In re Wetherbee, Bankruptcy No. 93-564-JEY
| Citation | 164 BR 212 |
| Decision Date | 14 January 1994 |
| Docket Number | Bankruptcy No. 93-564-JEY,92-3732-JEY. |
| Parties | In re Catherine WETHERBEE, Debtor. In re John G. CHAMBERS, II, Debtor. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire |
Bruce E. Barron, Salem, NH, for debtors.
James H. Eaton, III, Eaton and Chandler, Lawrence, MA, for First Essex Sav. Bank.
Bernard H. Campbell, Beaumont, Mason & Campbell, Salem, NH, for Shawmut Bank, N.A.
Lawrence P. Sumski, Amherst, NH, Trustee.
Gerri Karonis, Manchester, NH, for U.S. Trustee.
The issue in these cases is whether 11 U.S.C. § 1322(b) prevents the debtor from modifying the rights of a secured lender who holds a mortgage on a house which was, at the time the loan was granted, the debtor's primary residence but, at the time of the bankruptcy filing, was no longer the debtor's homestead. The issue has arisen in both cases in the context of confirmation of the Debtor's Chapter 13 Plan.
In this case, the residence at issue has three mortgages outstanding totalling $134,701.201. The Chapter 13 plan proposes to modify the rights of all three mortgagees by recalculating the amortization schedule of the loans and extending the current payment schedules. The first mortgage holder, First Essex Bank (formerly First Essex Savings Bank), has objected to confirmation of the plan.
In 1977, First Essex Bank refinanced a currently existing homestead mortgage in the personal residence of Catherine Wetherbee (formerly Catherine Iannacchino) and her then husband Michael Iannacchino in Salem, New Hampshire. Sometime thereafter Catherine and Michael divorced. Catherine was conveyed the premises which she converted from a single family residence to a two family residence, living on one side and renting the other.
When Catherine remarried she moved her home to Ashburn, New Hampshire and retained the Salem property exclusively for rental income. Both the second and third mortgages were obtained when at least a portion of the security was rental income thus section 1322(b) homestead exclusion does not apply2. On the other hand, at the time First Essex Bank granted the mortgage, the property was the Debtor's primary residence.
Although the basic facts in this case are variant from those above, the ultimate result and issue presented is exactly the same. In September 1986, the debtor obtained a mortgage from Sears Mortgage Company on property which was, at the time the loan was made, his primary residence. Soon thereafter, with full knowledge of the mortgagee, the debtor moved his primary residence from the property. The Debtor filed for a petition for relief under chapter 13 of the Bankruptcy Code in December of 1992.
The debtor's chapter 13 plan proposes to modify Sears Mortgage Company's claim into secured and unsecured portions under 11 U.S.C. § 5063. Sears has objected to confirmation contending the plan violates 11 U.S.C. § 1322(b)(2). Nobleman v. American Savings Bank, ___ U.S. ___, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) ().
To rule on the objections by the secured creditors in each of these cases, the Court must determine the relevant date of inquiry, i.e. the date the loan was granted or the date of the filing of the bankruptcy petition. Both First Essex Bank and Sears Mortgage Company (hereinafter "the banks") contend that, because at the time their loan was granted, the property securing the loan was the Debtor's primary residence, 11 U.S.C. § 1322(b)(2) prohibits modification of its secured claim as proposed by the Plan. The debtor contend that, because at the time of the bankruptcy filing, the property was not the debtor's primary residence, 11 U.S.C. § 1322(b)(2) allows modification of the secured claim as proposed by the Plan. The relevant statutory provision states:
11 U.S.C. § 1322(b)(2).
The question is therefore one of statutory interpretation, i.e. what is the meaning of the phrase "a claim secured only by a security interest in real property that is the debtor's primary residence." The first canon of statutory construction is that the words of a statute should be given their plain meaning. If the meaning is clear, the inquiry of the court is complete. In that situation, the function of the court is to enforce the law according to its terms. United States v. Ron Pair Enterprises, 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). Only in the "rare and exceptional" case when the language of a statute is ambiguous on its face should the Court inquire into the legislative history to attempt to derive Congressional intent. Demarest v. Manspeaker, 498 U.S. 184, 190-191, 111 S.Ct. 599, 604, 112 L.Ed.2d 608 (1991); Burlington Northern R. Co. v. Oklahoma Tax Comm'n, 481 U.S. 454, 461, 107 S.Ct. 1855, 1860, 95 L.Ed.2d 404 (1987).
These "rare and exceptional" circumstances only exist when "application of the statute as written will produce a result `demonstrably at odds with the intentions of its drafters.'" Demarest, 498 U.S. at 190, 111 S.Ct. at 604 (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982)); E.g., United States v. Ron Pair Enterprises, Inc., supra. Simply stated, following the current emphasis of the Supreme Court in interpreting statutes, except in extraordinary circumstances the judiciary must assume that Congress knows what it says and says what it means4.
As noted above, the statute in question provides that a Chapter 13 plan may modify secured claims other than "a claim secured only by * * * the debtor's principal residence." 11 U.S.C. § 1322(b)(2). A "claim" is a term of art in a bankruptcy proceeding which defines a creditor's right of payment in the bankruptcy proceeding5. A "claim" in bankruptcy arises at the date of the filing of the petition6. In re Boisvert, 156 B.R. 357 (Bankr.D.Mass.1993); In re Amerson, 143 B.R. 413 (Bankr.S.D.Miss. 1992); In re Groff, 131 B.R. 703, 706 (Bankr. E.D.Wis.1991); In re Green, 7 B.R. 8, 9 (Bankr.S.D.Ohio 1980). Therefore, only if a claim is secured by the debtor's principal residence at the time of the bankruptcy petition is the debtor prohibited from modifying the creditor's interest under the plain language of 11 U.S.C. § 1322(b)(2).
My interpretation of Section 1322(b)(2) is in accord with In re Boisvert 156 B.R. 357 (Bankr.D.Mass.1993), a recent decision issued by Judge Feeney in the Bankruptcy Court in the District of Massachusetts. Although the essential issue of the statutory construction of 11 U.S.C. § 1322(b)(2) in that case is the same as the issue before me today, the underlying facts were somewhat different. In that case, at the time the bankruptcy petition was filed, the bank held a claim secured only by the debtor's primary residence although the claim had been secured by additional collateral prior to the finding7. The debtor's chapter 13 plan proposed to modify the bank's mortgage by bifurcation under 11 U.S.C. § 506. Judge Feeney denied confirmation of the debtor's plan, finding the § 1322 proviso applicable, notwithstanding the debtor's argument regarding the legislative history of section 1322(b)(2) pertaining to the Congressional intent behind the primary residence exception of the provision. The Court in Boisvert stated that the language of the statute was unambiguous and the legislative history of the statute could not be used to depart from its plain meaning. The Court held the relevant point of inquiry was the date of the filing of the Chapter 13 petition.
Both First Essex Bank and Sears Mortgage Company ground their objections on the well-reported legislative history behind the provisions of 11 U.S.C. § 1322(b)(2) which indicates a legislative intent to protect long-term home mortgage financing. See Grubbs v. Houston First Amer. Sav. Ass'n, 730 F.2d 236, 245-46 (5th Cir.1984) (). However, although the recited legislative history is not in complete harmony with the ordinary meaning of the words actually chosen, a literal reading of the provision does not result in an interpretation so unreasonable as to produce an absurd result8. See Maine v. Thiboutot, 448 U.S. 1, 8, 100 S.Ct. 2502, 2506, 65 L.Ed.2d 555, 561-62 (1980) (...
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