William Haymore Brammer and Heili Kim

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
WILLIAM HAYMORE BRAMMER,
JR., and HEILI KIM,
Debtors.
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Case No. 09-00608
(Chapter 13)
For Publication in West’s
Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER RE TRUSTEE’S
MOTION TO DISMISS WITH PREJUDICE BASED ON 11
U.S.C. § 101(30) AND § 109(e) INELIGIBILITY AND BAD
FAITH AND NOTICE OF DEADLINE AND OPPORTUNITY TO OBJECT
This addresses the trustee’s Motion to Dismiss with
Prejudice Based on 11 U.S.C. § 101(30) and § 109(e) Ineligibility
and Bad Faith. 	For the reasons set forth below, I will deny the
motion to the extent it seeks dismissal based on § 109(e) debt
limitation grounds.
I
The facts underlying the trustee’s Motion to Dismiss and
relevant to this Memorandum Decision are as follows. 	On July 13,
2009, the debtors in this case filed for relief under chapter 13
of the Bankruptcy Code. 	In their schedules, as amended, the
debtors disclose no unsecured claims and secured claims of
$219,647.48, secured by collateral valued at $752,500.
The document below is hereby signed.
Signed: December 16, 2009.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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Notwithstanding the debtors’ schedules, Aurora Loan Services,
Inc. filed a proof of claim in the case of $1,019,830.48 secured
by the debtors’ principal residence, to which the debtors have
filed an objection. 	Although not included on the debtors’
schedule D, this amount is, curiously, reflected in their summary
of schedules. 	Assuming the proof of claim is valid, this brings
the debtors’ total lien claims to $1,047,830.48.
II
In her motion, the trustee raises multiple grounds for
dismissal. 	I will limit this decision, however, to determining
whether grounds exist for dismissing the case based on
ineligibility under § 109(e)’s debt limitation provision.
Section 109(e) of the Bankruptcy Code provides that:
Only 	. 	. 	. 	an 	individual 	with 	regular 	income 	and 	such
individual’s 	spouse 	. 	. 	. 	that 	owe, 	on 	the 	date 	of 	the
filing 	of 	the 	petition, 	noncontingent, 	liquidated,
unsecured 	debts 	that 	aggregate 	less 	than 	$336,900 	and
non-contingent, 	liquidated, 	secured 	debts 	of 	less 	than
$1,010,650 	may 	be 	a 	debtor 	under 	chapter 	13 	of 	this
title.
In her motion, the trustee argues that because the debtors’
secured debts exceed $1,010,650, they are ineligible under
§ 109(e) to file for relief under chapter 13 and must instead
convert to chapter 11. 	To arrive at this result, however, the
trustee must first get past § 506(a), which mandates that the
court bifurcate lien claims into secured and unsecured claims to
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the extent the amount of the claim exceeds the value of the
collateral in determining the amount of allowed secured claims in
a case. 	If § 506(a) applies, the debtors have secured claims
totaling $752,500 (the scheduled value of the debtor’s house and
car) and unsecured claims of $295,330.45, qualifying them under
§ 109(e) for relief under chapter 13.
In her motion, the trustee argues that § 1322(b)(2) prevents
the debtors from using § 506(a) to bifurcate Aurora Loan
Services’ claim secured by their home for purposes of determining
eligibility under § 109(e). 	Section 1322(b)(2), in part, limits
the ability of a debtor to modify through a chapter 13 plan the
rights of a holder of a claim that is secured only by the
debtor’s principal residence. 	In operation, it stops a debtor
from bifurcating a claim on their home and stripping off the
unsecured portion of the claim for different treatment under the
plan. 	Because, however, the antimodification clause of
§ 1322(b)(2) does not extend to determining eligibility for
purposes of § 109(e), the trustee’s argument is without merit.
A.
This conclusion is justified, first, by the apparent
rationale behind the § 109(e) limit on unsecured debts. 	In
general, if a debtor has unsecured debt (as measured by § 506(a))
in excess of $336,900, § 109(e) makes such debtor ineligible to
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reorganize under the simplified procedures of chapter 13, and the
debtor must instead reorganize under the more complicated
procedures of chapter 11. 	See Brown & Co. Secs. Corp. v. Balbus
(In re Balbus), 933 F.2d 246 (4th Cir. 1991). 	The rationale of
§ 109(e) appears to be that when unsecured debts exceed the
specified debt limit, the holders of unsecured claims ought to
enjoy the protections of chapter 11 (if the debtor is to
reorganize), including the issuance of a disclosure statement and
the right of each holder to vote on confirmation of a plan if the
plan impairs its class of claims.
Nothing in § 1322(b)(2) warrants abandoning that rationale
and jettisoning § 506(a) in the determination of the amount of
unsecured claims for purposes of § 109(e). 	When some of those
unsecured debts arising from the 	application of § 506(a) in
making the eligibility determination under § 109(e) are
attributable to the undersecured portion of a claim secured by a
security interest on the debtor’s principal residence, the
holders of unsecured claims still ought to enjoy the same
protections of chapter 11 if the unsecured claims (determined by
applying § 506(a)) exceed the § 109(e) unsecured debt limit.
This demonstrably is true because the debtor’s principal
residence might be sold at a postpetition foreclosure sale. 	The
resulting deficiency claim would be an unsecured claim
notwithstanding § 1322(b)(2) (if the case were allowed to proceed
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in chapter 13) and notwithstanding § 1123(b)(5) (if the case were
to be converted to chapter 11). 	If that deficiency claim and the
other unsecured claims exceed the debt limit amount for unsecured
claims under § 109(e), those claims ought to enjoy the
protections of chapter 11, and according them those protections
cannot await the passing of time to see if a foreclosure actually
results. 	A § 109(e) eligibility determination is based on
measuring debts as of the filing of the petition when it cannot
be known whether a foreclosure will result.
