§ 83.5     Undersecured Mortgage and Interest to Cure Default
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 83.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

With respect to contracts after October 22, 1994, § 1322(e) controls,1 and “notwithstanding . . . sections 506(b) and 1325(a)(5)” if the plan cures a default, the amount necessary “shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.”2 Section 1322(e) is not limited to curing default with respect to any particular type of claim—the section applies to defaults cured with respect to oversecured claims, undersecured claims or claims that are not secured at all.3

[2]

For contracts before October 22, 1994, § 506(b) allowed oversecured creditors postpetition interest, reasonable fees, costs and other charges “provided for under the agreement.”4 Rake v. Wade5 extended § 506(b) to allow preconfirmation interest on defaults cured through the plan and postconfirmation present value under § 1325(a)(5) without regard to the contract. But the mortgage in Rake was oversecured. Rake did not address the question whether an undersecured or unsecured mortgage was entitled to interest on arrearages when the plan cured default under § 1322(b)(3) or § 1322(b)(5).

[3]

With respect to contracts after October 22, 1994, § 1322(e) allows interest and other charges as elements of curing default when provided for by the agreement and permitted by applicable nonbankruptcy law, “notwithstanding . . . sections 506(b) and 1325(a)(5).”6 To the extent § 506(b) suggested that only oversecured creditors were allowed postpetition interest, fees, costs and other charges,7 § 1322(e) contains no similar limitation. Section 1322(e) permits undersecured creditors to claim postpetition fees, costs and interest to the extent provided by contract and not prohibited by state law when the plan cures default and the contract hatched after October 22, 1994.

[4]

For undersecured mortgages entered into before October 22, 1994, § 1322(e) does not apply and the picture is clouded but interesting. If the mortgage is undersecured, § 506(b) has no application.8 Several reported decisions recognize that Rake cannot be interpreted to require interest on arrearages for an undersecured mortgage during the period from the filing of the petition to the date of confirmation (or the effective date of the plan).9 A few courts have gone further to question or hold that no interest is payable before or after confirmation to cure default with respect to an undersecured home mortgage.10

[5]

It is arguable—without reference to Rake or § 506(b) or § 1325(a)(5)—that Nobelman v. American Savings Bank11 requires postpetition interest on arrearages to an undersecured mortgage holder when the contract calls for interest on missed payments and the mortgage is protected from modification by § 1322(b)(2). By this logic, the undersecured mortgage holder would be entitled to pre- and postconfirmation interest because Nobelman interprets § 1322(b)(2) to prohibit modification of that right.

[6]

Does this read too much into Nobelman and § 1322(b)(2) without reading enough into the “notwithstanding section 1322(b)(2)” that introduces the power to cure default in § 1322(b)(5)? Rake itself does not answer this question because there was no contract right to postpetition interest in Rake and the Supreme Court did not reach the question whether Nobelman (decided six days earlier) had any application to curing default under § 1322(b)(5). Perhaps the good news is that determining whether and to what extent Nobelman would protect an undersecured mortgage holder’s entitlement to postpetition interest on arrearages cured under § 1322(b)(5) is a diminishing question as time marches past October 22, 1994.

[7]

What happens at confirmation to interest on arrearages for an undersecured mortgage when the debtor cures default under § 1322(b)(3) or § 1322(b)(5)? When there is no contract provision for interest on arrearages, the undersecured mortgage holder’s right to interest arises, if at all, from the Supreme Court’s interpretation of § 1325(a)(5) in Rake and then only after confirmation. In Rake, Justice Thomas explained the oversecured mortgage holder’s entitlement to interest after confirmation by including the prepetition arrearages in the “allowed secured claim.” Because the plan provided for payment of the allowed secured claim, each component of the claim, including the arrearages, was entitled to postconfirmation interest under § 1325(a)(5)(B)(ii).

[8]

Can the same be said for arrearages when the mortgage is undersecured? Are the prepetition arrearages part of the allowed secured claim? Does it matter whether the allowed secured claim is large enough to hold the arrearages?

