Maria V Pires

In re
MARIA V. PIRES,
Debtor
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
Chapter 13
Case No. 09-18708-FJB
MEMORANDUM OF DECISION ON
THE BANK OF NEW YORK MELLON’S OBJECTION
TO CONFIRMATION OF FIRST AMENDED CHAPTER 13 PLAN
This matter came before the Court on the objection of The Bank of New York Mellon, as
Trustee for the Certificateholders CWALT, Inc., Alternative Loan Trust 2006-J1 Mortgage Pass-
Through Certificates, Series 2006-J1 (the “Creditor”), to confirmation of the First Amended
Chapter 13 plan (the “Objection”) filed by Debtor Maria V. Pires (the “Debtor”). The Debtor filed
her Chapter 13 petition on September 11, 2009 and then filed a First Amended Chapter 13 Plan
on October 22, 2009. It is this First Amended Plan that is the subject of the Objection. For the
reasons set forth below, the Court sustains the Objection. 1
The Creditor holds a fixed-rate note secured by a mortgage on a multifamily dwelling
located at 26 Everett Street, Somerville, Massachusetts (the “Property”). 2 The Debtor occupies
one of the apartments as her primary residence. Her First Amended Chapter 13 Plan proposes
to pay all prepetition arrears owed on the secured claim through the plan, to bifurcate the
subject mortgage held by the Creditor, and to provide a one percent (1%) dividend to general
unsecured creditors. 3 The Creditor does not dispute that this mortgage may be modified under
1 On February 8, 2010, the Creditor filed, with the present Objection, a motion for leave to file the
Objection late. After a hearing, the Court allowed that motion.
2 The plan makes no mention of any mortgage or secured claim in favor of the Creditor, Bank of
New York Mellon. However, it is undisputed that the Creditor is the holder of the first mortgage on the
property located at 26 Everett Street and the note it secures, which claim the plan attributes variously to
BAC Home Lending/Countrywide, MERS and Countrywide Home Loans.
3 The secured claim of this Creditor is not the only secured claim that the Debtor proposes to
bifurcate through the plan. The Debtor also owns a second property located at 72 Rush Street,
Somerville, Massachusetts that has a first mortgage serviced by America’s Servicing Company for U.S.
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11 U.S.C. § 1322(b)(2). Nor does the Creditor dispute that the fair market value of the property
is $460,000, as the Debtor alleges, or that the Debtor’s plan may modify and bifurcate the claim
under 11 U.S.C. § 506(a). 4 The Creditor filed a timely proof of claim to which no objection has
been filed by the Debtor. 5
The Creditor presents three separate objections to the Debtor’s proposed plan. First,
the Creditor objects on the basis that the Creditor is unable to determine the proposed
treatment of its secured claim from the four corners of the plan; the plan is vague and self-
contradictory. Second, the Creditor points out that the proposed plan is a so-called hybrid plan. 6
The Creditor argues that even if hybrid plans are permissible in general—the Creditor argues
they are not—the Debtor’s proposed hybrid treatment of the Creditor’s claim does not comply
with the case law that governs and permits such plans because it purports to modify both the
monthly mortgage payments and the interest rate. Thus the plan does not maintain the
contractually due mortgage payment and interest rate, which the Creditor argues is required in
such plans. Finally, as noted, the Creditor objects generally to the McGregor-type hybrid plan,
arguing that their treatment of secured claims that is typical of these plans does not comply with
11 U.S.C. §§ 1325(a)(5)(B)(ii) and 1322(d).
The Debtor counters that the language of the proposed plan is clear and concise. She
Bank N.A.. The Debtor’s objective is to retain the two properties by paying prepetition arrears on both
mortgages through the plan and bifurcating the secured claims. There appears to be a small Internal
Revenue Service claim as well, but the Debtor’s primary objective in the plan is to cramdown each of the
first mortgages. Only the mortgage held by the The Bank of New York Mellon is at issue in this objection.
4 The Debtor filed a motion to determine secured status of the mortgage which is pending before
the Court. No objection has been filed by the Creditor to that motion.
5 The Creditor’s proof of claim indicates a total balance due of $533,583.39 on the note with pre-
petition arrears in the amount of $20,125.24.
6 The Creditor is referring to the McGregor line of cases in the First Circuit. These cases permit a
debtor to modify and bifurcate a secured creditor’s claim and pay off the secured portion of the claim
beyond the length of the term of the Chapter 13 plan, provided the monthly payments received by the
mortgage holder comply with the contractual terms of the underlying note and mortgage. See In re
McGregor, 172 B.R. 718 (Bankr. D. Mass. 1994); In re Brown, 175 B.R. 129 (Bankr. D. Mass. 1994); In re
Murphy, 175 B.R. 134 (Bankr. D. Mass. 1994); and In re Veliz, 2009 Bankr. LEXIS 3505 (Bankr. D. R.I.
2009).
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also argues that there is no requirement in 11 U.S.C. § 1322(b)(5) that the “maintenance of the
payments” be at the contract rate of interest amortized on the entire claim, despite the fact that
the claim is being bifurcated pursuant to 11 U.S.C. § 506(a). The Debtor suggests that the plan
may be confirmed provided the secured claim is paid at an interest rate that takes into account
the factors set forth in Till v. SCS Credit Corporation, 541 U.S. 465, 124 S.Ct. 1951 (2004).
Because the Court finds that the plan is vague and internally inconsistent in its treatment of the
Creditor’s claim, the Court sustains the objection. There is no need to address the other
reasons stated in support of the Objection.
