Saylors, In re

• Decision Date: 10 April 1989
• Docket Number: No. 88-7320,88-7320
• Citation: 869 F.2d 1434
• Parties: , 20 Collier Bankr.Cas.2d 1140, Bankr. L. Rep. P 72,853 In re Paul Wayne SAYLORS, Debtor. JIM WALTER HOMES, INC., Plaintiff-Appellee, v. Paul Wayne SAYLORS, Defendant-Appellant. Jane K. Dishuck, Standing Trustee, Defendant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1434

869 F.2d 1434

57 USLW 2597, 20 Collier Bankr.Cas.2d 1140,

Bankr. L. Rep. P 72,853

In re Paul Wayne SAYLORS, Debtor JIM WALTER HOMES, INC., Plaintiff-Appellee, v. Paul Wayne SAYLORS, Defendant-Appellant Jane K. Dishuck, Standing Trustee, Defendant.

No. 88-7320.

United States Court of Appeals Eleventh Circuit.

April 10, 1989.

Claude M. Burns, Jr., Tuscaloosa, Ala., for defendant-appellant.

E. Terry Brown, Copeland, Franco, Screws & Gill, P.A., Montgomery, Ala., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before VANCE and EDMONDSON, Circuit Judges, and ATKINS ^*, District Judge.

VANCE, Circuit Judge:

Paul Wayne Saylors appeals from the decision of the district court reversing the confirmation of Saylors' chapter 13 plan. We reverse.

I. BACKGROUND

On May 20, 1987, Saylors and his wife filed a voluntary petition under chapter 7 of the Bankruptcy Code, 11 U.S.C. Secs. 101-1330. The petition listed, among other debts, $65,000 owed to Jim Walter Homes, Inc. ("Jim Walter"). ¹ A first mortgage on the Saylors' home secured this debt. On August 25, 1987, the bankruptcy court discharged the debts listed in the petition. Jim Walter thereafter moved for relief from the automatic stay. The bankruptcy court granted the motion on December 29, 1987. On January 6, 1988, the chapter 7 trustee filed his final report and abandoned all interest in the Saylors' property.

On December 30, 1987, Mr. Saylors filed a chapter 13 petition. The sole debt from which he sought relief was a $2,676.50 arrearage on his mortgage debt to Jim Walter. Over Jim Walter's objection, the bankruptcy court confirmed Saylors' chapter 13 plan on January 26, 1988. The plan provides that Saylors, through the chapter 13 trustee, is to pay Jim Walter $83 per month until the mortgage arrearage is satisfied and is to pay his regular monthly mortgage payments directly to Jim Walter. Jim Walter appealed and the district court reversed. This appeal followed.

II. DISCUSSION

A.

Jim Walter contends that the district court's decision must be affirmed because as a matter of law, a chapter 13 plan may not cure a home mortgage arrearage when the debtor has received a chapter 7 discharge of the underlying mortgage debt. Several bankruptcy courts have adopted this view. E.g., In re McKinstry, 56 B.R. 191 (Bankr.D.Vt.1986); In re Binford, 53 B.R. 307 (Bankr.W.D.Ky.1985); In re Brown, 52 B.R. 6 (Bankr.S.D.Ohio 1985); Manufacturer's Hanover Mortgage Corp. v. Fryer (In re Fryer ), 47 B.R. 180 (Bankr.S.D.Ohio 1985). One circuit court, however, reached the opposite conclusion in Downey Sav. and Loan Ass'n v. Metz (In re Metz ), 820 F.2d 1495 (9th Cir.1987). We follow the Ninth Circuit precedent and therefore reject Jim Walter's contention.

In reaching its conclusion, the Metz court relied principally on the rationale of In re Lagasse, 66 B.R. 41 (Bankr.D.Conn.1986). Metz, 820 F.2d at 1497-98. Lagasse reasoned that an arrearage on a home mortgage debt that has been discharged in a chapter 7 case may be cured in a subsequent chapter 13 plan because (1) the debt owed by the mortgagor to the mortgagee is transformed into a nonrecourse obligation at the time of the chapter 7 discharge and (2) a nonrecourse debt may be cured in a chapter 13 plan. Lagasse, 66 B.R. at 43. As to the latter conclusion, Lagasse 's analysis is persuasive without further elaboration on our part:

I perceive no reason why curing of a nonrecourse debt may not be included in a chapter 13 plan. The clear language of [11 U.S.C.] Secs. 102(2) and (4), and Sec. 1322(b)(5) does not forbid it, and the legislative history of Sec. 102(2) supports it.

Paragraph (2) specifies that 'claim against the debtor' includes claim against property of the debtor. This paragraph is intended to cover nonrecourse loan agreements where the creditor's only rights are against property of the debtor, and not against the debtor personally....

Id. (citing H.R.Rep. No. 595, 95th Cong., 1st Sess. 315, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5963, 6272).

