§ 112.5     Payment of Claims beyond Length of Plan
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 112.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

There are only two situations in which Chapter 13 debtors are allowed to make payments to creditors that extend beyond the length of the plan. One is the special class of claims described in 11 U.S.C. § 1322(b)(5)—claims with contract repayment periods longer than the plan.1 For example, a 25-year home mortgage on which the debtor proposes to cure default, maintain payments during the life of the plan and continue making regular payments after the plan is completed is a debt described in § 1322(b)(5) that extends beyond the life of the plan.

[2]

The second is a lease or executory contract assumed by the debtor under § 1322(b)(7)2 that by its terms calls for payments beyond the life of the plan.

[3]

Otherwise, § 1322(d) prevents debtors from paying claims over a period longer than the plan. If the plan will be completed in 36 months, the debtor cannot re-amortize a car loan over 48 months, with the last 12 months falling after discharge. However, the debtor could cure the default under § 1322(b)(5) and continue making contract payments after the completion of other plan payments if the car note extends beyond the length of the plan. Even when the debtor can modify a home mortgage because the claim is not protected from modification by § 1322(b)(2),3 if the debtor chooses not to cure default and maintain payments under § 1322(b)(5), the debtor must pay the entire allowed secured claim in full during the plan—the debtor cannot “re-amortize” the mortgage for payment over the original term of the loan or over any other period that extends beyond the five-year limitation in § 1322(d).

[4]

Resourceful debtors’ counsel have attempted without much success to stretch the boundaries of § 1322(d) by creating debts in the plan that require payments beyond the life of the plan. For example, in In re Hildebran,4 the debtor faced a real estate-secured loan that matured a few days after the filing of the Chapter 13 petition. The plan amortized the ballooning note over 25 years with monthly payments through the plan for five years and then continuing for 20 years after the plan was completed. The court held that § 1322(c) (redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)) prohibited converting the maturing note into a debt extending beyond the life of the proposed plan. Many reported decisions interpret § 1322(d) to prohibit modifying a secured claim for payment beyond the length of the plan except when curing default and maintaining payments on a long-term debt under § 1322(b)(5).5

[5]

Perhaps the closest Chapter 13 debtors have come to modifying claims for payment beyond the plan are decisions allowing the stacking or combining of claim modification under § 1322(b)(5) and curing default and maintaining payments under § 1322(b)(3). Several courts have held that a long-term debt not protected by § 1322(b)(2) can be modified—for example, split into its secured and unsecured claims—and then the plan can cure default and maintain contract payments, during and after completion of the plan, under § 1322(b)(5).6 These courts are not permitting the creation of debts that extend beyond the maximum plan duration in § 1322(d); rather, these decisions acknowledge that § 1322(b)(5) contemplates maintaining contract payments on debts with longer repayment periods than the plan even when other aspects of the contract can be modified under § 1322(b)(2). Although reversed by the district court in an unreported opinion, the bankruptcy court in Enewally v. Washington Mutual Bank (In re Enewally)7 gave the following useful explanation of how §§ 1322(b)(2) and 1322(b)(5) work together when a real estate mortgage is not protected from modification:

In this case, none of the collateral at issue is the debtors’ principal residence. Thus, the property is not protected by the antimodification exception in § 1322(b)(2). . . . The five-year limitation does not apply to a “cure and maintain” plan, because § 1322(b)(5) makes an explicit exception for such plan provisions. . . . If the chapter 13 debtor proposes to reduce the monthly payments to the secured creditor, the loan must be paid in full over the life of the plan (which may not exceed five years). . . . In consequence, a chapter 13 debtor may not invoke both a modification of a secured creditor’s claim under § 1322(b)(2) and the right to “cure and maintain” over the life of the original loan as authorized under § 1322(b)(5). . . . In this case, the debtors propose . . . to make exactly the same monthly payments to WAMU as are provided in the original agreement (at the original interest rate) until the secured debt is paid in full. The debtors only propose to shorten the term of the loan to reflect the reduction in the secured claim under § 506(a). Because the property at issue is not the debtors’ principal residence, this does not violate § 1322(b)(2). . . . The court finds that the debtors are entitled to use § 1322(b)(5) to maintain the monthly payments on their secured claim at the original contractual amount until the secured claim is paid in full. The court further finds that the size of the secured claim is governed by § 506(a), and is limited to the value of the collateral . . . . When the debtors’ payments reach this amount, plus accrued interest at the contractual rate and any other applicable charges, the loan will be paid in full.8
[6]

