Menu    2 ABR 474 


In re: )
)Chapter 13
______________________________________ )


        On May 28, 1992 this court heard oral argument on Carita Rowland's motion to dismiss and on debtor's motion for sanctions against Rowland. Jeff Carney appeared on behalf of debtor and Ms. Rowland appeared on her own behalf. After considering the pleadings on file with this court, and taking judicial notice of the entire state court file in case no. 3AN-91-7837, Rowland v. Christensen, this court makes the following findings.

        Debtor executed a note and deed of trust in favor of Carita Rowland on March 14, 1990 in connection with the purchase of a home in Wasilla. The original principal balance on the note was $146,500. Apparently, debtor made payments on this obligation for less than one year, as Rowland filed a complaint seeking judicial foreclosure on September 12, 1991. Rowland obtained a judgment of judicial foreclosure against debtor in Anchorage Superior Court case No. 3AN-9l-7837 on January 17, 1992. When debtor filed his Chapter 13 petition on April 22, 1992, Rowland had not yet foreclosed her lien on debtor's residence by conducting a sale on execution, as required by Alaska Statutes. See AS 09.45.180, TOP    2 ABR 475  09.35.010, 09.35.030(1). Title to the residence remained in debtor at the time the petition was filed. However, for reasons which aren't clear, Rowland was able to obtain a Writ of Assistance from the state court judge on February 27, 1992, and evicted debtor from the residence pre-petition. Rowland has refused to permit debtor to reenter the premises, and has denied him access to his personal possessions which remained on the property after eviction.

        Rowland has moved for dismissal of this case, so that she can foreclose on the property. Her grounds for dismissal are that debtor has not filed a plan within 15 days of filing his petition, and that debtor has filed this case to extort property from her. As an example of debtor's "strong arm" tactics, Rowland has provided the court with a copy of a letter which debtor's attorney wrote to her, after the petition was filed, advising her of the fact that debtor had filed bankruptcy.

        Debtor contends that Rowland has violated 11 U.S.C. 362(a) by refusing to surrender the residence and his personal property. Debtor contends he has the right to cure arrearages on the mortgage, notwithstanding Rowland's acceleration of the debt and judgment. He asks this court to enter an order directing Rowland to turn over his real and personal property, and fining Rowland $150 for each day that she delays in surrendering the property. Debtor also asks for $500 for attorney fees incurred in this matter.

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Violation of the Automatic Stay

        As Rowland has not foreclosed her lien, as required by Alaska Statutes, she is not yet in title to the property. Since debtor has filed his petition, Rowland has denied him access to the residence and has prevented him from recovering his personal possessions. She has attempted to charge him a "storage fee" for leaving his possessions on the property, and may have destroyed, donated or sold some of these possessions. Debtor also believes that Rowland has rented out the residence.

        At this point, the court cannot direct Rowland to turn over debtor's property, because an appropriate adversary proceeding has not been filed. 11 U.S.C. 542, Rule 7001 of the Federal Rules of Bankruptcy Procedure. (If the property is, in fact, rented, the tenants would be necessary parties to the action as well.) However, the record is clear that Rowland has taken actions in violation of the automatic stay by exercising control over debtor's residence and personal property. 11 U.S.C. 362(a)(2),(3). An evidentiary hearing will be scheduled for the purpose of determining whether Rowland's violations of the stay were willful and, if so, the amount of damages to which debtor is entitled. 11 U.S.C. 362(h).

Cure of Arrearages

        Debtor filed a Chapter 13 plan with this court on May 14, 1992, making one of Rowland's grounds for dismissal moot. Rowland TOP    2 ABR 477  also contends that debtor is attempting to extort property from her and is engaging in strong arm tactics by filing bankruptcy. Debtor has asserted that he has the right, under a Chapter 13 plan, to cure his arrearages on the mortgage, notwithstanding the fact of Rowland's acceleration of the debt and the entry of the judgment of judicial foreclosure.

        Chapter 13 allows a mortgagor debtor to cure a prepetition acceleration of home mortgage debt triggered by default. Although a debtor cannot "modify" (e.g., change the length of the contract or amount of the balance or balloon payment) a claim secured only by the debtor's principal residence, courts have uniformly held that 11 U.S.C. 1322(b)(2) allows the debtor to "cure" (i.e., pay or bring current) arrearages on the debt and thereby reinstate the debt.
Matter of Metz, 820 F.2d 1495, 1497 (9th Cir. 1987) (citations omitted). In Metz, a Chapter 13 debtor was permitted to cure arrearages and reinstate a mortgage loan which had been discharged by debtor's prior Chapter 7 filing. The debtor had kept payments on his house current and was able to propose a cure through a Chapter 13 plan due to an increase in salary. Under his plan, the debtor would pay mortgage arrears over 36 months, with interest at market rate, continue making mortgage payments at the contract rate, and pay delinquent property taxes over the first 6 months of the plan.