[9]

During the pre-Nobelman period, the courts debated whether to allocate prepetition defaults to the secured or to the unsecured portion of an undersecured mortgage holder’s claim.12 This allocation question was important before Nobelman because after claim splitting under § 506(a) if arrearages were allocated to the unsecured portion of the claim, then the debtor could discharge the arrearages in the same manner as other unsecured claims—often at less than 100 percent payment. If the arrearages were allocated to the secured portion of the undersecured mortgage holder’s claim, then those arrearages would have to be paid in full, typically with interest.

[10]

In jurisdictions that permitted bifurcation of undersecured home mortgage claims prior to Nobelman, the reported decisions favored allocating defaults to the secured portion of the claim when the plan cured default under § 1322(b)(5).13 When called upon to determine whether Rake entitles an undersecured mortgage holder to interest, it is likely that courts will allocate the arrearages to the secured portion of the claim. If the default is allocated to the secured portion of the undersecured mortgage, then the question becomes whether the usual statutory interaction between §§ 506(a) and 1325(a)(5) determines the extent of the mortgage holder’s entitlement to postconfirmation interest.

[11]

Some courts have cited Nobelman for the proposition that an undersecured mortgage holder is entitled to postconfirmation interest on arrearages without regard to whether the arrearage claim fits into the allowed secured claim after analysis under § 1325(a)(5). As explained by the bankruptcy court in In re Brycki:14

Although Rake held that a creditor must be oversecured to recover pre confirmation interest on arrearages under § 506(b), Rake did not rely on § 506(b) to determine if a mortgagee was entitled to interest on arrearages post confirmation and, instead, looked to Code § 1325(a)(5). . . . The claim for arrearages is secured by the mortgage whether the mortgagee is undersecured or oversecured and must be paid to effectuate a cure under Code § 1322(b). . . . Nobelman held that a claim secured only a security interest in the debtor’s residence cannot be bifurcated into a secured and unsecured claim in light of Code § 1322(b)(2), even if the value of the residence is less than the amount due on the mortgage. Since a home mortgage is deemed by Nobelman to be fully secured for purposes of Code § 1322(b)(2), it must follow that such mortgages are fully secured for purposes of § 1325(a)(5)(B) as well. . . . [The mortgage holder’s] claim for arrearages is an “allowed secured claim” entitled to interest over the life of the plan pursuant to Code § 1325(a)(5).15
[12]

Brycki adopts a variation on the argument that even a wholly unsecured mortgage is protected from modification by § 1322(b)(2) as interpreted in Nobelman.16 But Nobelman might be distinguished in this context: Except in the (rare) situation mentioned above when the contract provides for interest on overdue installments, what right of the mortgage holder is modified when postconfirmation interest on arrearages is limited by the extent to which the arrearages fit within the allowed secured claim? Rake bottoms the mortgage holder’s entitlement to postconfirmation interest on § 1325(a)(5), not on the antimodification protection in § 1322(b)(2).

[13]

If Brycki’s reliance on Nobelman is misplaced, Rake would require a more conventional application of § 1325(a)(5). By its terms, § 1325(a)(5) applies at confirmation only to “each allowed secured claim provided for by the plan.”17 When a Chapter 13 debtor cures defaults with respect to an undersecured mortgage, if the prepetition arrearages are larger than the secured portion of the claim, then postconfirmation interest would not be required by § 1325(a)(5) with respect to all arrearages.

[14]

Section 506(a) would first apply to determine the extent of the allowed secured claim. If the secured portion is larger than the arrearages, then the mortgage holder gets postconfirmation interest on all its arrearages under § 1325(a)(5) (including the portion that is attorneys’ fees, costs and other charges called for by the contract).18 If the secured claim is smaller than the arrearages, then the mortgage holder gets postconfirmation interest on only the portion of the arrearage claim that fits into the allowed secured claim.19 If the claim is entirely unsecured after valuation and application of § 506(a), then the mortgage holder would not be entitled to postconfirmation interest under § 1325(a)(5) on any portion of its arrearage claim.

[15]

Modifying the earlier example, imagine the $50,000 mortgage is a second or third lien, and only $5,000 is secured by value. Assume that the debtor is 18 monthly payments behind, for a prepetition arrearage of $8,694 (18 times $483). If the plan cures the default and maintains payments under § 1322(b)(5), the debtor must pay the entire $8,694 arrearage. But only $5,000 of that $8,694 would accrue postconfirmation interest. No portion of the $8,694 would be entitled to preconfirmation interest.