Extending the reach of § 1322(b)(2) to prevent the
application of § 506(a) to eligibility determinations under
§ 109(e), as the trustee urges, would limit the protections that
§ 109(e) is meant to provide to unsecured claims, including both
the undersecured portion of a claim secured by a debtor’s
principal residence and other unsecured claims. 	This is an
extension of § 1322(b)(2) that neither the language of that
provision nor the policy underlying § 109(e) will allow.
B.
Notwithstanding the foregoing, the trustee cites to several
cases in support of her argument that § 1322(b)(2) does not allow
bifurcation of a claim secured by a debtor’s principal residence
for purposes of determining eligibility under § 109(e). 	None of
the cases on which the trustee relies are persuasive on this
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point.
First, the trustee cites Nobelman v. American Savings Bank,
113 S. Ct. 2106 (1993). 	In Nobelman, the Supreme Court addressed
the issue of whether, despite § 1322(b)(2), a chapter 13 debtor
could bifurcate a claim secured only by a lien on the debtor’s
home, thereby allowing for different treatment under a plan as to
the unsecured portion of the claim. 	In answering that question
in the negative, the Court stated that “[t]he portion of the
bank’s claim that exceeds $23,500 [(the value of the collateral)]
is an unsecured claim component under § 506(a).” 	Id. at 2110
(citing United States v. Ron Pair Enterprises, 489 U.S. 235, 239
n.3 (1989)). 	This statement by the Court undermines the trustee
position and indicates that § 506(a) should apply under § 109(e).
Moreover, although the Court decided that § 1322(b)(2) prevented
the debtor from bifurcating the claim secured by the debtor’s
home for plan purposes, it only did so because allowing
bifurcation and different treatment of the unsecured portion of
the claim pursuant to a plan would necessarily result in a
modification of the terms of the mortgage, Id. at 2111, which is
what § 1322(b)(2) expressly prohibits. 	Consequently,
§ 1322(b)(2) only prevents the operation of § 506(a) in the
limited circumstance of when it could work a modification through
a plan of the rights of a holder of a claim secured in part by a
lien on a debtor’s principal residence. 	Nothing in Nobelman
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stands for the proposition that § 1322(b)(2) prevents the
operation of § 506(a) in other contexts, including eligibility
determinations under § 109(e). 	To the contrary, the language
quoted above indicates that § 1332(b)(2) only functions to limit
the reach of § 506(a) in the context of a plan.
Furthermore, two cases on which the trustee relies do not
even reach the issue before me today. 	First, in In re Prosper,
168 B.R. 274 (Bankr. D. Conn. 1994), the court expressly declined
to reach the issue because it was not properly before the court.
Id. at 280. 	Likewise, in Soderlund v. Cohen, 236 B.R. 271 (9th
Cir. B.A.P. 1999), although the court opined that a different
question might be presented if the debt in question were entitled
to the protections of § 1322(b)(2), the panel did not address the
issue because the claims were not secured by an interest in the
debtor’s principal residence. 	Id. at 275 n.5.
The only case the trustee cites that reaches the issue and
agrees with her analysis is In re Smith, 2009 WL 4048015 (Bankr.
C.D. Cal. Oct. 9, 2009). 	In making the determination that
§ 506(a) should not apply in determining eligibility under 109(e)
when dealing with an undersecured claim secured by a lien on a
debtor’s principal residence, the court in Smith concluded that:
In 	order 	to 	avoid 	treating 	a 	lien 	one 	way 	for
confirmation 	and 	another 	for 	eligibility, 	and 	to 	treat
the partially secured senior trust deeds consistent with
Nobelman and Zimmer, [313 F.3d 1220 (9th Cir. 2002)], any
lien 	which 	is 	partially 	secured 	on 	debtor’s 	primary
residence will be treated as a secured debt for § 109(e)
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1 	The Zimmer decision cited in Smith dealt with a wholly
unsecured claim on the debtor’s principal residence and
acknowledged the Supreme Court’s holding in Nobelman that
applying § 506(a) is the first step in determining the extent to
which the creditor is a holder of a secured claim entitled to the
protections of § 1322(b)(2). 	Zimmer, 313 F.3d at 1226–27.
Accordingly, Zimmer supports my view of this issue.
8	O:\TEEL\Garrett\Decisions\Brammer 109(e)v3.wpd
purposes as well.
Nothing in the Smith decision, however, does anything to address
my concerns about the protections § 109(e) is intended to afford
unsecured creditors and my concern that Nobelman mandates
applying § 506(a) to determine the extent to which a claim is
secured, regardless of whether § 1322(b)(2) bars modification of
the rights of a holder of a claim that is only partially secured
by the primary residence. 1 	Accordingly, I find Smith
unpersuasive.
III
For the foregoing reasons it is hereby
ORDERED that the trustee’s Motion to Dismiss with Prejudice
Based on 11 U.S.C. § 101(30) and § 109(e) Ineligibility and Bad
Faith is DENIED to the extent the motion seeks dismissal based on
ineligibility under § 109(e)’s debt limitation provision.
[Signed and dated above.]
Copies to: Debtor; Debtor’s attorney; Chapter 13 Trustee.
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