in RE Crawford – No Chapter 13 Payments Required

in RE Crawford – No Chapter 13 Payments Required

By Daniel Edstrom
DTC Systems, Inc.

Thanks to Deontos for this case.  The property is not underwater and the debtor has agreed to pay all claims upon sale of the property in a reasonable time.  Until the property is sold, no payments will be made on the loan.  Plan approved by the bankruptcy judge.

Excerpt 1

The central question in this case is whether a Chapter 13 plan is confirmable where (a) the plan provides for payment in full of a first-mortgage lienholder upon sale of real property in which a debtor has substantial equity, but (b) where the debtor fails to provide for regular payments during the life of the plan. Put another way, may a debtor’s plan be confirmed where the debtor makes no regular payments through the plan, but, instead, makes payment, in full, to all creditors – secured an unsecured – upon sale of her real property under the plan, which property is valued far in excess of all creditors’ claims – secured and unsecured.

Excerpt 2

In other words, “[r]elief from the automatic stay may be granted for cause, see 11 U.S.C. § 362(d)(1), which involves a discretionary determination by the bankruptcy court made on a case by case basis.”22 In making this determination, a bankruptcy court is given wide latitude to consider relevant information and to balance the equities.23 “The moving party has the burden to show that ‘cause’ exists to lift the stay, after which the burden shifts to a debtor to demonstrate why the stay should remain in place.”

Balancing the Equities

Though not explicitly argued at trial, Chase has also suggested that it should be permitted to foreclose on the Farm Property, or that the case should be converted to Chapter 7 (so that a trustee can more aggressively market the Farm Property), because payment of its claim will be delayed by allowing Debtor to sell the Farm Property herself. However, the balance of the equities does not support granting relief from stay.

Excerpt 3

11 U.S.C. § 1322(b)(2) “provides that Chapter 13 filers may not ‘modify the rights of holders of secured claims’ that are ‘secured only by a security interest in real property that is the debtor’s principal residence.’”31 “Notwithstanding the limitation of 11 U.S.C. § 1322(b)(2), 11 U.S.C. § 1322(b)(5) allows a debtor to ‘provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending . . . .’”32 Chase interprets these two provisions as requiring a debtor to make regular monthly payments and cure arrearages owed during the course of a chapter 13 plan,33 even in cases where a debtor exercises her right under section 1322(b)(8) to provide for payment of amounts owed to holder of a secured claim through sale of the secured property.

This Court agrees with the bankruptcy Court in In re Erickson that Section 1322(b)(8), “appearing as it does directly after [section] 1322(b)(2) and (b)(5), clarifies that a sale plan is not contrary to the limitations and modifications of mortgages addresses elsewhere in [section] 1322(b).”34 Further, the Court agrees that Chapter 13 plans that provide for a sale of property to cure arrearages and provide for the payment of principal, interest, and any other amounts due under a note or deed of trust “do not per se modify secured creditors’ rights; they merely delay immediate payment to creditors in consideration for what is often accelerated full payment.”35 Though debtors certainly have the option of providing for regular payments in chapter 13 plans, they are not required to do so under 1322(b)(5), which is permissive rather than mandatory.27 Where a debtor has ample resources to pay a claim, but those resources are tied up in a real property encumbered by a creditor’s security interest – as is the case here – section 1322(b)(8) allows a court to confirm a plan in which the debtor proposes to pay off that claim within a reasonable amount of time through the sale of the real property. Accordingly, there is nothing improper about this Debtor’s proposed deferral of payment to Chase until sale occurs.

Excerpt 4

CONCLUSION AND ORDER
For the reasons stated above, it is

ORDERED that the Motion for Relief from Automatic Stay filed by JP Morgan Chase Bank, National Association, on November 28, 2011, is DENIED. It is

FURTHER ORDERED that the Objection to Debtor Laurrelle J. Crawford’s Chapter 13
Plan of Reorganization filed by JPMorgan Chase Bank, National Association on July 20, 2011, is

SUSTAINED in part and OVERRULED in part, as stated above. It is

FURTHER ORDERED that Debtor shall have fifteen (15) days in which to file a Second Amended Chapter 13 Plan that addresses the Court’s concerns as stated above, failing which, the case will be dismissed without further notice..

Dated this 19th day of March, 2012.

Download Memorandum Opinion and Order:  http://dtc-systems.net/wp-content/uploads/2012/03/74-Memorandum-Opinion-and-Order.pdf

Download Judgment:  http://dtc-systems.net/wp-content/uploads/2012/03/75-Judgment.pdf