Narrative Opinion Summary
In this case, Conseco Finance Servicing Corporation objected to the confirmation of the Chapter 13 Plan proposed by two debtors, who had entered into a financing agreement for a manufactured home. The debtors' plan proposed repayment of arrears without interest, which Conseco contested. The court cited the Supreme Court's decision in Rake v. Wade, affirming that creditors are entitled to interest on arrearages under Chapter 13 plans, pursuant to sections 506(b) and 1325(a)(5) of the Bankruptcy Code. However, the Bankruptcy Reform Act of 1994, through Section 1322(e), altered this by determining the cure amount based on the original contract and state law, effectively overruling Wade for future contracts. The court found that the debtors' contract did not permit interest on principal arrearages, allowing only a late fee and interest on an insurance advance. Consequently, the court sustained Conseco’s objection, ruling that the plan must include interest on the insurance advance but not on other arrearages, and ordered the debtors to submit an amended plan. Failure to do so would result in case dismissal under 11 U.S.C.A. § 1307(c)(3).
Legal Issues Addressed
Application of Bankruptcy Code Sections 506 and 1322subscribe to see similar legal issues
Application: Sections 506(b) and 1322(b)(5) are read together to affirm a mortgagee's right to pre-confirmation interest on arrearages while allowing a debtor to cure mortgage arrears through a Chapter 13 plan.
Reasoning: Section 1322(b)(5) allows a Chapter 13 plan to cure defaults and maintain payments on certain claims, but it does not restrict the inclusion of interest in the cured arrearages. The Court emphasized that both statutory provisions should be read together, affirming that a debtor may cure mortgage arrears through a Chapter 13 plan while the mortgagee retains the right to pre-confirmation interest under Section 506(b).
Entitlement to Interest on Arrearages in Chapter 13 Planssubscribe to see similar legal issues
Application: The court cites Rake v. Wade to affirm that creditors are entitled to interest on arrearages in mortgage debt under Chapter 13 plans, pursuant to sections 506(b) and 1325(a)(5) of the Bankruptcy Code.
Reasoning: The court cited the Supreme Court's decision in Rake v. Wade, affirming that creditors are entitled to interest on arrearages in mortgage debt under Chapter 13 plans. The court concluded that the mortgage holder is entitled to interest on arrearages pursuant to sections 506(b) and 1325(a)(5) of the Bankruptcy Code.
Impact of Bankruptcy Reform Act of 1994 on Interest on Arrearagessubscribe to see similar legal issues
Application: Section 1322(e) of the Bankruptcy Code, introduced by the Bankruptcy Reform Act of 1994, determines the amount necessary to cure a default based on the underlying agreement and applicable non-bankruptcy law, effectively overruling Rake v. Wade.
Reasoning: Subsequently, the Bankruptcy Reform Act of 1994 introduced Section 1322(e), which determines the amount necessary to cure a default according to the underlying agreement and applicable non-bankruptcy law, overriding the Wade ruling.
Jurisdiction and Core Proceedings under Bankruptcy Lawsubscribe to see similar legal issues
Application: The court's jurisdiction over the objection to the confirmation of a Chapter 13 Plan is established under 28 U.S.C. 1334(b), classifying the matter as a core proceeding under 28 U.S.C. 157(b)(2)(L).
Reasoning: Jurisdiction is established under 28 U.S.C. 1334(b), with the matter classified as a core proceeding under 28 U.S.C. 157(b)(2)(L).
Limitations on Collecting Interest on Arrearagessubscribe to see similar legal issues
Application: The contract between the debtors and the creditor does not permit interest on unpaid installments, allowing only a late fee, thus limiting the creditor's ability to collect interest on arrearages.
Reasoning: In the specific case, the Contract does not permit interest on unpaid installments, allowing only a late fee of $5.00 for late payments and interest on advanced amounts, such as a $123.00 insurance premium paid by Conseco.