The outcome in Enewally is controversial but supported by sound statutory analysis. As demonstrated in the notes above, other courts have found §§ 1322(b)(2) and 1322(b)(5) to be mutually exclusive—if the plan modifies a secured claim, the allowed secured claim must then be paid in full during the three- to five-year plan and cannot be provided for under other subsections of § 1322(b) such as § 1322(b)(5). This contrary position is explained by the Bankruptcy Court for the District of Connecticut in In re Koper.9 In Koper, the fair market value of investment properties was less than the mortgage debts. The mortgages were not protected from modification by § 1322(b)(2). The plan bifurcated the liens, paid the arrearage claim in full with interest and maintained contract payments by the debtor directly to the mortgage holders “outside the plan.”10 Because this arrangement would require contract payments to the mortgage holder after the completion of payments to other creditors, the bankruptcy court found a violation of the duration limitation in § 1322(d):

The composite effect of the [plan] will be to satisfy the subject mortgage claims in full some time after the expiration of the term of the Plan, but well before their contractual terminus date. . . . A secured claim that is modified by a plan is plainly “provided for” by that plan, as contemplated by Section 1325(a)(5). Consequently, in order for such a plan to be confirmed, it must provide for payment thereunder of the present value of any such modified secured claim. . . . In addition, the time period allowed to amortize the modified secured claim is constrained by Section 1322(d); namely, the plan cannot provide for distributions which extend beyond five years. . . .  [I]f a Chapter 13 debtor chooses to modify the rights of a mortgagee by bifurcating its claim into secured and unsecured components pursuant to Section 506(a), his Chapter 13 plan must provide for the present value of the secured component of that claim to be fully paid to the mortgagee within the five-year (or less) term of the plan.11
[7]

Enewally has the better of this debate. Putting aside the drafting error in the introductory sentence of § 1322(b),12 there is nothing in § 1322(b) to suggest that the listed permissive powers are mutually exclusive. In fact, Chapter 13 plans routinely use more than one of the powers in § 1322(b) to deal with a particular claim. For example, a Chapter 13 debtor almost always modifies the rights of the holders of unsecured claims under § 1322(b)(2) and then sometimes designates classes under § 1322(b)(1).

[8]

All of the subsections of § 1322(b) patently are not subject to the time limitations in § 1322(d). For one, § 1322(b)(5) provides for the curing of default and the maintenance of payments on secured and unsecured claims when the last payment on the claim is due after the final payment under the plan. By definition, § 1322(b)(5) is an exception to the duration limitation in § 1322(d). Similarly, subsection 1322(b)(7) permits Chapter 13 debtors to assume executory contracts that extend beyond the duration limitation in § 1322(d). No reported decision has suggested that a Chapter 13 debtor cannot assume an executory contract that requires payments beyond the expected duration of the plan.

[9]

There will be circumstances when it makes good sense for a Chapter 13 debtor to bifurcate an undersecured claim, then cure default and maintain payments with respect to the surviving secured claim. Imagine an undersecured car loan that has an original duration of 60 months and a promotional interest rate of .9 percent. If the remaining term of the car loan is longer than the plan, the debtor should move to value the car, bifurcate the lien under § 506(a) and then cure default and maintain payments with respect to the (smaller) allowed secured claim to preserve the .9 percent interest rate.

