Larry F. Zamora and Augustina L. Zamora

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
LARRY F. ZAMORA and
AUGUSTINA L. ZAMORA,
Debtors. 	No. 12-07-10068 SR
MEMORANDUM OPINION ON NEW MEXICO BANK & TRUST’S
NOTICE OF DEFAULT AND ON DEBTORS’ MOTION TO MODIFY
This matter is before the Court on 1) New Mexico Bank &
Trust’s (“NMBT”) Notice of Default (doc 56), Debtors’ Response
(doc 57) and NMBT’s Reply (doc 60), and 2) Debtors’ Motion to
Modify Confirmed Chapter 12 Plan (doc 58) and NMBT’s Response and
Objection to Motion to Modify Confirmed Chapter 12 Plan (doc 61).
The Court conducted a preliminary hearing on the Motion to Modify
and requested simultaneous briefs and responses from the parties,
which were filed as docs 64, 65, 66 and 67. 	The Court has
considered the file and now issues this Memorandum Opinion,
finding the Debtors in default and denying the Motion to Modify
(doc 58). 	This is a core proceeding. 	28 U.S.C. § 157(b)(2)(A),
(L) and (O).
HISTORY
Debtors filed their joint Chapter 12 case on January 15,
2007. 	They filed an Amended Chapter 12 Plan (“Plan”) on May 23,
2007. 	Doc 32. 	The Plan has 12 classes of creditors. 	NMBT is
the sole creditor in each of classes 4, 5, 6, and 7. 	See Plan ¶¶
2.4-2.7. 	Class 4, an allowed secured claim of $160,041.98, is to
be paid “in annual payments over a period of twenty (20) years,
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1 The underscoring in per annum represents italicized
wording rather than emphasis.
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with interest from the Effective Date at 8.625% per annum 1 , which
is the contract rate. 	The first payment shall be on December 31,
2007, and payments shall continue on December 31 of each
successive year.” 	See Plan ¶ 5.4. 	Class 5, an allowed secured
claim in the amount of $56,546.09, is to be paid “in annual
payments over a period of ten (10) years, with interest from the
Effective Date at 8.125% per annum, which is the contract rate.
The first payment shall be on August 31, 2007. 	Payments shall
continue on August 31 of each successive year.” 	See Plan ¶ 5.5.
Class 6, an allowed secured claim of $11,341.00, is to be paid as
follows: “(a) a payment of [sic] August 31, 2007, in an amount
determined by amortizing the allowed secured claim of NMBT Loan 4
over a period of five (5) years, with interest from the Effective
Date at 10.25% per annum, which is the contract rate; and (b)
balance of the allowed secured claim of NMBT Loan 4 shall be paid
on or before December 31, 2007 from the sale of [certain
collateral].” 	See Plan ¶ 5.6. 	Class 7, an allowed secured claim
of $66,470.28, is to be paid as follows: “(a) annual payments
over a period of ten (10) years, with interest from the Effective
Date at 11.25% per annum, which is the contract rate with the
first payment due on or before August 31, 2007 and continuing on
August 31 st of each successive year; and (b) proceeds from the
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liquidation of [certain collateral].” 	See Plan ¶ 5.7. 	The
Effective Date is defined as the first day of the first month
following the Confirmation Date.
NMBT objected to the Plan. 	Doc 35. 	On July 6, 2007, the
Court entered a stipulated Order Modifying and Confirming Amended
Chapter 12 Plan (“Confirmation Order”). 	Doc 39. 	Paragraph 8 of
the Confirmation Order is the same as Plan ¶ 8.1, and provides as
follows:
All obligations to make payments to the holders of
claims in Classes 3, 4, 5, 6, 7, 8, 9, 10 and 11 shall
have a grace period of fifteen (15) days after written
notice of failure to pay is mailed to Debtors at their
address of record and to the address of the attorneys
for the Debtors, before such failure shall constitute a
default. 	Upon the expiration of such a grace period
within which Debtors are allowed to cure a failure to
pay, the Debtors shall be deemed to be in default of
the obligation, and the holder of the defaulted class
3, 4, 5, 6, 7, 8, 9, 10 or 11 claim may exercise its
remedies under the notes, security agreements and
mortgages evidencing its claims.
On August 31, 2007, Debtors tendered three checks to NMBT in
the amounts of $689.80, $242.46 and $925.06. 	NMBT refused to
accept the checks, sent notices of default, and filed a Notice of
Default on October 10, 2007. 	NMBT claims that the amounts due on
August 31, 2007 were $8,474.61, $3,010.86 and $11,405.33. 	See
NMBT’s Memorandum Regarding Interpretation of Plan, doc 64, ¶¶ 7,
9 and 11. 	The Court independently reviewed the Bank’s
calculations and finds them accurate.
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In truth, the Court was mystified by the amounts of the
checks tendered. 	However, the Court eventually did duplicate the
results. 	The amounts tendered were a single monthly payment made
on each note as if it were being amortized on a monthly basis
over the number of years of the loan. 	For example, the payment
made for Class 5 was $689.80. 	If $56,546.09 is amortized over
120 months (10 years) at 8.125% interest, the payment is $689.80.
