BANKRUPTCY CORNER
Your Confirmed Chapter 13 Plan May Not Be So Final
JASON S . RIGOLI
The Eleventh Circuit severely limits the application of United Student Aid Funds Inc . v . Espinosa , 559 U . S . 260 ( 2010 ), and holds that a confirmed chapter 13 plan may not have preclusive effect as to certain creditors . Mortg . Corp . of the South v . Bozeman ( In re Bozeman ), -- 4th -- , 2023 U . S . App . LEXIS 545 ( 11th Cir . Jan . 10 , 2023 ). As the Eleventh Circuit saw it ,
Bozeman required it to determine which provision of the Bankruptcy Code wins – anti-modification or finality ? Id . * 2 .
A . Relevant Statutory Provisions
The relevant provisions of the Bankruptcy Code in Bozeman are 11 U . S . C . § 1322 ( b )( 2 ), which states in part , “ that a bankruptcy ‘ 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 ,’” id . at * 13-14 , § 1327 ( a ), which reads : “‘[ t ] he provisions of a confirmed plan bind the debtor and each creditor , whether or not the claim of such creditor is provided for by the plan , and whether or not such creditor has objected to , has accepted , or has rejected the plan .’” Id . at 35-36 ( quoting 11 U . S . C . § 1327 ( a )).
In Bozeman , the debtor took a nine-year mortgage of $ 14,000 at 19.7 % interest , secured by the debtor ’ s home . Id . at * 3 . The next year , the debtor filed a chapter 13 petition . The mortgage lender (“ MCS ”) filed a secured proof of claim stating that the debtor owed $ 6,817.42 in arrears on the mortgage . The claim did not include the principal balance of the loan . Id . at * 3-4 .
The debtor filed a chapter 13 plan acknowledging that the mortgage debt was more than $ 17,393.04 , plus 7.568 % in interest . Id . at * 4 . The plan proposed 58 monthly payments , $ 454.00 of which went to MCS , “ seemingly adding up to $ 26,332.00 .” Id . The plan required all secured lenders to file proofs of claim and called for lenders to retain their liens until the completion of all plan payments . Id . at * 5-6 . MCS did not object to the plan or amend its proof of claim . Id . at * 6 .
Approximately two years after confirmation , the chapter 13 trustee filed a notice that the cure payments of $ 6,817.42 had been paid in full and that the entire mortgage debt had been satisfied . The debtor filed a motion asking the court to require MCS to deliver a satisfaction of the mortgage . Id . at * 7-8 .
MCS objected , contending that the debtor had paid nothing toward the remaining $ 15,032.73 balance due on her mortgage . Id . at * 7 .
The bankruptcy court granted the debtor ’ s motion to deem the mortgage as having been satisfied . The district court affirmed . MCS appealed to the circuit . Id . at * 11 .
B . Analysis
The Eleventh Circuit began its analysis with whether the plan was legal under the Bankruptcy Code . Id . at * 13 . The court began with the statutory text . In reviewing the plain language of the Bankruptcy Code , the Eleventh Circuit determined that except for the “ cure-and-maintain ” exception of § 1322 ( b )( 5 ), § 1322 ( b )( 2 ) prohibits the modification of a claim secured by a debtor ’ s principal residence . Id . at * 13-25 . Here , notwithstanding the plan clearly violated § 1322 ( b )( 2 ), because it allowed the debtor to satisfy its lien upon full payment of the arrearage , without repaying the principal balance of the loan , the plan was confirmed . See 11 U . S . C . § 1325 ( a )( 1 ) ( requiring a plan comply with each of the provisions of chapter 13 ).
Despite the plan being confirmed , the Eleventh Circuit ’ s opinion focuses on the anti-modification provision of § 1322 and provided five reasons why Espinosa was not binding , including distinguishing the facts in Bozeman from the facts in Espinosa and holding that the Supreme Court ’ s decision in Espinosa was limited to “ collateral attacks ” under Fed . R . Civ . P . 60 ( b ) ( 4 ) only . Bozeman , at * 29-35 .
Determining that Espinosa was not binding , the Eleventh Circuit then relied on its own precedent in Universal Am .
Mortg . Co . v . Bateman ( In re Bateman ), 331 F . 3d 821 , 822 ( 11th Cir . 2003 ), which pre-dates Espinosa , and Dukes v . Suncoast Credit Union ( In re Dukes ), 909 F . 3d 1306 , 1321 ( 11th Cir . 2018 ) ( reaffirming Bateman ), which post-dates Espinosa . Bozeman at * 33-35 , to hold that notwithstanding the terms of the confirmed plan , the anti-modification provision prevented the debtor from modifying the mortgagee ’ s lien on her homestead and the lien passed through the bankruptcy unaffected . Id . at * 35-41 .
This article is submitted by Jason S . Rigoli , Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com
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