[10]

The logic of Koper has been applied to unsecured claims. Although § 1322(b)(2) permits a Chapter 13 debtor to modify the terms of an unsecured student loan, it has been held that § 1322(d) prohibits paying the claim after completion of payments under the plan when the debtor is not curing default and maintaining payments under § 1322(b)(5).13

[11]

When the debtor has a secured claim that cannot be paid in full during the life of the plan and when the original contract does not require payments beyond the term of the plan, the debtor is trapped. One escape is to reduce the amount of the secured claim by surrender14 or by negotiation. If the interest rate is acceptable to the creditor and if the collateral will not depreciate at a threatening rate, counsel may be able to persuade the creditor to accept a treatment that includes payments during the life of the plan and payments after the plan is completed. There is nothing in the Code to prohibit this treatment by consent.15 Debtors have proposed, without much success, to make payments to a secured claim holder during the life of the plan, and at the completion of all other payments, the debtor would redeem the collateral or refinance the remaining debt.16


 

1  See § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations, § 81.1  Overview: General Rules for Saving Debtor’s Home, § 88.9  Long-Term Debts, § 101.4  Curing Default and Maintaining Payments on Unsecured Debt and § 158.7  Long-Term Debts.

 

2  See § 51.3  Assume, Reject or Assign Leases, Rental Agreements and Executory Contracts and § 102.1  Debtor Can Assume, Assign or Reject Executory Contracts.

 

3  See discussion beginning at § 80.1  In General: Claims That Are Not Secured Only by Security Interest in Real Property That Is the Debtor’s Principal Residence.

 

4  54 B.R. 585 (Bankr. D. Or. 1985).

 