[16]

A different judge of the same bankruptcy court that decided Brycki has offered an alternative analysis of an undersecured mortgage holder’s entitlement to interest on arrearages cured through the plan. In In re Arvelo,20 Chemical Bank’s mortgage-secured claim was $90,539.71. The principal balance was $77,767.65 (none of which, the court “presumed,” included principal that was also part of the arrearage claim). The value of the collateral was $85,000.

[17]

Analyzing Rake, Dewsnup v. Timm21 and Nobelman, the court first concluded that Chemical was not entitled to postpetition, preconfirmation interest under § 506(b) because Chemical was not oversecured. The court acknowledged that Rake and § 1325(a)(5)(B) entitled Chemical to postconfirmation interest on its arrears; but, distinguishing Brycki, the court limited the interest entitlement to the proportion of Chemical’s claim that was actually secured:

[W]e conclude that Chemical holds an allowed secured claim entitling it to post-confirmation interest to the extent of the value of debtor’s property. . . . Beyond the value of the property, the remainder of the claim is unsecured and not entitled to interest under § 1325(a)(5)(B)(ii). . . . We are left with the question of the proper allocation of the pre-petition arrearages as between the secured and unsecured portions of Chemical’s undersecured claim. . . . We have three choices with regard to allocation: 1. The arrearages may be allocated entirely to the secured portion of Chemical’s claim. Under this allocation, Chemical would be entitled to interest on the entire amount of arrearages on a post-confirmation basis. 2. The arrearages may be allocated in part to the secured portion of Chemical’s claim and in part to the unsecured portion. . . . Under this analysis, the secured portion of arrearages [$85,000 minus $77,767.65, or $7,232.35] would be entitled to post-confirmation interest, whereas the unsecured portion would not be so entitled. 3. The arrearages may be included with the outstanding principal portion of Chemical’s claim to comprise one overall claim. The percentage of the entire claim that is secured is then calculated, and that percentage is then applied to the arrearage component of the claim to arrive at the portion of the arrearage claim that is secured. Under this analysis, ninety-four percent of Chemical’s claim is secured, . . . and would be entitled to interest under § 1325(a)(5)(B). . . . The most conceptually satisfying solution to the dilemma of arrearage allocation is the third of the alternatives. . . . No other alternative is consistent with the basic premise that the home mortgage lender holds a single claim. . . . The entire claim must be bifurcated into a secured portion and an unsecured portion under § 506(a) to determine “allowed secured claim” status for § 1325(a)(5) treatment. If the value of the property, and, therefore, the extent of the allowed secured claim, is less than one hundred percent of the mortgage holder’s claim, the extent to which the total claim is not an allowed secured claim applies to all components of the claim.22
[18]

The proportional approach in Arvelo would always allow postconfirmation interest on less than all of an undersecured mortgage holder’s arrearages cured through a Chapter 13 plan. There may be equity in this approach, but it is implicit in Arvelo that some portion of the arrearage claim is treated as if it were unsecured for purposes of Rake and § 1325(a)(5)(B). The pre-Nobelman cases23 generally refused to allocate arrearages to the unsecured portion of an undersecured mortgage. After Arvelo was reported, the bankruptcy judge who decided Brycki considered the arguments in Arvelo and concluded to stick with the Brycki approach with a small bow to Arvelo: “The court is not persuaded by Arvelo to modify the conclusion in Brycki. Most courts have allowed postconfirmation interest on arrearages after Rake to the full extent of the arrears as long as the arrearage claim is not larger than the allowed secured claim as defined by Code section 506(a).”24

[19]

It bears repeating that the enactment of § 1322(e) changes all of this analysis with respect to undersecured creditors and contracts after October 22, 1994. Sections 506(b) and 1325(a)(5)(B) are out of the picture, and undersecured creditors can claim interest, fees and other charges as elements of curing default if provided for by contract and not prohibited by nonbankruptcy law without regard to the size of the allowed secured claim. The cases discussed above that attempt to allocate the elements of curing default when the claim is undersecured would have no application to curing default with respect to a contract entered into after October 22, 1994.

