville, TN, Chapter 13 Trustee.

MEMORANDUM ON OBJECTION BY NEW FALLS CORPORATION TO CONFIRMATION OF AMENDED CHAPTER 13 PLAN

RICHARD STAIR, JR., Bankruptcy Judge.

This contested matter is before the court upon the Objection By New Falls Corporation to Confirmation filed on February 21, 2006, and on the Objection By New Falls Corporation to Confirmation of Amended Chapter 13 Plan filed on April 5, 2006 (collectively, Objection to Confirmation), asking the court to deny confirmation of the Debtor's Chapter 13 Plan filed on January 30, 2006, as amended on March 31, 2006. The Debtor filed a second amended plan on April 18, 2006, to which New Falls Corporation's Objection to Confirmation also applies.

The Objection to Confirmation raises questions of law that can be resolved on briefs without an evidentiary hearing. The court, by agreement of the parties at a scheduling conference held on April 26, 2006, and pursuant to an Order entered on April 28, 2006, directed that it would take judicial notice of certain undisputed facts, all of which are set forth with specificity in the Order.

The Debtor filed her Brief in support of confirmation on April 18, 2006, and the Brief of New Falls Corporation in Opposition to Confirmation of the Debtor's Chapter 13 Plan, As Amended, was filed on April 19, 2006.¹ New Falls Corporation also filed a Notice of Filing Proof of Claim in Support of Opposition to Confirmation of the Debtor's Chapter 13 Plan, As Amended, on April 19, 2006, to which is appended a copy of its Proof of Claim. The Debtor does not dispute New Falls Corporation's claim.

This is a core proceeding. 28 U.S.C. § 157(b)(2)(L).

I

The Debtor has a prior bankruptcy case, No. 05-33794, commenced under Chapter 7 on July 13, 2005. On August 15, 2005, New Falls Corporation filed a $68,593.98 claim in that case, secured by a lien on the Debtor's residence at 127 Ayres Lane, Sweetwater, Tennessee (Residence). The Debtor's personal liability to New Falls Corporation was extinguished through the discharge she received in the Chapter 7 case on November 8, 2005.

On January 30, 2006, the Debtor filed the Voluntary Petition commencing the present Chapter 13 case, and on February 27, 2006, New Falls Corporation filed a claim in the amount of $72,542.12, with that claim being designated as "secured" by the Residence. New Falls Corporation also asserts in its claim that the Debtor owes a prepetition arrearage of $7,542.70.

The original Chapter 13 plan filed by the Debtor on January 30, 2006, proposed bi-weekly payments of $420.00 for 60 months, with a 100% dividend to unsecured creditors.² With respect to New Falls Corporation; the Debtor proposed monthly "maintenance installments" of $568.00 to be paid inside the plan by the Chapter 13 Trustee.³ She also proposed to cure an $8,000.00 "arrearage," listed as owing New Falls Corporation through monthly installment payments of $160.00. On February 21, 2006, New Falls Corporation objected to confirmation of the January 30, 2006 plan on grounds that the Debtor's case was not filed in good faith, the Debtor's plan was not proposed in good faith, the Debtor's plan did not propose to pay the "arrearage" within a reasonable time, the Debtor's plan proposed an improper modification of the monthly "maintenance" payment, and the Debtor's plan was not feasible.

The Debtor filed an Amended Plan on March 31, 2006, proposing bi-weekly payments of $420.00 for 60 months, plus all tax refunds in excess of $1,500.00. With respect to New Falls Corporation, the March 31, 2006 Amended Plan proposed monthly "maintenance installments" of $728.00 commencing in March 2006, and continuing for 59 months, with a balloon payment for the balance due in the 60^th month. New Falls Corporation objected to confirmation of the March 31, 2006 Amended Plan on April 5, 2006, arguing that the Debtor's case was not filed in good faith, that the Debtor's Amended Plan was not filed in good faith, did not propose periodic payments in equal installments, and proposed an improper modification by understating her required monthly payment, and that the Debtor's Amended Plan was not feasible because it did not provide a reasonable basis to assure that the Debtor could make the proposed balloon payment in the 60^th month and did not contain certification language and/or a 180-day bar to re-filing.