To cut to the chase, the Court finds this method of
computation incorrect. 	The Plan calls for annual payments, not
one monthly payment after one month and then nothing for another
full year. 	Indeed, the Debtors’ Brief on Issue of Confirmed Plan
Ambiguity (doc 65) seems to concede that the payments are to be
calculated on an annual basis (as the clear language of the Plan
states):
[T]he clear construction of that provision [for payment
of the class 5 claim] is that on August 31, 2007, the
amount due is one tenth (1/10) of the principal plus
accrued interest from the Effective Date (August 1,
2007) through August 31, 2007.
...
The only construction of that provision [for payment of
the class 6 claim] is that on August 31, 2007, the
amount due is one fifth (1/5) of the principal plus
accrued interest frm the Effective Date (August 1,
2007) through August 31, 2007.
...
[T]he clear construction of that provision [for payment
of the class 7 claim] is that on August 31, 2007, the
amount due is one tenth (1/10) of the principal plus
accrued interest from the Effective Date (August 1,
2007) through August 31, 2007.
...
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2 Given that Debtors filed their chapter 12 case on January
15, 2007, doc 1, it would not be unreasonable to expect that they
had accumulated sufficient cash in the 7 1/2 months before the
first payments were due to be able to make those payments.
Regardless of that fact, however, the payment provisions of the
Plan are clear, as Debtors concede.
Page -5-
The analysis of the payments due under the confirmed
plan set forth herein is the only reasonable and fair
construction of the language of the Plan. 2
Id. at 4-5.
Debtors argue that the amounts tendered were correct.
Debtors argue that the Plan does not call for “equal” annual
payments, and that the amount they tendered conforms to what this
Court has allowed in In re Jesko, Case 12-03-18306 (Bankr. D.
N.M.). 	It is true that in Jesko this Court entered an Order that
calculated the first installment on a 15 year class payment at
“(a) one fifteenth of the principal amount of the claim, plus (b)
interest accrued on the principal amount of the claim through
[the first due date].” 	See Order on Motion of Bank of America to
Enforce Terms of Plan and to Surrender Property, No. 12-03-18306,
doc 124 (Bankr. D. N.M. July 16, 2007). 	However, the Plan in
that case provided that the Bank’s claim be paid “in equal annual
installments, beginning after the Effective Date, over a fifteen
year term, with interest accruing at the rate of 8.0% per annum
from the Effective Date.” 	See Order Modifying and Confirming
Chapter 12 Plan, No. 12-03-18306, doc 100 (Bankr. D. N.M.
February 22, 2007). 	(Emphasis added.) 	Jesko is distinguishable
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because that case called for “equal” annual installments which is
not true for this Plan, as Debtors point out. 	Debtors’ Brief on
Issue of Confirmed Plan Ambiguity, doc 65, at 4-6. 	Even if Jesko
were on point, the amounts tendered bear no relationship to the
formula set out in Jesko. 	For example, Class 5 is being paid
over ten years; under Jesko 10% of the principal, $5,654.61, plus
interest thereon, would have been due on August 31, 2007 for
class 5 alone. 	The total amount tendered by Debtors in this case
on all three claims was less than $2,000.00. 	The Court therefore
does not need to decide whether the language in the Plan should
be construed to call for annual principal reductions, as in
Jesko, or equal annual payments. 	Whichever it calls for, the
Debtors did not comply with the Plan and are in default.
MOTION TO MODIFY
Debtors have moved to modify the Plan to “resolve the
dispute” with NMBT. 	Doc 58; section 1229. 	Because chapter 12
was modeled in large part on chapter 13, cases construing chapter
13 provisions provide guidance for deciding issues in chapter 12
cases. 	In re Martin, 130 B.R. 951, 955-56 (Bankr. N.D. Iowa
1991).
[W]hen a bankruptcy court is faced with a motion for
modification pursuant to §§ 1329(a)(1) or (a)(2), the
bankruptcy court must first determine if the debtor
experienced a substantial and unanticipated change in
his post-confirmation financial condition. 	This
inquiry will inform the bankruptcy court on the
question of whether the doctrine of res judicata
prevents modification of the confirmed plan. 	If the
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change in the debtor's financial condition was either
insubstantial or anticipated, or both, the doctrine of
res judicata will prevent the modification of the
confirmed plan. 	However, if the debtor experienced
both a substantial and unanticipated change in his
post-confirmation financial condition, then the
bankruptcy court can proceed to inquire whether the
proposed modification is limited to the circumstances
provided by § 1329(a). 	If the proposed modification
meets one of the circumstances listed in § 1329(a),
then the bankruptcy court can turn to the question of
whether the proposed modification complies with §
1329(b)(1).
Murphy v. O’Donnell (In re Murphy), 474 F.3d 143, 150 (4 th Cir.
2007) (construing an identical provision in Chapter 13). 	Debtors
do not allege any change in their post-confirmation financial
condition. 	In fact, the only thing Debtors seek to modify is the
terms of their payment arrangement with NMBT, under which they
are in default. 	The Motion to Modify should be denied.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	March 19, 2008
copies to:
Gerald R Velarde
2531 Wyoming Blvd NE
Albuquerque, NM 87112-1027
George M Moore
Moore, Berkson & Gandarilla
PO Box 216
Albuquerque, NM 87103-0216
Randy Knudson
212 W 1st St
Portales, NM 88130-5920
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