5  See Barnes v. Barnes (In re Barnes), 32 F.3d 405 (9th Cir. 1994) (Section 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] precludes payment of secured claim over the 19-year remaining term of the original agreement. Claim for $69,000 was secured by real property valued at $43,000. Plan provided for annual payments with 10% interest having a present value of $43,000 amortized over 19 years, the remaining term of the original agreement. During the five-year term of the plan, allowed secured claim holder would receive only $25,703.25. Plan could not be confirmed because § 1325(a)(5)(B)(ii) is mandatory. Plan is not in compliance with § 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] because it provides for payments over a period longer than five years and the debtors did not cure defaults under § 1322(b)(5).); Bank Am. Hous. Servs. v. Nenonen (In re Nenonen), 232 B.R. 803, 805 (M.D. Fla. 1998) (Reverses bankruptcy court’s sua sponte amendment and confirmation of plan that extended payment of claim secured by mobile home over 22 years. Debtors’ plan proposed to pay Bank America’s claim over five years with no interest. Bank America objected to the payment of no interest. “[T]he Bankruptcy Court, on its own initiative, decided to extend the Debtors’ payments over twenty-two years at the interest rate of 9.75% which was the rate fixed in the parties’ contract.” Citing Associates Commercial Corp. v. Rash, 520 U.S. 953, 117 S. Ct. 1879, 138 L. Ed. 2d 148 (1997), “the United States Supreme Court, in analyzing the provisions of section 1325(a)(5)(B)(ii), has authoritatively construed the phrase ‘under the plan’ to mean ‘over the life of the plan.’”); In re Koper, 284 B.R. 747 (Bankr. D. Conn. 2002) (Undersecured mortgage that is not protected from modification cannot be bifurcated and then provided for under § 1322(b)(5) such that the remaining allowed secured claim will be paid by the debtors “outside the plan” beyond the five-year maximum limitation in § 1322(d).); In re Hussain, 250 B.R. 502, 508–10 (Bankr. D.N.J. 2000) (Although mortgages on rental property are subject to modification under § 1322(b)(2), debtor cannot cure default under § 1322(b)(5) and then extend the maturity for the mortgages beyond the length of the plan. “[A]ny secured claims modified by a debtor under § 1322(b)(2) must be satisfied in full before the final payment under the chapter 13 plan. . . . Any attempt by a debtor to modify a claim pursuant to § 1322(b)(2), requires compliance with the statutory limitations of § 1322(d). . . . [Section] 1322(d) ‘requires that the repayment of any claim modified pursuant to Code § 1322(b)(2) must be completed within three years, unless the Court, for cause, approves a five year plan.’ . . . Debtor’s attempt to confirm a plan that impermissively modifies various real estate secured claims to extend maturity for twenty to thirty years is clearly contrary to authority.” Court notes that “the three to five year limitation on plan payments of § 1322(d) has no application” when a debtor cures default and maintains payment under § 1322(b)(5). “However, as a tradeoff, besides allowing a debtor to cure prepetition defaults, all other terms and provisions from the original mortgage contract are reinstated and must remain unchanged.”); Tavella v. Golden Nat’l Mortgage Co. (In re Tavella), 191 B.R. 637, 640–41 (Bankr. E.D. Pa. 1996) (Although mortgages on four properties that are not the debtor’s principal residence can be modified, debtor must choose to either pay the balances in full with interest during the life of the plan under § 1325(a)(5) or cure default and maintain payments consistent with the mortgage contracts under § 1322(b)(5); debtor cannot cure the arrearages by cramdown under § 1325(a)(5) but leave the balance of the mortgages to be paid according to contract terms after completion of payments under the plan. “[Section] 1325(a)(5)(B)(ii) requires that a Chapter 13 plan provide for payment to the secured creditor of the present value of his entire secured claim within the life of the plan, not just the payment of any outstanding arrearages owed to the secured creditor within the life of the plan. . . . [T]he Debtor presumably could propose a Chapter 13 Plan which would satisfy the requirements of § 1325(a)(5), and at the same time provide for a reduced rate of interest on payments . . . however, that . . . plan must necessarily provide for payment of the present value of Golden National’s entire secured claim within the life of the plan to qualify for confirmation under § 1325(a)(5). . . . Under § 1322(b)(5), all of the provisions of a note or contract remain in full force and effect. . . . A change in the monthly payment does not constitute the ‘maintenance of payments’ for these purposes. . . . [T]he proposed reduction of the mortgage rate of interest constitutes an impermissible change in monthly payments. Therefore, the Debtor’s proposed plan does not satisfy the requirements of § 1322(b)(5).”); In re Javarone, 181 B.R. 151, 154–55 (Bankr. N.D.N.Y. 1995) (Re-amortization of mortgage on commercial property over 10 years is prohibited because § 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] requires repayment within the three- to five-year maximum duration of the plan unless the debtor has the consent of the mortgage holder or cures defaults under § 1322(b)(5). Plan would