Seidel, In re

• Decision Date: 29 January 1985
• Docket Number: No. 84-3572,84-3572
• Citation: 752 F.2d 1382
• Parties: , 53 USLW 2393, 12 Collier Bankr.Cas.2d 106, 12 Bankr.Ct.Dec. 1016, Bankr. L. Rep. P 70,237 In re Robert S. SEIDEL, Charlotte A. Baggerman, Debtors. Robert S. SEIDEL, Charlotte A. Baggerman, Debtors-Appellants, v. Judy LARSON and Dale Larson, Creditors-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1382

752 F.2d 1382

91 A.L.R.Fed. 501, 53 USLW 2393, 12

Collier Bankr.Cas.2d 106,

12 Bankr.Ct.Dec. 1016, Bankr. L. Rep. P 70,237

In re Robert S. SEIDEL, Charlotte A. Baggerman, Debtors Robert S. SEIDEL, Charlotte A. Baggerman, Debtors-Appellants, v. Judy LARSON and Dale Larson, Creditors-Appellees.

No. 84-3572.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 8, 1984.

Decided Jan. 29, 1985.

Magar E. Magar, Portland, Or., for debtors-appellants.

Timothy J. Vanagas, Gresham, Or., for creditors-appellees.

Appeal from the United States District Court for the District of Oregon.

Before SKOPIL, FARRIS, and BEEZER, Circuit Judges.

FARRIS, Circuit Judge:

Robert Seidel and Charlotte Baggerman purchased a home. A promissory note secured by a mortgage was given in partial payment. The note provided for interest-only payments for a period of three years, at which time the principal in full would come due. The purchasers defaulted when the principal came due, and the sellers commenced foreclosure proceedings in state court. Prior to final judgment of foreclosure and sale, the purchasers filed a Chapter 13 petition and plan under the Bankruptcy Code. Under the plan the purchasers proposed to pay the debt then in default in sixty monthly installments, culminating in a final balloon payment of $4,000. The Bankruptcy Court for the District of Oregon refused to confirm the proposed plan because the plan attempted to "modify" the rights of creditors in violation of 11 U.S.C. Sec. 1322(b)(2). In re Seidel, 31 B.R. 262 (Bankr.D.Or.1983).

On review, the district court considered the statute and its legislative history and concluded that a debtor may not delay payment of an already-matured debt by filing a Chapter 13 petition. The purchasers appealed.

We have jurisdiction over the timely filed appeal under 28 U.S.C. Sec. 1291. The single issue on appeal--can a debtor use a Chapter 13 petition to delay payment of an unaccelerated debt that matured prior to the filing of the petition?--is a question of law subject to de novo review. See United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.1984) (en banc), cert. denied, --- U.S. ----, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984).

This issue is one of first impression in this circuit; similar but not identical issues have been considered by other circuit courts. See In re Clark, 738 F.2d 869 (7th Cir.1984); Grubbs v. Houston First Amer. Sav. Ass'n, 730 F.2d 236 (5th Cir.1984) (en banc); In re Taddeo, 685 F.2d 24 (2d Cir.1982). In each of these other cases, however, the debt came due before the filing of the Chapter 13 petition only because a creditor had accelerated the entire debt after a default in installment payments. These cases are therefore distinguishable. The language and legislative history of Chapter 13 demonstrate congressional intent to protect home mortgage lenders. We affirm.

When a creditor is secured only by the debtor's principal residence, a Chapter 13 plan is barred from "modifying" the rights of the secured creditor. 11 U.S.C. Sec. 1322(b)(2). Seidel's plan proposes to pay off a note, which had already reached its due date before he filed for bankruptcy, in installments over the next five years with a balloon payment at the end of that period. His plan therefore affects the rights of the creditor who holds both the note and the security interest in Seidel's home mortgage. We must decide whether the plan will so affect the creditor's rights that it amounts to "modifying" them, in violation of Sec. 1322(b)(2).

In deciding whether a plan rises to the level of "modifying" rights we first consider whether that plan merely "cures" a default. Section 1322(b)(3) authorizes "the curing or waiving of any default," while section 1322(b)(5) authorizes the curing of a default when "the last payment is due after the date on which the final payment under the plan is due." We hold that Seidel's plan "modifies" his creditor's rights in violation of subsection b(2), and that the "cure" provisions of subsections b(3) and b(5) are inapplicable when a debt has reached its maturity date in the absence of acceleration, prior to the filing of the Chapter 13 petition.

I. Delay in payment of an already-matured debt is a "modification."

The distinctive feature of Seidel's plan is that it extends the time for complete payment of a note far beyond the time originally contemplated by the parties. In contrast to the bulk of section 1322(b) cases, in which a creditor has exercised its power to accelerate payment before a debt came naturally due, this case involves a note which had already fully matured and was immediately due and payable even before the plan was filed. Furthermore, Seidel proposes to delay payment of the matured debt over the next five years--the maximum period allowable under the statute, and only permitted when the court is convinced that unusual circumstances exist, 11 U.S.C. Sec. 1322(c)--with a large balloon payment postponed until the end of that period.