On April 18, 2006, the Debtor filed a second Amended Plan, again proposing biweekly payments of $420.00 for 60 months, plus all tax refunds in excess of $1,500.00. With respect to treatment of the New Falls Corporation claim, the April 18, 2006 Amended Plan proposes monthly "maintenance installments" of $728.00 commencing in March 2006, and continuing for 23 months, with a balloon payment for the balance due in the 24^th month.⁴ The April 18, 2006 Amended Plan also contains the following language: "In the event that the Debtor fails to make a Chapter 13 payment, upon certification of such failure by the Chapter 13 Trustee, the Debtor's Chapter 13 shall be dismissed without the necessity of a hearing, and shall be prohibited from refiling for a period of 180 days."

The April 28, 2006 scheduling Order sets forth the issue to be resolved by the court as follows: "whether the Debtor's proposed treatment of New Falls Corporation's lien claim encumbering real property at 127 Ayers Lane, Sweetwater, Tennessee, i.e., payment `by the Trustee in monthly maintenance installments of $728.00 commencing the month and year of 03-06 for 23 months with a balloon payment for the balance due and owing to be paid on the 24^th month of the plan in full' meets the confirmation requirements of 11

U.S.C. § 1325(a)(5)(B) (2005) and otherwise meets the confirmation requirements of 11 U.S.C. § 1325 (2005)."

II

Confirmation of Chapter 13 plans is governed by several inter-related statutes, beginning with 11 U.S.C. § 1325(a), setting forth the requirements governing confirmation of a debtor's plan, which, as material to this contested matter, are as follows:

(a) Except as [otherwise] provided ... the court shall confirm a plan if—

(1) the plan complies with the provisions of this chapter and with the other applicable provisions of this title;

(3) the plan has been proposed in good faith and not by any means forbidden by law;

(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—

(I) the holder of such claim retain the lien securing such claim until the earlier of—

(aa) the payment of the underlying debt determined under nonbankruptcy law; or

(bb) discharge under section 1328; and

(II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law;

(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; and

(iii) if—

(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and

(II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or

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

(6) the debtor will be able to make all payments under the plan and to comply with the plan; [and]

(7) the action of the debtor in filing the petition was in good faith[.]

11 U.S.C. § 1325(a) (2005); see also 11 U.S.C. § 1322 (2005) (designating both the mandatory and permissive contents of a Chapter 13 plan).

When she received the discharge in her prior Chapter 7 case, the Debtor's personal liability to New Falls Corporation was extinguished. See In re Akram, 259 B.R. 371, 374 (Bankr.C.D.Ca1.2001) ("[T]he effect of the ... discharge is to prevent the creditor from seeking to collect any claim—secured or unsecured—as the personal liability of the debtor."). Nevertheless, a "lien created prior to the bankruptcy to secure the debt will survive the bankruptcy discharge[.]" In re Geiger, 260 B.R. 83, 88 (Bankr.E.D.Pa.2001). In other words, "[t]he only effect of the prior chapter 7 discharge on [a] secured creditor[is] that the secured creditor[ ] no longer ha[s] the right to collect [its] secured claim[ ] as an in personam liability of the debtor[ ]." Akram, 259 B.R. at 378.

Even after the debtor's personal obligations have been extinguished, the mortgage holder still retains a "right to payment" in the form of its right to the proceeds from the sale of the debtor's property. Alternatively, the creditor's surviving right to foreclose on the mortgage can be viewed as a "right to an equitable remedy" for the debtor's default on the underlying obligation. Either way, there can be no doubt that the surviving mortgage interest corresponds to an "enforceable obligation" of the debtor.

Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 2154, 115 L.Ed.2d 66 (1991). And, because discharge of personal liability does not extinguish a lien, it is permissible for a debtor to include in an otherwise confirmable Chapter 13 plan repayment of a mortgage lien that survives a prior Chapter 7 case unaffected and remains a "claim" under 11 U.S.C. § 101(5) (2005). Home State Bank, 111 S.Ct. at 2154; see also Soc'y Nat'l Bank v. Barrett (In re Barrett), 964 F.2d 588, 589 (6th Cir.1992).

The protections that a straight chapter 13 would afford a...