surrender part of the collateral to a mortgage holder and re-amortize the remaining balance by reducing the original 13-year term to 10 years and changing the interest rate to the current rate offered by the mortgage holder for 10-year mortgages. “There are two exceptions to the mandate of Code § 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)]. The first exception occurs when the creditor agrees to be paid over a period longer than three or five years. The second exception occurs when the debtor cures a default or arrearage during the plan and simultaneously complies with the normal payment schedule as prescribed under the original agreement with the creditor. . . . [A]llowing debtors to both, modify a creditor’s claim and to provide for the payment of the modified claim beyond the term of the plan, would render the mandate of Code § 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] meaningless. . . . Code § 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] requires that the repayment of any claim modified pursuant to Code § 1322(b)(2) must be completed within three years, unless the Court, for cause, approves a five year plan.” Payment of the re-amortized mortgage after the completion of payment under the plan also violates § 1325(a)(5)(B)(ii) because that section requires that the value of property distributed “under the plan” must be not less than the allowed amount of the secured claim. Also, modifying a secured claim for partial payment during the life of the plan and completion of payment after discharge would put the mortgage holder at peril because the balance of the mortgage would be discharged at the completion of payments to other creditors.); In re Pruett, 178 B.R. 7 (Bankr. N.D. Ala. 1995) (When mortgage can be modified, if the debtor changes the interest rate and the amount of the monthly payment, the allowed secured claim must be paid within the five-year limitation in § 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)].); In re Murphy, 175 B.R. 134, 137 (Bankr. D. Mass. 1994) (Adopting In re McGregor, 172 B.R. 718 (Bankr. D. Mass. 1994), and distinguishing In re Legowski, 167 B.R. 711 (Bankr. D. Mass. 1994), court denies confirmation of plan that would bifurcate unprotected undersecured mortgage holder and re-amortize the secured portion for payment with contract interest at a reduced monthly rate over the remaining 312 months of the underlying 30-year note. “[T]he flexibility that the Debtor seeks with respect to his Chapter 13 plan simply is unavailable under the present statutory construct. . . . ‘A change in the monthly payments hardly constitutes “maintenance of payments.” The phrase connotes an absence of change. If the payments are changed, sections 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] and 1325(a)(5) both require that they be completed over the life of the plan, which cannot exceed five years. The Debtor may nevertheless take advantage of 1322(b)(5) by keeping the same . . . contract rate and making the same payments of principal and interest called for by the note during the life of the plan and during such further period of time as is necessary to have the total principal payments equal the amount of the secured claim as valued by this court. There would then be “maintenance of payments.” And those payments would be maintained on the secured claim as that claim is computed in accordance with section 506(a). The three to five year limitation on plan payments of section 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] would then have no application because section 1322(b)(5) permits payments lasting longer than five years. . . . [I]f only subsection (b)(2) were applicable, the payments would have to be completed within five years. But subsection (b)(5) does not require the plan proponent to avoid a modification of the “rights” of the secured claim holder. Its command is complied with so long as payments are maintained on the “secured claim.” The amount of the secured claim is determined by valuation pursuant to section 506(a).’”); In re McGregor, 172 B.R. 718 (Bankr. D. Mass. 1994) (Although mortgage can be modified because it is secured by a four-unit, income-producing apartment building, the debtor cannot bifurcate the claim, change the monthly payment and interest rate, and pay the allowed amount of the secured claim over the 22 years remaining on the original note. Debtor’s choices are to pay the secured portion of the claim in full over the life of the plan consistent with §§ 1325(a)(5) and 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] or to maintain the original contract payment and interest rate during the life of the plan and complete payment of the contract over the remaining 22 years of the original note.); In re Legowski, 167 B.R. 711 (Bankr. D. Mass. 1994) (Sections 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] and 1325(a)(5) prohibit confirmation of a plan that would pay a mortgage over 20 years, notwithstanding that debtors can modify the mortgage. Sections 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] and 1325(a)(5) are statutory limitations on a Chapter 13 debtor’s power to modify the rights of secured claim holders. Characterization of a debt as a long-term debt does not avoid the limitation on the duration of the plan or the limitation that the plan must pay the allowed secured claim in full once