Court Opinion

ID: 9649471
Source: CourtListenerOpinion
Date Created: 2023-08-23 14:55:12.955554+00
Date Added: 2024-06-11T18:12:11.277569
License: Public Domain

*220RUSSELL, Bankruptcy Judge,
dissenting:
I dissent. Payment of interest on arrear-ages is required in a Chapter 13 case when the arrearages are not paid in full as of the effective date of the plan. 11 U.S.C. § 1325(a)(5)(B)(ii). A plan cannot be confirmed if it provides otherwise.
Whether this mortgage provides for the payment of interest on arrearages is irrelevant because the requirement that such payment be made exists independent of any contract provision. The obligation to pay interest on arrearages is a statutory requirement contained in Section 1325(a)(5)(B)(ii), which provides that a mortgagee must receive the present value of its claim,1 if the claim is not paid in full. The right to interest created by Section 1325(a)(5)(B)(ii), like the right to interest under Section 506(b),2 is not conditioned on the existence of a right to interest under the contract or under applicable bankruptcy law.
The majority makes unwarranted assumptions that most of the arrearages are interest and apparently that there is something evil about compounding interest. However, we are dealing here only with the interest on the arrearages and not the interest on the principal. The rate to be paid on the note is an entirely different issue that is not now before this Panel.
The majority cites California Civil Code Section 1916-2 which merely provides that for a compounding of interest in California, there must be a provision in the contract. The right to interest which is the subject of this appeal originates from a federal statute and state law on interest is irrelevant to the interest rate under Section 506(b).
In this regard, the majority completely misses the point clearly made by the Supreme Court in Ron Pair that the interest provided for in Section 506(b) is not the same as the interest specified under a contract. The majority would allow the debtor to use Section 1332(b)(2) to abridge rights given the creditor under Section 506(b) and Section 1325(a)(5)(B)(ii). In support of its position, the majority cites several cases that were decided prior to Ron Pair. If the Court in Ron Pair had held that Section 506(b) does not require allowance of interest on contract arrearages absent an appropriate contract provision, the effect of Ron Pair on the facts of this case might very well be different. However, I am bound by the holding of the Supreme Court in Ron Pair which clearly states otherwise:
The relevant phrase in § 506(b) is: “there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.” “Such claim” refers to an oversecured claim. The natural reading of the phrase entitles the holder of an oversecured claim to post-petition interest.... Recovery of post-petition interest is unqualified.... Therefore, in the absence of an agreement, postpetition interest is the only added recovery available.
Ron Pair, 489 U.S. at -, 109 S.Ct. at 1030, 103 L.Ed.2d at 298 (emphasis added).
There is no conflict between such an interpretation of Section 1325(a)(5)(B)(ii) and Section 1322(b)(2). As the majority *221points out, Section 1322(b)(2) prohibits the modification of the rights of a holder of a secured claim, where the claim is “secured only by a security interest in real property that is the debtor’s principal residence.”
It has been argued that Section 1322(b)(2) bars modifications even if they benefit the secured creditor. The legislative history of Section 1322(b)(2) was reviewed at length in In re Seidel, 752 F.2d 1382 (9th Cir.1985). In defining the meaning of the word “modification” the Ninth Circuit concluded that Congress intended to protect creditors wholly secured by home mortgages from modifications made by debtors that negatively impact creditors rights. Id. at 1394-97. However, there is no indication from the legislative history of Section 1322(b)(2) that Congress intended to prohibit modifications that benefit a creditor.
Therefore, Section 1322(b)(2) is clearly no bar to the applicable statutory provisions of Title 11, such as Section 1325(a)(5)(B)(ii), which “modifies” a mortgagee’s rights by placing limits on a debtor’s ability to ignore the time value of money when providing for a secured creditor’s claim in a plan.
I would, therefore, reverse.

. The payment of interest is implicit in any present value analysis, which typically involves discounting a stream of future payments back to its "present value” through the use of an appropriate discount rate. Under such an analysis, the payment of a specific amount over time must include the payment of interest in addition to the payment of principal (the specific amount at issue), in order to allow the stream of future payments, after discounting, to equal the same value as if payment of the full amount had been made at time zero, i.e., the effective date of the plan.

. Section 506(b)'s requirement that interest be allowed in certain situations is a statutory obligation that exists regardless of whether interest is otherwise allowed under the. contract or applicable nonbankruptcy law. United States v. Ron Pair Enters., Inc. (In re Ron Pair Enters., Inc.), 489 U.S. -, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989).
Section 1325(a)(5)(B)(ii) is analogous to Section 506(b) and should be subject to a similar reading because it also creates an obligation that exists in situations regardless of whether a right to interest otherwise exists under any contract or applicable nonbankruptcy law.