[20]

Finally, it also must be remembered that the mortgage holder’s entitlement to interest on arrearages is only part of the determination of what the plan must pay to cure default. Even when there is no interest due as an element of curing default—perhaps because § 1322(e) controls and there is no contract right to interest—the plan may still have to pay arrearages in full (without interest) to cure default under § 1322(b)(3) or (b)(5).


 

1  See § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994.

 

2  11 U.S.C. § 1322(e). See § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994.

 

3  See § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994. See, e.g., In re Taylor, No. 02-10695, 2003 WL 22282173 (Bankr. D. Vt. Oct. 1, 2003) (unpublished) (Undersecured mortgage holder can recover reasonable postpetition attorney fees as an element of curing default under § 1322(e).); In re Plant, 288 B.R. 635, 643 (Bankr. D. Mass. 2003) (“[Section] 1322(e) applies with respect to interest, fees and costs to every contract effective after October 22, 1994, regardless of whether a particular claim is secured or unsecured, oversecured or undersecured.”).

 

4  11 U.S.C. § 506(b). See below in this section, and see §§ 116.1 [ Oversecured Claim Holders ] § 78.5  Oversecured Claim Holders and 134.1 [ In General: Rake and Contracts before October 22, 1994 ] § 83.1  In General: Rake and Contracts before October 22, 1994.

 

5  508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993).

 

6  11 U.S.C. § 1322(e). See §§ 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994, 136.2 [ Rate of Interest to Cure Default: Contracts after October 22, 1994 ] § 83.4  Rate of Interest to Cure Default: Contracts after October 22, 1994 and 138.1 [ Late Charges, Attorneys' Fees, Costs and Other Charges ] § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges.

 

7  See below in this section, and see § 138.1 [ Late Charges, Attorneys' Fees, Costs and Other Charges ] § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges.

 

8  11 U.S.C. § 506(b) recites that interest and other costs and charges are allowed “to the extent that an allowed secured claim is secured by property the value of which . . . is greater than the amount of such claim” (emphasis added).

 

9  See In re Arvelo, 176 B.R. 349, 354 (Bankr. D.N.J. 1995) (Analyzing Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993), Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992) and Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), “Chemical, as an undersecured creditor, is not entitled to post-petition, pre-confirmation interest payments under § 506(b). We understand from our reading of Rake that nothing in either sections 1322(b)(2) or (b)(5) impedes the literal application of § 506(b) on the question of entitlement to pre-confirmation interest. Under § 506(b), interest is payable pre-confirmation only to the holder of an allowed secured claim. While Chemical certainly holds an allowed claim, as well as a secured claim, § 506(b) requires that interest be payable only where such a claim is secured by property the value of which is greater than the amount of such claim.”); In re Adams, 176 B.R. 9, 10 (Bankr. E.D.N.C. 1994) (Applying Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993), “[i]f the creditor is undersecured, as in the present case, a compelling argument can be made that to the extent the creditor is undersecured, it is entitled to no interest at all. The debtors, however, have elected not to make that argument, instead offering to pay interest, but only on the secured portion of the arrearage claim. Although the creditor may be entitled to no preconfirmation interest, it certainly is not entitled to preconfirmation interest on the unsecured portion of the arrearage claim. The court will allow preconfirmation interest on the secured arrearage claim . . . as proposed by the debtors.”); In re Jones, 168 B.R. 146, 149 (Bankr. E.D. Tex. 1994) (“Because [the mortgage holder] is undersecured, the protection afforded by § 506(b) is not applicable. Accordingly, there is no requirement that the Debtors pay preconfirmation interest on arrearages.”); In re Brycki, 161 B.R. 915, 916 (Bankr. D.N.J. 1993) (“[Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993),] held that a creditor must be oversecured to recover pre confirmation interest on arrearages under § 506(b).”). But see In re Casey, 159 B.R. 963, 963–64 (Bankr. M.D. Ala. 1993) (emphasis added) (Court seems to hold that even an undersecured mortgage holder is entitled to interest on its arrearages from the date of the petition. “[I]t is abundantly clear that whether the claim of the mortgage holder in a residential mortgage is over secured or under secured, the pre-petition arrearages are secured by the mortgage, and must be treated under 11 U.S.C. § 1325(a)(5). . . . [T]he pre-petition arrearage claim . . . is due to be paid with interest from the date of the filing of the petition in this case as a secured claim.”).