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        The Seventh Circuit, in a case with facts similar to the instant matter, permitted a Chapter 13 debtor to cure a default on a mortgage loan even though the creditor had obtained a judgment of foreclosure prepetition. The court stated:

        Acceleration of a debt is a standard consequence of a default in payments. Most notes are like the one the [debtors] executed here and provide that the lender can accelerate the payments upon default. Since to cure means to restore matters to the way they were before the default, we think that the power to cure in 1322(b) necessarily includes the power to de-accelerate the payments on the note. De-acceleration, therefore, is not a form of modification banned by (b)(2) but rather is a permissible and necessary concomitant of the power to cure defaults.
Matter of Clark, 738 F.2d 869, 872 (7th Cir. 1984). As in Metz, the debtor in Clark proposed to cure all arrearages on the mortgage over 36 months, and maintain current payments. The Ninth Circuit cited Clark with approval in Metz, 820 F.2d at 1497, 1499.

        In the instant case, debtor is not attempting to extort property from Rowland, but to exercise a right granted him under the Bankruptcy Code. Debtor's plan proposes to cure the arrearages due Rowland and reinstate the debt. Under the plan, debtor would make payments of $181.66 for 60 months (for a total of $10,899.60), and commit his permanent fund dividends during the same period to the plan. Debtor is presently unemployed and bases his plan TOP    2 ABR 479  payments on social security payments and anticipated rental income which debtor hopes to receive if he is restored to possession of the residence. The plan states that debtor will resume making mortgage payments within 15 days of being restored to possession of the residence. His schedule of expenses anticipates payments for current real property taxes and insurance on the property, as well. Debtor proposes to bifurcate Rowland's claim into a secured one for $79,000 and an unsecured one for $72,518.35.

        Rowland has indicated that if debtor were placed back in a "preforeclosure [sic] state", he would be more than $11,000 in arrears on mortgage payments, and owe more than $3,500 in delinquent real property taxes for 1990 and 1991. More specific figures regarding the amount necessary to cure have not been provided. However, it appears debtor must cure arrearages of approximately $14, 500.

        Debtor's present plan does not sufficiently detail the amounts which he must pay in order to cure the arrearages. Further, based on evidence Rowland provided at the hearing, the residence is probably worth at least $140,000, rather than the $79,000 market value which debtor has given it. The treatment of Rowland's claim under the plan is inconsistent with the evidence. However, debtor does have the right, pursuant to 11 U.S.C. l322(b)(2), to cure the arrearages and reinstate the debt. It would be premature to dismiss this case before debtor is given the opportunity to exercise this right. Additionally, the amount of TOP    2 ABR 480  the cure may be diminished or set off by sums due the debtor by Rowland for violations of 11 U.S.C. 362(h). Therefore,


        1.    Rowland's motion to dismiss is denied.

        2.     Rowland's post-petition actions in connection with the residence and debtor's personal property constitute a violation of 11 U.S.C. 362(a)(2) and (3). An evidentiary hearing for the purpose of determining whether such violation was willful and the amount of damages resulting therefrom, pursuant to 11 U.S.C. 362(h), is set for Thursday, August 27, 1992 at the hour of 1:30 p.m., in Courtroom 2 - Room 126, Old Federal Building, 605 West 4th Avenue, Anchorage, Alaska.

        3.    Debtor shall, within 20 days, file and serve an amended plan which specifies the manner in which he proposes to cure arrearages on his mortgage, including all delinquent real property taxes, any unpaid insurance premiums, and all delinquent monthly mortgage payments. The amended plan shall also treat Rowland's claim consistent with the evidence regarding valuation of the residence which was presented at the hearing on May 28, 1992. The amended plan shall provide that debtor's monthly payments will be increased to $384.66 after debtor had paid his car loan in full. The amended plan shall also deal with debtor's proposed treatment of the claim filed by the Internal Revenue Service in this case. If necessary, debtor shall also file an objection to the proof of claim filed by the Internal Revenue Service within 20 days.

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        4.     A hearing on confirmation of debtor's amended Chapter 13 plan shall be scheduled for Thursday, August 27, 1992 at the hour of 1:30 p.m., in Courtroom 2 - Room 126, Old Federal Building, 605 West 4th Avenue, Anchorage, Alaska. Debtor shall notice this hearing at the same time that he serves his amended plan.

        5.     Should the debtor fail to file an amended plan within the time limits set forth herein, his chapter 13 petition will be dismissed along with his motion for sanctions.

       Dated:   July 8, 1992.

                BY THE COURT

                DONALD MacDONALD IV
                United States Bankruptcy Judge

Serve: J. Carney, Esq.
C . Rowland, Pro Se
B. Furman, Trustee
U.S. Trustee