the contract rights of the secured claim holder are modified under § 1322(b)(2).); In re Dinsmore, 141 B.R. 499 (Bankr. W.D. Mich. 1992) (When debtor cannot cure defaults and maintain payments under § 1322(b)(5), debtor is prohibited from paying a secured claim over a period that exceeds the three- to five-year life of the Chapter 13 plan. Proposal to pay mortgage in full over 15 years with a 10-year balloon payment violates § 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)]. That the mortgage is not protected from modification by § 1322(b)(2) does not permit the debtor to stretch out repayment beyond § 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)].); In re Molitor, 133 B.R. 1020 (Bankr. D.N.D. 1991) (Debtor can modify contracts for deed because underlying real property is rental farmland, not residential property; however, proposal to pay contracts for deed in 15 annual installments exceeds the limits fixed by § 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)]. Section 1322(b)(5) is not available because the contracts for deed call for final payment before the final payment is due under plan. Debtor must pay the creditors in full during plan or voluntarily cure defaults and reinstate the original contract terms.); In re Session, 128 B.R. 147, 152 (Bankr. E.D. Tex. 1991) (Claim secured by a mobile home is not protected from modification by § 1322(b)(2). However, if the debtor chooses to modify that secured claim, the claim as modified must be liquidated within the three- to five-year provisions of § 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)]. In the alternative, the debtor can cure defaults and pay arrearages through the plan while maintaining regular payments consistent with the original contract terms. If a debtor strips down a claim pursuant to § 506(a) and is permitted to modify the claim pursuant to § 1322(b)(2), then the debtor must liquidate the entire secured claim within the three- to five-year period. The debtor need not worry about arrearages under this approach because § 1325(a)(5) requires that the secured claim holder receive the present value of its claim over the life of the plan, and arrearages have no applicability. In the alternative, if the claim is a long-term claim that can be treated under § 1322(b)(5), then the debtor is allowed to cure arrearages and maintain payments during the life of the plan. A third possibility occurs when the debt is not a long-term debt and the debtor chooses not to or is unable to modify the claim for full payment during the life of the plan. “In such a situation, a debtor’s only curative recourse is § 1322(b)(3) which is the general provision allowing for the curing of all defaults. This court is of the opinion that the § 1322(b)(3) provisions for a waiver . . . can only be utilized in extraordinary situations such as erasing defaults based on due on sale clauses, etc. . . . [A]ny attempts by debtors to strip down long term indebtedness while allocating any outstanding arrearages to the unsecured portion of the creditor’s claims is per se lacking in good faith.” Debtor used § 506 to reduce allowed amount of secured claim to fair market value of mobile home. Plan proposed to re-amortize the stripped-down secured claim for payment over the remaining 11 years of the original contract at the contract rate of interest. However, the re-amortization changed the monthly contract payment from $389 to $196 per month. Debtors proposed to waive or treat as unsecured the $1,559 in contract arrearages.); In re Scott, 121 B.R. 605 (Bankr. E.D. Okla. 1990) (Section 1322(b)(2) prohibits debtor from paying 25-year mortgages over eight years. Debtor has option to use § 1322(b)(5) to reinstate 25-year mortgages, but even mortgages that are not protected from modification under § 1322(b)(2) must be paid within the clear limitation in § 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)].); In re Seem, 92 B.R. 134 (Bankr. E.D. Pa. 1988) (Proposal to liquidate estate property at the end of a five-year plan to pay 100% of allowed claims fails to satisfy § 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)].); In re Ramirez, 62 B.R. 668 (Bankr. S.D. Cal. 1986) (Section 1322(b)(2) cannot be used to shoehorn a debt into the provisions of § 1322(b)(5). Even though debtor is permitted to modify the rights of a creditor secured by real property that is not the debtor’s principal residence, the debtor cannot propose to pay such creditor over a period of time exceeding the length of the plan. Such use of § 1322(b)(2) would nullify the clear limitations of § 1322(c) [redesignated as § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)]. Section 1322(b)(5) can be used to restore and maintain a long-term debt, but § 1322(b)(2) cannot be used to create a long-term debt extending beyond the life of the plan.); In re Foster, 61 B.R. 492 (Bankr. N.D. Ind. 1986) (Section 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] prohibits a Chapter 13 debtor from proposing payments to a claim holder that extend beyond the term of the plan except in the long-term debt situation addressed by § 1322(b)(5).). Accord Grundy Nat’l Bank v. Johnson, 106 B.R. 95 (W.D. Va. 1989); Citizens Trust & Sav. Bank v. Schafer (In re Schafer), 99 B.R. 352 (W.D. Mich. 1989); In re Nguyen, 96 B.R. 185 (Bankr. E.D. Ark. 1988); In re Coffey, 52 B.R. 54 (Bankr. D.N.H. 1985).

