Summary
The Ninth Circuit affirmed the Bankruptcy Appellate Panel’s decision upholding confirmation of Jason Lee and Janice Chen’s Chapter 13 plan. The court held that the debtors were eligible for Chapter 13, that their plan was feasible, and that 11 U.S.C. § 1322(c)(2) permitted bifurcation and cramdown of a junior secured claim secured only by their principal residence because the claim matured during the plan period.
Topics
Practice areas
Questions Presented
- Whether the bankruptcy court properly determined the debtors' Chapter 13 eligibility under 11 U.S.C. § 109(e) using its own valuation of the residence rather than the valuation in the debtors' originally filed schedules.
- Whether the Chapter 13 plan was feasible under 11 U.S.C. § 1325(a)(6).
- Whether 11 U.S.C. § 1322(c)(2) permits a Chapter 13 debtor to bifurcate and cram down a claim secured only by the debtor's principal residence when the claim matures before the final payment under the plan.
Holdings
- When a debtor requests a valuation hearing at the time of filing and the bankruptcy court later determines the property's value as of the filing date, the bankruptcy court may reasonably use its own valuation to determine Chapter 13 eligibility, rather than relying exclusively on the originally filed schedules.
- The Chapter 13 plan was feasible because the debtors' promised rental-income increase, considered over the full plan term, was sufficient to cover the total plan payments.
- Section 1322(c)(2) permits a Chapter 13 plan to modify an entire claim secured only by the debtor's principal residence, including by bifurcating and cramming down the claim, when the claim's last payment is due before the plan's final payment.
Key quotations
“We agree with the BAP that given “this procedural setting, it would be absurd to require the court to consider only the earlier-filed schedules and disregard its own finding of value.”” (8-9)
“Because Section 1322(c)(2) is an express exception to a statute dealing with the full panoply of contractual rights tied to a claim—not just the rights pertaining to payment—Section 1322(c)(2) is reasonably construed as dealing with the modification of claims in their entirety, not just the modification of payments.” (12)
“Creating a statutory exception to § 1322(b)(2) does not overrule Nobelman. Rather, § 1322(b)(2) is called an “exception” precisely because Nobelman remains good law within its scope.” (13)
Factual background
Jason Lee and Janice Chen filed for Chapter 13 bankruptcy and scheduled their residence as their sole collateral. Their residence secured a first mortgage and Mission Hen's junior mortgage claim, which the debtors proposed to bifurcate and cram down to the value of the collateral. After an evidentiary hearing, the bankruptcy court valued the residence at $1,225,000, reducing the unsecured portion of Mission Hen's claim enough to bring the debtors below the Chapter 13 eligibility limit. The debtors also relied on a declaration from a family member promising increased rent payments to establish that the plan was feasible, and Mission Hen's claim was scheduled to mature before the final plan payment.
Procedural history
The bankruptcy court overruled Mission Hen's objections concerning Chapter 13 eligibility, plan feasibility, and the legality of modifying its junior secured claim under 11 U.S.C. § 1322(b)(2), and confirmed the plan. The Ninth Circuit Bankruptcy Appellate Panel affirmed. The Ninth Circuit affirmed the BAP's decision.