Julie Monsen

In re
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
JULIE MONSON
Debtor.
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Case No. 09-20487
Chapter 13
OPINION CONFIRMING DEBTOR'S AMENDED CHAPTER 13 PLAN
On November 24, 2009, this matter came before the Court for an evidentiary
hearing on the confirmation of the Debtor's Amended Chapter 13 plan dated July 28,
2009 ("Plan") and the objection filed by YeHow Creek Ranch Company ("YeHow
Creek"). The Debtor was represented by George Arnold. Y eHow Creek was represented
by Stephen Winship. Upon review of the file, including memoranda of law filed by the
parties, stipulated facts and evidence, and the arguments of the parties, the Court is
prepared to rule.
Facts
Debtor proposes in her plan, under Class 4, to cure the default to YeHow Creek.
Specifically, the Debtor proposes that Yellow Creek's arrearage of$16,392.48 would be
paid over a term of 57 months at the interest rate of5.25%. 	The collateral for the debt is
a 1982 Champion Mobile Home and Lot 4, Blk, 2 in the Ranch at Evanston ("Property").
The parties stipulated to the following facts and evidence:
(1) 	The Property is the Debtor's principal residence.
Unless otherwise indicated, all future statutory references are to the Bankruptcy Code, Title 11 of the United States Code.
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(2) 	As of the date that the bankruptcy petition was filed, Debtor owed Yellow
Creek the amount of$16,392.48.
(3) 	As of the date of the petition, based upon the Uinta County Assessor's
valuation, the Property had a value of $32,650.
(4) 	The mortgage was entered into evidence, upon stipulation by the parties.
(5) 	The following terms as they appear in the mortgage, are:
(1) 	Principal: $20,500
(2) 	Term: 84 months
(3) 	Interest rate: 8%
(4) 	Maturity date: April, 2006.
(6) 	The Debtor's signature appears on the mortgage.
(7) 	The Prime Interest Rate as of the date of the petition was 3.25%, according
to the Wall Street Joumal.
(8) 	Yellow Creek file a Proof of Claim in the amount of $16,394.48, as a
secured claim.
Yellow Creek objects to confirmation of the Debtor's plan, alleging: (1) that the
plan seeks to modify Yellow Creek's rights to the real property and improvements in
violation of § 13 22(b )(2); (2) the applicable interest rate is the rate designated in the
mortgage; and, (3) Yellow Creek has not been offered adequate protection under the
Bankruptcy Code. Debtor's responses are: (1) the Debtor may cure a default without it
constituting an impermissible modification; (2) the applicable interest rate is the "Till"
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rate; and, (3 ) Yellow Creek is adequately protected by the equity of $16,257.52 in the
Property.
Discussion
(1) 	Curing a default or modifying a mortgage.
Debtor relies on § 1322(c) to cure the default to Yellow Creek, which states:
"Notwithstanding subsection (b)(2) and applicable non-bankruptcy
law-
(1) a default with respect to, or that gave rise to, a lien on the
debtor's principal residence may be cured under paragraph (3) or (5) of
subsection (b) until such residence is sold at a foreclosure sale that is
conducted in accordance with applicable nonbankruptcy law; and
(2) in a case in which the last payment on the original payment
schedule for a claim secured only by a security interest in real property that
in the debtor's principal residence is due before the date on which the final
payment under the plan is due, the plan may provide for the payment of the
claim as modified pursuant to section 1325(a)(5) of this title."
Subsection (b )(3) and (b)( 5) state:
"Subject to subsection (a) and (c) of this section ...
(3) 	the plan may provide for the curing or waiving or any default;
(5) 	notwithstanding paragraph (2) of this subsection, provide for
the curing of any default within a reasonable time and
maintenance of payments while the case is pending on any
unsecured claim or secured claim on which the last payment is
due after the date on which the final payment under the plan is
due."
