Matter of Pruett, Bankruptcy No. 94-81358.

• Citation: 178 BR 7
• Decision Date: 23 February 1995
• Docket Number: Bankruptcy No. 94-81358.
• Parties: In the Matter of Bobby D. PRUETT, Debtor.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Alabama

178 B.R. 7 (1995)

In the Matter of Bobby D. PRUETT, Debtor.

Bankruptcy No. 94-81358.

United States Bankruptcy Court, N.D. Alabama, Northern Division.

February 23, 1995.

Vera Smith Hollingsworth, Decatur, AL, for debtor.

S. Wayne Fuller, Cullman, AL, for Merchants Bank.

ORDER

JACK CADDELL, Bankruptcy Judge.

This matter is before the Court on an objection to confirmation filed by Merchants Bank (the "Bank"). Oral arguments were presented to the Court on the 11th day of January, 1995.

BancBoston holds a first mortgage on the debtor's residence. No arrearage is owed on this debt, and the debtor proposes to pay this mortgage directly as it becomes due. The claim of the Bank is secured by a second mortgage on the residence, a first mortgage on 20 acres of real estate (two chicken houses) and a first lien on approximately 20 pieces of equipment.

The debtor proposes to sell the 20 acres of real estate within 120 days of confirmation and to pay the proceeds derived therefrom to the Bank. The debtor proposes to surrender the equipment to the Bank for a credit and to retain the home and pay for its value in the plan as secured with interest. The balance of the claim owed to the Bank would be unsecured.

The Bank objects to the confirmation of the debtor's plan because it does not provide for full payment of its indebtedness. The Bank argues that § 1322(b)(2) prohibits the debtor from bifurcating its claim into a partially unsecured debt or from modifying the terms of its note and mortgage with the debtor, citing Nobelman v. American Sav. Bank, ___ U.S. ___, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993). The debtor argues that because the claim of the Bank is secured by the home and other collateral that § 1322(b)(2) and Nobelman do not apply.

In 1993, the United States Supreme Court held in the case of Nobelman v. American Sav. Bank, ___ U.S. ___, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), that a home mortgage could not be bifurcated under Chapter 13 because § 1322(b)(2) says that a Chapter 13 plan may not modify a claim that is "secured only by a security interest in real property that is the debtor's principal residence."

In In re Hammond, 27 F.3d 52 (3rd Cir. 1994), the creditor had a mortgage on the Chapter 13 debtor's home as well as appliances, machinery, furniture and equipment. The Third Circuit Court of Appeals held that a mortgage that created a lien in the debtor's residence in addition to a security interest on personal property was beyond the protection of the statute which prohibits modification. The Court allowed the debtor to bifurcate the mortgage into secured and unsecured portions. See In re Hirsch, 155 B.R. 688 (Bkrtcy.E.D.Pa.1993) (debtor allowed to bifurcate secured claim which was secured by home, rents, profits and fixtures.)

In the case of In re McGregor, 172 B.R. 718 (Bkrtcy.D.Mass.1994), the debtor owned a four unit apartment complex and lived in one of the apartments. A mortgage was held on the property by CountryWide Funding Corporation. The mortgage indebtedness had a balance due on it in the sum of $202,792.93. The fair market value of the property was in dispute with the debtor asserting it to be worth $100,000.00 and CountryWide valuing it at $135,000.00. The debtor's plan sought to bifurcate CountryWide's claim into a secured claim of $100,000.00 and an unsecured claim of $102,792.93. The debtor proposed to pay the unsecured portion through her five year plan at fourteen cents on the dollar. The plan further proposed to reamortize the secured debt of $100,000.00 over the notes remaining 22 years at eight percent interest per annum. CountryWide's original note and mortgage called for a ten and one-half percent interest rate.

The McGregor court held that CountryWide was not entitled to the protection afforded by Nobelman (§ 1322(b)(2)) since the bank had a security interest in the debtor's entire building which included both her principal residence and three income producing units. Thus, the debtor was entitled to a valuation of the collateral under § 506(a). CountryWide proposed an alternative argument that in the event that the court permitted bifurcation of its claim that § 1322(c) required that the payments must be completed over no more than a maximum of five years, not the 22 years proposed by the debtor. The debtor, on the other hand, relied on § 1322(b)(5) which provides:

(b) Subject to subsections (a) and (c)

...