 

6  See §§ 115.1 [ Curing Default, Waiving Default, Maintaining Payments and Combinations ] § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations and 128.2 [ Providing for and Accounting for an Unprotected Mortgage: Modifying, Curing Default, Maintaining Payments and Combinations ] § 80.14  Providing for and Accounting for an Unprotected Mortgage: Modifying, Curing Default, Maintaining Payments and Combinations. See, e.g., Federal Nat’l Mortgage Ass’n v. Ferreira (In re Ferreira), 223 B.R. 258, 261–62 (D.R.I. 1998) (Plan can bifurcate mortgage secured by rental property that is not protected from modification by § 1322(b)(2) and then cure default and maintain payments with respect to the secured portion of that bifurcated claim under § 1322(b)(5). “FNMA argues that subsection (b)(5) is inapplicable to the secured portion of a claim that is bifurcated pursuant to subsection (b)(2) because the two subsections cannot be utilized in tandem. There are several flaws in that argument. First, it is at odds with the plain language of the statute. Subsections (b)(1)–(10) list the provisions that may be included in a plan and connects them with the conjunctive ‘and’ thereby indicating that a plan may include provisions of the kind referred to in any two or more of those subsections, including (b)(2) and (b)(5). . . . [S]ubsection (b)(5) permits a plan to provide for curing defaults and maintaining payments ‘on any unsecured claim or secured claim.’ . . . [T]he secured portion of an under-secured claim is a secured claim within the meaning of subsection (b)(5). . . . [T]he ‘notwithstanding’ clause could be interpreted merely as authorizing cure and maintenance with respect to claims secured by an interest in the debtor’s principal residence despite the fact that subsection (b)(2), otherwise, would prohibit modification of such claims. . . . [A]s a practical matter, FNMA’s interpretation of the statute would prevent under-secured debtors from obtaining relief under either subsection (b)(2) or (b)(5). . . . [S]ubsections (b)(2) and (b)(5) are not mutually exclusive and a Chapter 13 plan may include a provision for curing default and maintaining payments with respect to the secured portion of an under-secured claim that has been bifurcated pursuant to subsection (b)(2) and § 506(a).”); Enewally v. Washington Mut. Bank (In re Enewally), 276 B.R. 643 (Bankr. C.D. Cal. 2002) (Because mortgage secured by income-producing property is not protected from modification by § 1322(b)(2), when plan cures default and maintains payments under § 1322(b)(5), five-year limitation in § 1322(d) does not apply.), rev’d in part, No. SA CV 02-459-GLT (C.D. Cal. Nov. 26, 2002); In re DaCosta, 204 B.R. 1, 4–5 (Bankr. D. Mass. 1996) (Applying In re Murphy, 175 B.R. 134 (Bankr. D. Mass. 1994), and In re Brown, 175 B.R. 129 (Bankr. D. Mass. 1994), undersecured mortgage that can be modified that is paid through the plan under § 1322(b)(5) is not “re- amortized” based on the reduced allowed secured claim; rather, the allowed secured claim is the value of the collateral, and the regular monthly payment under the original mortgage is maintained and credited against that smaller amount. Debtors could modify mortgage because of an assignment of rents clause and other indicia of a commercial transaction. Debtors argued that “the portion of the secured claim which is attributable to prepetition principal . . . and which will be paid through the Plan along with the other components of the arrearage, should be excluded from the principal balance for purposes of amortizing the Note and calculating the Debtors’ monthly payments pursuant to 11 U.S.C. § 1322(b)(5). . . . [I]f the Bank is allowed to calculate the payments due based on the entire principal balance, both secured and unsecured, ‘it will ultimately recover interest over and above what it is entitled to recover, namely interest on the principal portion of the unsecured claim.’” Court disagreed: “Debtors are attempting to do what this Court proscribed . . .  namely to make monthly payments in a sum equal to the new principal amount of the Bank’s claim amortized over the life of the plan and beyond, rather than the regular monthly payment. Accordingly, the Court reiterates ‘[t]he allowed amount of the secured portion of the mortgage claim after claim splitting under § 506(a) remains the maximum amount that the mortgage holder is entitled to recover on account of the payments by the debtor, including the arrearage payments.’ . . . In other words, 11 U.S.C. § 1325(a)(5)(B)(ii) protects against the consequences the Debtors foresee.”); In re Kheng, 202 B.R. 538, 539 (Bankr. D.R.I. 1996) (Chapter 13 debtor can strip down home mortgage to value of collateral by curing default and maintaining payments under § 1322(b)(5) consistent with the original mortgage contract. Allied was owed $96,793 secured by mortgage on the debtors’ principal residence. Value of the property was $75,000 and plan stripped down Allied’s secured claim to that amount. Plan proposed to cure default and to maintain contract payments for the life of the note, a period that extended beyond the term of the plan. Although not altogether clear, it appears that the mortgage was protected from modification by § 1322(b)(2). “Here, the Debtors are not seeking to modify their secured obligation. The Khengs propose to pay Allied’s secured claim under the same term and at the same interest rate as provided for in the note and mortgage. Judge Queenan would have approved a similar scenario in In re McGregor, 172 B.R. 718 (Bankr. D. Mass. 1994) . . . It is true that [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993),] holds a proposal of payments pursuant to bifurcation constitute modification of the ‘rights’ of the holder of the secured claim within the meaning of section 1322(b)(2). Presumably, if only subsection (b)(2) were applicable, the payments would have to be completed within five years. But subsection (b)(5) provides independent support for such a plan. Subsection (b)(5) does not require the plan proponent to avoid modification of the ‘rights’ of the secured claim holder. Its command is complied with so long as payments are maintained on the ‘secured claim.’ The amount of the secured claim is determined by valuation pursuant to section 506(a). This wording avoids the fine distinction made in Nobelman, based on the wording of subsection (b)(2), between modification of the ‘rights’ of a secured claim holder and modification of the ‘secured claim.’ Subsection (b)(5), moreover, provides that its provisions control ‘notwithstanding paragraph (2) of this subsection.’’”).