We also agree that a home mortgage debt is transformed into a nonrecourse obligation when the debt is discharged in a chapter 7 case, at least when the debtor's home is located in Alabama. Although the mortgagor is no longer personally liable for the debt, see 11 U.S.C. Sec. 524(a)(1), he still has two valuable property rights under Alabama law that provide him with the ability to save his home by paying off the mortgage debt. He has the equitable right of redemption until a foreclosure sale takes place, Trauner v. Lowrey, 369 So.2d 531, 534 (Ala.1979), and the statutory right of redemption for one year after a foreclosure sale takes place, Ala.Code Sec. 6-5-230 (1975).

Neither of these rights vanishes upon the mortgagor's receipt of a chapter 7 discharge. Under 11 U.S.C. Sec. 524 (the effect of discharge provision of the Code), the rights of creditors are modified upon the debtor's receipt of a discharge. Nothing in that section, however, modifies the rights of the debtor upon the receipt of a discharge.

Congress enacted chapter 13 to "provide[ ] a highly desirable method for dealing with the financial difficulties of individuals. It creates an equitable and feasible way for the honest and conscientious debtor to pay off his debts rather than having them discharged in bankruptcy." H.R.Rep. No. 193, 86th Cong., 1st Sess. 2 (1959), quoted in Perry v. Commerce Loan Co., 383 U.S. 392, 396, 86 S.Ct. 852, 855, 15 L.Ed.2d 827 (1966). In the absence of statutory language or legislative history indicating that Congress intended otherwise, a per se rule that bars an entire category of debtors from using this procedure is not warranted. The good faith requirement of 11 U.S.C. Sec. 1325(a)(3) is sufficient to prevent undeserving debtors from using this procedure, yet does not also prevent deserving debtors from using the procedure.

B.

The district court held that the bankruptcy court had no jurisdiction over Saylors' home. We disagree. The jurisdiction of the bankruptcy court derives from that of the district court, see 28 U.S.C. Sec. 157(a)-(b)(1), which has exclusive jurisdiction over "all of the property, wherever located, of the debtor as of the commencement of [the] case, and of property of the estate." Id. Sec. 1334(d). With certain exceptions not applicable here, the property of the debtor's estate is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. Sec. 541(a)(1). The district court concluded that the bankruptcy court lacked jurisdiction by reasoning as follows:

Saylors had no true "possessory" or "equitable" interest in his residence at the time his Chapter 13 petition was confirmed on January 26, 1988. Any and all interest by Saylors, except his Alabama statutory right to redeem after foreclosure, ceased to exist upon the granting of Jim Walter's right to foreclose on December 29, 1987. And, if any "possessory interest" did remain, it surely disappeared on January 6, 1988, when the Chapter 7 trustee formally abandoned the property.... Whatever "possession" of the residence Saylors had on January 6, 1988, was held constructively by his trustee, and upon abandonment, evaporated.

(emphasis in original).

Contrary to the district court's conclusion Saylors still had an equitable interest in his home on January 26, 1988 that was subject to the bankruptcy court's jurisdiction. The lifting of the automatic stay only gave Jim Walter the right to foreclose; because no foreclosure sale had taken place by January 26, 1988, Saylors still had his equitable right of redemption on that date. Although Jim Walter was prevented from foreclosing by the filing of the chapter 13 petition on December 30, 1987, see 11 U.S.C. Sec. 362(a)(5), Saylors would have had the statutory right of redemption even if a foreclosure sale had taken place. Either of these property rights is sufficient to give the bankruptcy court jurisdiction over a debtor's home. The Alabama statutory right of redemption is a property right of the debtor within the jurisdiction of the bankruptcy court. Wragg v. Federal Land Bank of New Orleans, 317 U.S. 325, 329, 63 S.Ct. 273, 275, 87 L.Ed. 300 (1943). The Alabama equitable right of redemption is more valuable than the statutory right of redemption, Federal Deposit Ins. Corp. v. Morrison, 747 F.2d 610, 613 (11th Cir.1984), cert. denied, 474 U.S. 1019, 106 S.Ct. 568, 88 L.Ed.2d 553 (1985), and therefore also is a property right of the debtor within the jurisdiction of the bankruptcy court. ²

C.

The district court also concluded that, as a matter of law, Saylors did not propose his chapter 13 plan in good faith. Two factors had a significant influence on the court in reaching this decision. The first was that Saylors filed his chapter 13 petition before the chapter 7 trustee filed his final report. This factor, however, is not dispositive on the issue of good faith. If it were, a debtor effectively would be barred as a matter of law from filing a chapter 13 petition during the period between the debtor's receipt of a chapter 7 discharge and the filing of the final report by the chapter 7 trustee. The language of the Bankruptcy Code suggests no such rule. The Code provides that the "court shall confirm a [chapter 13] plan" if the debtor meets certain conditions. 11 U.S.C. Sec. 1325(a). The receipt of a prior chapter 7 discharge does not prevent the debtor from meeting any of the listed conditions. See Sec. 1325(a)(1)-(6).

A per se rule barring the filing of a chapter 13 petition during the period at issue also would conflict with the purpose of Congress in adopting and designing chapter 13 plans. In Perry v. Commerce Loan Co., 383 U.S. 392, 86 S.Ct. 852, 15 L.Ed.2d 827 (1966), the Supreme Court held that the statutory provision barring a debtor from receiving a chapter 7 discharge within the first six years following the...