Discussion
The Court agrees with the Creditor that the language in the proposed amended Chapter
13 plan is vague and contradictory. 	First, it is unclear what the Debtor proposes to include as
the total amount of the secured portion of the Creditor’s bifurcated claim. In Section I, Part A of
the plan, the Debtor proposes to cure the contractual prepetition arrearage of $20,125 through
the plan. In Section I, Part B, the Debtor indicates that she intends to pay the Creditor’s total
secured claim in the amount of $444,000 “not through the plan,” i.e, by payments made directly
to the Creditor and not through the chapter 13 trustee. Then in the “Notes” portion of Section I,
Part B, the Debtor indicates that the plan proposes to bifurcate the secured claim of the
Creditor, that the Property has a fair market value of $460,000, and that the secured claim of the
Creditor shall be crammed down to that proposed fair market value. 7 When examining these
7 The “Notes” portion of the Debtor’s plan states:
The Debtor has filed a Motion for Determination of Secured Status Under
11 U.S.C. § 506 of the Interest of American Brokers Conduit/BAC Home
Loans LP-Countrywide/Mortgage Electronic Registration Systems, Inc.
As it Relates to the Value and Secured Interest in the Real Property
Located at 26 Everett Avenue, Somerville, Massachusetts. The Debtor
asserts that the fair market value of the property is four hundred sixty
thousand ($460,000.00) dollars and therefore, the secured interest of the
first mortgagee is four hundred sixty thousand ($460,000.00). If the
Debtor prevails, the treatment under this Plan shall be that the Debtor
shall pay the sum of twenty thousand one hundred twenty-five
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sections together, at least three possible interpretations emerge. In the first, the Debtor intends
to add all, or some unstated portion, of the prepetition arrears from Section I, Part A to the
amount she intends to pay outside of the plan from Section I, Part B, resulting in a total payment
to the Creditor of approximately $464,125. In the second, the Debtor proposes to pay a total of
$460,000 on the Creditor’s secured claim, including any prepetition arrears, as stated in the
“Notes” portion of Section I, Part B. In the third, the Debtor intends to pay the prepetition
arrears from Section I, Part A in addition to the proposed secured claim of $460,000 from the
“Notes” in Section I, Part B. Given the current language in the plan, any one of these
interpretations is plausible. In order for a creditor to understand and have a fair opportunity to
respond to the treatment of its claim, and in order for a court to determine whether the proposed
treatment of a claim complies with the Bankruptcy Code, the proposed treatment must be set
forth clearly and without ambiguity. In re Woods, 406 B.R. 293, 298 (Bankr. N.D. Ohio 2009)
(“Language in a plan, purporting to impair a creditor’s claim, must be stated in clear and
unambiguous terms.”). Anything that yields multiple interpretations is not clear.
The plan is also unduly vague in one other way. The plan fails to set out clearly the
interest rate that the Debtor intends to pay on the bifurcated secured claim. The “Notes” in
Section I, Part B indicate that the Debtor intends to pay the sum of $20,125, the prepetition
arrearage amount, at a four percent (4%) interest rate through the plan. For the balance of the
secured claim, the Debtor indicates that she is going to make payments in the amount of
$1,726.53 for the remaining 318 months of the mortgage. The Debtor does not state an interest
rate. The Creditor suggests that based on the amount that the Debtor proposes to pay per
month and the length of time over which she proposes to make these mortgage payments, she
($20,125.00) dollars at four (4%) percent interest. One thousand seven
hundred twenty-six and 53/100 ($1,726.53) dollars for the remaining three
hundred eighteen (318) months of the mortgage which shall include
principal and interest only and the Debtor shall pay the insurance and
real estate taxes on said property. Upon confirmation of this Plan and the
Debtor satisfying its terms, the mortgagee [sic] adjust its records and
amortization schedule for the remaining months.
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is proposing an interest rate of less than 1.4% per annum. The Creditor further explains that if
the Debtor intends to use the four percent (4%) interest rate as she proposes for the prepetition
arrears on the secured portion to be paid outside of the plan, then the monthly mortgage
payments should be $2,348.38. 8 The Debtor does not provide any basis in the plan for these
possible interest rates. Nor does the Debtor apply the factors set forth in Till. The Debtor
suggests in her response that the Till factors should be considered in determining the interest
rate on the secured portion of Creditor’s claim. However, the proposed plan fails to state, in
clear and unequivocal language, the interest rate that the Debtor proposes to apply to the
secured portion of the Creditor’s claim. Nor does the plan provide any language that allows the
Court or the Creditor to determine how the Till factors were used to reach such a proposed
interest rate. This alone is a basis for the Court to sustain the Creditor’s objection to
confirmation.
As the Creditor argues, the language of the plan is unclear and self-contradictory, as a
result of which the Court is unable to determine how the Debtor intends to treat the Creditor’s
claim. Therefore, the Court sustains the Creditor’s Objection.
The Court does not reach the other arguments raised by the Creditor or the Debtor; the
Court need not reach these issues in order to sustain the Creditor’s objection. 	Until the
language of the plan proposes one option for the treatment of the Creditor’s bifurcated secured
claim, it would be a waste of judicial resources to hypothesize whether the treatment is
permissible under applicable case law or the Bankruptcy Code.
8 The Creditor attached to its objection to confirmation of plan an amortization table that
supported this monthly mortgage payment if the Debtor intended a four percent (4%) interest rate.
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Conclusion
For the reasons set forth above, the court will by separate order (i) sustain the Creditor’s
objection to confirmation of the first amended Chapter 13 plan and (ii) order the Debtor to file a
Second Amended Chapter13 Plan within fourteen days of the date of this order.
Date: August 24, 2010 	_______________________________
Frank J. Bailey
United States Bankruptcy Judge
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