 

7  276 B.R. 643 (Bankr. C.D. Cal. 2002), rev’d in part, SA CV 02-459-GLT (C.D. Cal. Nov. 26, 2002).

 

8  276 B.R. at 647–52.

 

9  284 B.R. 747 (Bankr. D. Conn. 2002).

 

10  The use in the plan of the phrase “outside the plan” was ambiguous in Koper and distracted the bankruptcy court’s statutory analysis. The alternative holding in Koper is suspect. See In re Koper, 284 B.R. 747, 753 (Bankr. D. Conn. 2002) (“Alternatively, a debtor can thwart mortgage foreclosure by opting not to modify a mortgagee’s claim through bifurcation, but instead, by proposing to ‘cure and maintain’ the mortgage debt. He accomplishes this by curing a pre-petition payment default, i.e., an arrearage, within the plan’s maximum five-year term . . . and maintaining current mortgage payments outside the plan. In other words, he can cure the mortgage default by treating the arrearage alone, while opting not to provide for the underlying mortgage claim in the plan.”). See §§ 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise and 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee for further discussion of direct payment of mortgages by Chapter 13 debtors.

 

11  284 B.R. at 750–53.

 

12  Section 1322(b) begins, “Subject to subsections (a) and (c) of this section, the plan may . . . .” 11 U.S.C. § 1322(b) (emphasis added). The cross-reference to “(c)” incorporated the duration limitation that is now found in § 1322(d). When Congress amended § 1322 in 1994, subsection (c) was re-lettered as (d) and the drafters did not correct the opening sentence of § 1322(b) to reflect this re-lettering. As best anyone can tell, this is purely a scrivener’s error. See In re Koper, 284 B.R. 747, 752 n.10 (Bankr. D. Conn. 2002) (“[T]he cross-reference to subsection ‘(c)’ . . . was intended by Congress to be changed to ‘(d)’ at the time of the 1994 Amendments, but was left unaltered by virtue of a drafting or codification error.”).

 

13  In re Burke-Evanoff, 116 B.R. 614, 615 (Bankr. S.D. Ohio 1990) (Section 1322(b)(2) does not permit a debtor to suspend payments on a student loan during the life of the plan and then commence payment of the student loan after completion of payments under the plan. “[T]he only options available to the debtor are to modify the rights of holders of the student loan claims within the plan, or cure any default under the existing agreement and maintain regular installment payments during the pendency of the case. Here, the debtor purports to modify the agreement and then pay the claim [after completion] of the Chapter 13 plan. This provision is absolutely inconsistent with the provisions of § 1322.”). See In re Foster, 61 B.R. 492 (Bankr. N.D. Ind. 1986) (Section 1322(c) [redesignated as § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] prohibits a Chapter 13 debtor from proposing payments to a claim holder that extend beyond the term of the plan except in the long-term debt situation addressed by § 1322(b)(5).). See also Grundy Nat’l Bank v. Johnson, 106 B.R. 95 (W.D. Va. 1989); Citizens Trust & Sav. Bank v. Schafer (In re Schafer), 99 B.R. 352 (W.D. Mich. 1989); In re Nguyen, 96 B.R. 185 (Bankr. E.D. Ark. 1988); In re Coffey, 52 B.R. 54 (Bankr. D.N.H. 1985).

 

14  See § 102.1 [ Surrender or Sale of Collateral ] § 74.5  Surrender or Sale of Collateral before BAPCPA.

 

15  See 11 U.S.C. § 1325(a)(5)(A). See § 101.2 [ Acceptance of Plan ] § 74.3  Acceptance of Plan before BAPCPA.

 

16  See § 198.1 [ Able to Make Payments and Comply with Plan ] § 111.1  Able to Make Payments and Comply with Plan.