 

10  See In re Morgan, 225 B.R. 309 (Bankr. E.D. Pa. 1998) (If mortgage holder were undersecured, no interest on arrears would be collectible as part of curing default under § 1322(b)(5) and Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993); because mortgage holder is oversecured, interest is required.); In re Johnson, 203 B.R. 775, 777 (Bankr. M.D. Fla. 1996) (“This Court is unpersuaded by the broad reading of [Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993)], and agrees with the [In re Harned, 166 B.R. 255 (Bankr. E.D. Pa. 1994),] court which stated that, ‘the Rake Court could have easily explicitly stated that § 506(b) applied only to pre-confirmation interest and that § 1325(a)(5) required interest on arrears to be paid to undersecured mortgagees as well as oversecured mortgages if meant to so hold.’ . . . The Harned court further noted that Rake neither held nor explicitly stated that undersecured mortgagees are entitled to recover interest on arrears in any circumstances. . . . Consequently, this Court declines to read Rake to allow payment of interest on pre-petition arrearage on a home mortgage over the life [of] the Chapter 13 plan. This Court concludes that the Creditor’s claim for post-confirmation interest on pre-petition arrearage should be disallowed.”); In re Adams, 176 B.R. 9, 10 (Bankr. E.D.N.C. 1994) (Applying Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993), “[i]f the creditor is undersecured, as in the present case, a compelling argument can be made that to the extent the creditor is undersecured, it is entitled to no interest at all. The debtors, however, have elected not to make that argument, instead offering to pay interest, but only on the secured portion of the arrearage claim.”); In re Harned, 166 B.R. 255, 260 (Bankr. E.D. Pa. 1994) (In dicta, court questions whether Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993) requires interest on arrears when mortgage is undersecured. “[T]he Rake Court emphasizes the limitation of its holding to oversecured mortgages. . . . [I]t appears that, insofar as Rake relies upon § 1325(a)(5) for its result, interest on arrears should be collectible on oversecured and undersecured claims alike. A puzzlement remains, however, because it is unclear why the Rake Court discusses § 506(a) at all if § 1325(a)(5) is sufficient in itself to cover all circumstances where interest on arrears could be claimed. Moreover, Rake discusses § 506(b) first, as if it were the primary basis for the Court’s holding. Finally, the Rake Court nowhere specifically states that undersecured mortgages are entitled to interest on either pre-confirmation or post-confirmation arrears per se.”).

 

11  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993). See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

12  See § 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.

 

13  See § 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.

 

14  161 B.R. 915 (Bankr. D.N.J. 1993).

 

15  161 B.R. at 916–17. Accord In re Winton, 248 B.R. 225, 227–28 & n.4 (Bankr. D. Conn. 2000) (With respect to a pre-1994 mortgage on a multifamily residence that is not protected from modification by § 1322(b)(2), curing default under § 1322(b)(5) and Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993) requires the debtor to pay interest on the entire arrearage claim, and the mortgage holder is entitled to credit payments first against interest and then against the principal portion of both the arrearage claim and the balance of the mortgage. GE’s total claim of $157,685.41 was secured by a two-family residence valued at $115,000. The bankruptcy court determined that $34,837 was “arrearage” and after bifurcation GE had an allowable secured claim of $115,000. The plan proposed to pay the arrearage in full without interest and to make direct payments to GE of the continuing mortgage. The plan directed that the arrearage payments be “credited by GE as payments of principal. . . . The Debtor’s Plan must make provision for interest on any arrearage paid over time within the Plan to cure a default. . . . [T]he Arrearage is a component of GE’s Total Secured Claim. Neither the language of Section 1325(a)(5) nor that of the Supreme Court in Rake admits of any qualification to this requirement, whether due to (i) a creditor’s ‘undersecured’ status, (ii) the ‘cure and maintain’ nature of the plan under Section 1322(b)(5), or (iii) the fact that the Debtor is the beneficiary of claim bifurcation or ‘lien stripping’ under Section 506.” With respect to the plan provision requiring GE to apply arrearage payments to the principal portion of the allowed secured claim: “The Arrearage is a component of, not independent of, the Total Secured Claim. The difference between the Arrearage and the Total Secured Claim (hereinafter, the ‘Non-Arrearage Portion”) is that portion of the Total Secured Claim which the Debtor intends to treat outside the Plan through the ‘maintenance of payments.’ . . . GE may accrue interest on the Arrearage post-confirmation, and then apply the Plan distribution(s) it receives from the Trustee first, to that accrued Arrearage interest, and then to the reduction of the ‘principal’ balance of that Arrearage. In like manner, GE may accrue interest on the principal balance of the Non-Arrearage Portion; and consequently, may apply the Maintained Payments it receives first, to that accrued interest on the Non-Arrearage Portion.” In a footnote, the court acknowledges that “[t]he ‘principal’ balance of the Arrearage—as that phrase is used by this Court—is not composed entirely of principal. It includes all of the components of the Arrearage, e.g., the interest portion of missed monthly payments, the principal portion of missed monthly payments, late charges, etc.”); In re Hardware, 189 B.R. 273, 277 (Bankr. E.D.N.Y. 1995) (Citing In re Callahan, 158 B.R. 898 (Bankr. W.D.N.Y. 1993), after confirmation, mortgagee “whether fully secured or undersecured, is entitled to the present value of its prepetition arrears, for the sheer reason that it would be inequitable not to provide such relief.” “‘[T]here is no inconsistency or inequity if the cure of an undersecured mortgage is the same as an oversecured mortgage.’”).