When applying section 1322(b) to already-matured debts, courts have held that "by in effect creating a new payment schedule, such action would clearly involve 'modifying' the rights of the mortgagee." In re Maloney, 36 B.R. 876, 878 (Bankr.D.N.H.1984)- ; see In re Fontaine, 27 B.R. 614 (Bankr.App. 9th Cir.1982); see also In re Gwinn, 34 B.R. 936, 944 (Bankr.S.D.Ohio 1983) (an extension of the period to make payments is a "basic or important change" that would modify creditors' rights in violation of subsection b(2)). Thus, when a plan would extend the time for payment beyond the time originally contemplated by the creditor, the creditor's rights are being "modified" and the plan should not be confirmed.

Other courts have held that no alteration of the creditor's rights will be considered a "modification," so long as a creditor receives regular payments and ultimately receives "100% of what he is due plus accruing interest up until the time of payment." In re McSorley, 24 B.R. 795, 798 (Bankr.D.N.J.1982); In re Simpkins, 16 B.R. 956, 964 (Bankr.E.D.Tenn.1982). These cases have upheld plans for debts naturally maturing before filing of the Chapter 13 petition, see In re McSorley, and for debts maturing after filing but before confirmation of the plan, see In re Simpkins. So long as those plans gave the creditor the amount of his claim plus interest, and maintained a schedule of regular payments, they have been confirmed--even though the debtor ended up receiving money after the time originally contemplated by the debt contract.

In making our own determination of the meaning of the word "modification" in subsection b(2), we must look to the "plain meaning" rule. "The starting point in every case involving construction of a statute is the language itself," Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756, 95 S.Ct. 1917, 1935, 44 L.Ed.2d 539 (1975) (Powell, J., concurring), and while the circumstances of the statute's enactment may persuade us that "Congress did not intend words of common meaning to have their literal effect," Watt v. Alaska, 451 U.S. 259, 266, 101 S.Ct. 1673, 1678, 68 L.Ed.2d 80 (1981), the "plain meaning" of the language is "the primary, and ordinarily the most reliable, source of interpreting the meaning" of a statute. Id. at 266 n. 9, 101 S.Ct. at 1678 n. 9 (quoting Cabell v. Markham, 148 F.2d 737, 739 (2d Cir.) (L. Hand, J.), aff'd, 326 U.S. 404, 66 S.Ct. 193, 90 L.Ed. 165 (1945)). In our view, the plain meaning of the word "modification" in subsection b(2) must bar Seidel's plan. By postponing payment of the debt beyond the time originally contemplated by the parties to the contract, his plan clearly amounts to a unilateral "modification" of the original debt contract, as that word is ordinarily used.

Instead of viewing the power to modify as "the alteration ... of [any] provisions of the secured creditors' contract," Bankruptcy Laws Commission's Report, H.R.Doc. No. 137, pt. 2, 93rd Cong., 1st Sess. 205 (1973), reprinted in Collier on Bankruptcy App. 2 at 205, however, some courts suggest that modification means only the altering of the system of regular installment payments originally set up by the debt contract. See Grubbs, 730 F.2d at 245; In re McSorley, 24 B.R. at 798; In re Simpkins, 16 B.R. at 964; accord, In re Clark, 738 F.2d at 873-74; In re Carr, 36 B.R. 381, 383-84 (Bankr.N.D.Ga.1984). So long as a Chapter 13 plan maintains regular installment payments, these courts hold, the plan is not "modifying" creditors' rights, and it can be confirmed--even though the creditor will not receive these installment payments until long after the debt naturally matured.

The only support for finding that subsection b(2) is restricted to barring home mortgagors from reducing regular installment payments is the fact that creditor lobbyists were especially fearful that the power of modification might authorize debtors to reduce the amount of installment payments. Hearings Before the Subcommittee on Improvements of the Judicial Machinery of the Senate Committee on Judiciary, 94th Cong., 1st Sess. 130 (1975) (Statement of Walter Vaughan on behalf of the American Bankers Association and Consumer Bankers Association). Just because creditors perceived the power to modify as including the power to reduce installment payments, however, does not mean that Congress intended the power of modification to be restricted to reducing the amount of installment payments. Instead, the "plain meaning" rule suggests that Congress contemplated a broader, natural meaning for the power to modify--including, among other things, the power to delay payments on an already-matured debt. "Very strong" evidence or explicit language from legislative history is necessary to overcome the plain meaning naturally to be drawn from the language of the statute. See Tulalip Tribes of Washington v. FERC, 732 F.2d 1451, 1455 (9th Cir.1984); Heppner v. Alyeska Pipeline Service Co., 665 F.2d 868,...