Yellow Creek argues that the Debtors' proposed plan modifies the mortgage in
violation of § 1322(b )(2), which states, in part:
"Subjection to subsections (a) and (c) of this section, the plan may-
(2) modify the rights of holders of secured claims, other than a claim
secured only by a security interest in real property that is the debtor's
principal residence ... "
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One of the important reasons that debtors file a Chapter 13 bankruptcy is to avoid
the loss of their homes in a threatened foreclosure of a long term mortgage.! Almost
always these debts are in arrears and debtors wish to save their homes. 	Section 1322
provides for curing of defaults and § 1322(b)( 5) addresses a debtor in default on a
mortgage. Mortgagees opposing confirmation of these plan argue, as in this case, that the
prohibition on the modification of mortgages on the debtor's principal residence under
§ 1322(b)(2) is violated by the proposal to deaccelerate the mortgage and pay the
arrearage in the plan. This argument has been rejected universally?
Section 1322(b)(5) begins with the phrase "notwithstanding paragraph (2) of
subsection." Additionally, §1322(c) begins with the phrase "Notwithstanding subsection
(b)(2) ... " referencing the same subsection. It is apparent from the plain reading of the
Bankruptcy Code that the limiting language of subsection § 1322(b)(2) does not disallow
the cure of the default of a debtor's residence. This section of the code safeguards a
debtor's right in a chapter 13 case to cure a home mortgage default. The Tenth Circuit
has long-standing law that states that 1322(b)(3) and (5) permit the plan to cure an
default. 3 If a residential mortgage is in default triggering contractual acceleration of the
mortgage debt, a chapter 13 plan to "de-accelerate" by paying the amount of the original
12 David G. Epstein, Steve H. Nickles & James J. White, Bankruptcy Practitioner
Treatise Series § 9-17. (l992).
2Supra at 665.
3Jim Walter Homes, Inc., v. Spears, 894 F.2d 1227 (loth Cir. 1990).
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default rather than the entire accelerated debt, is a permissible cure, not a prohibited
modification.
In this case, Yellow Creek's claim is secured by a security interest in the Property
that is Debtor's principal residence. The debtor is in default. The default is cured under
the proposed plan. The last payment on the original payment schedule was due before the
date on which the final payment under the plan is dues, i.e. the last payment on the
original payment schedule as April 2007, whereas the final payment to cure through the
plan is in the 57 th month of the plan. The proposed plan is a permissible cure for the
default to Yellow Creek.
2) 	Applicable interest rate.
The appropriate interest rate to be applied to installment payments under a Chapter
13 plan is the national prime rate, as adjusted to reflect the specific risks associated with
the debtors. The formula approach is a straight forward and objective inquiry, and
depends only on the state of the financial markets, the circumstances of the bankruptcy
estate, and the characteristics of the loan, rather than the creditor's prior interactions with
the debtor. The proper applicable interest rate is prime plus two percent, as stated in the
amended plan at 5.25%.
(3) 	Adequate protection.
Yellow Creek alleges that the creditor has not been offered adequate protection by
the plan under §1326(a)(l)(A) & (C), which state, as relevant:
Unless the court orders otherwise the debtor shall commence making
payments not later than 30 days after the date of the filing of the plan or the
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order for relief, whichever is earlier, in the amount-
(A) 	proposed by the plan to the trustee;
(C) 	"Unless the court orders otherwise, the debtor shall commence
making payments not later than 30 days after the date of filing ofthe
plan or the order for relief, whichever is earlier, in the amount.. .that
provides adequate protection directly to a creditor holding an
allowed claim secured by personal property to the extent the claim is
attributable to the purchase of such property by the debtor for that
portion of the obligation that becomes due after the order for relief,
reducing the payments ... by the amount so paid and providing the
trustee with evidence of such payment, including the amount and
date of payment."
No evidence was presented to the Court that the Debtor has not been making her
plan payments in violation of (A). It is well established that the definition of personal
property is "any movable or intangible thing that is subject to ownership and not
classified as real property.4 As the Property involved in this case is real property,
paragraph (C) does not apply to this case.
In accordance with the Court's holdings above the Court shall enter a judgment by
separate order.
DATED this 7th day of December, 2009.
By the Court
4Blacks Law Dictionary 1233 (7th ed. 1999).
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