 

16  See § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

17  11 U.S.C. § 1325(a)(5).

 

18  See § 138.1 [ Late Charges, Attorneys' Fees, Costs and Other Charges ] § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges.

 

19  In re Jones, 168 B.R. 146, 149–50 (Bankr. E.D. Tex. 1994) (Undersecured mortgage holder protected from modification by Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993) is entitled to only postconfirmation interest under Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993), and then only to the extent that the allowed secured claim of the mortgage holder after bifurcation under § 506(a) is large enough to cover those arrearages. “Because Comerica is undersecured, the protection afforded by § 506(b) is not applicable. Accordingly, there is no requirement that the Debtors pay preconfirmation interest on arrearages. However, Comerica’s secured claim is afforded the protection under § 1325(a)(5)(B)(ii). . . . [Section] 1325(a)(5)(B)(ii) has no requirement limiting its effect to just oversecured claims. . . . [A]lthough a debtor may not be able to use § 506(a) to bifurcate an undersecured claim that is subject to the protection of § 1322(b)(2), § 506(a) is still relevant to the determination of whether the claim is an ‘allowed secured claim’ for purposes of § 1325(a)(5). . . . [T]he arrearages should be allocated to the secured portion of the mortgage holder’s undersecured claim. Such an allocation is consistent with the apparent congressional intent of protecting the home mortgage industry. . . . [Section] 506(a) must be used to determine the extent the undersecured claim is an ‘allowed secured claim.’ After this determination is made, the arrearages are allocated to the ‘allowed secured claim.’ Postconfirmation interest must then be paid on all arrearages which do not exceed the ‘allowed secured claim’ pursuant to § 1325(a)(5)(B)(ii). On the arrearages which exceed the ‘allowed secured claim’, no postconfirmation interest is required to be paid.”). See also In re Adams, 176 B.R. 9, 10 (Bankr. E.D.N.C. 1994) (Applying Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993), “[i]f the creditor is undersecured, as in the present case, a compelling argument can be made that to the extent the creditor is undersecured, it is entitled to no interest at all. The debtors, however, have elected not to make that argument, instead offering to pay interest, but only on the secured portion of the arrearage claim.”).

 

20  176 B.R. 349 (Bankr. D.N.J. 1995).

 

21  502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992).

 

22  In re Arvelo, 176 B.R. 349, 357–59 (Bankr. D.N.J. 1995).

 

23  See above in this section and see § 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.

 

24  In re Mendez, 255 B.R. 143, 148 (Bankr. D.N.J. 2000) (emphasis added). See also §§ 140.1 [ Calculating Plan Payments to Cure Default on Mortgages before October 22, 1994 ] § 84.2  Calculating Plan Payments to Cure Default on Mortgages before October 22, 1994 and 141.1 [ Calculating Plan Payments to Cure Default on Mortgages after October 22, 1994 ] § 84.3  Calculating Plan Payments to Cure Default on Mortgages after October 22, 1994.