Court Opinion

ID: 9701072
Source: CourtListenerOpinion
Date Created: 2023-08-25 22:03:33.090827+00
Date Added: 2024-06-11T15:00:22.162975
License: Public Domain

OPINION
GEORGE, Bankruptcy Judge:
Consolidated in this appeal are two Chapter 13 cases in which the bankruptcy court confirmed plans calling for the current payment of secured creditors outside the plan and the payment of arrearages on those secured debts through the plan. We find this bifurcation of payments to secured creditors to be impermissible under Chapter 13.
VACATED and REMANDED.
I. BACKGROUND
There is no factual dispute in this appeal. Each of the debtors has proposed to pay the arrearages owing one or more secured creditors by installments made through their respective Chapter 13 plans. Current payments on these secured debts, however, are not addressed in the debtors’ plans. Instead, it is clear that the debtors intend to make their current payments outside the provisions of their plans. In each case, one of the secured creditors so treated has objected to confirmation. The bankruptcy court, nevertheless, confirmed each plan as filed and the objecting creditors have filed the instant appeals.
II. ANALYSIS OF THE FACTS AND THE LAW
Before attempting to analyze the issues raised by this appeal, we should first note that neither of these debtors’ plans simply proposes to permit the debtor to make her own disbursements to secured creditors. Cf. 11 U.S.C. § 1326(b) (West Supp.1982) (permitting disbursements other than *7through the Chapter 13 trustee). Rather, each plan omits reference to the current payment of certain secured creditors. Therefore, any payment made to such secured creditors on amounts coming due after the confirmation of each plan would truly be “outside” the provisions of that plan.
In the latter regard, a conflict has arisen among the bankruptcy judges over whether the payment of a fully-secured debt outside a Chapter 13 plan violates the letter of 11 U.S.C. §§ 1322 & 1325 and the spirit of Chapter 13, as a whole. In support of the proposition that such payments should not be permitted, the appellants have referred the panel to the case of In re Foster, 9 B.R. 482, 4 C.B.C.2d 1032, 7 B.C.D. 521 (S.D.Tex.Bkrtcy.1981). See also In re Roe, 14 B.R. 649 (D.Kan.Bkrtcy.1981). In Foster, the bankruptcy court refused to confirm a plan which proposed to make certain post-confirmation payments on secured debts “outside” the plan. After noting that there was no explicit requirement that a Chapter 13 plan affect all of a debtor’s secured claims, the Foster court, nevertheless, held that the rehabilitative purpose of Chapter 13 and the supervisory difficulties inherent in handling debts outside a plan militated against the confirmation of such proposals.
Although the practical considerations set forth by the Foster court hold some attraction for the panel, it should be noted that on March 1, 1982, the United States Court of Appeals for the Fifth Circuit vacated the confirmation order in that case. Matter of Foster, 670 F.2d 478 (5th Cir.1982). In so doing, the Fifth Circuit chose to follow the reasoning of that line of bankruptcy court cases which would permit payments to fully-secured creditors entirely outside a Chapter 13 plan. Id. at 488-90. See In re Case, 11 B.R. 843, 4 C.B.C.2d 978 (D.Utah Bkrtcy.1981) (dicta); In re Hines, 7 B.R. 415, 3 C.B.C.2d 367, 6 B.C.D. 1356 (D.S.D.Bkrtcy.1980); Matter of Berry, 5 B.R. 515, 2 C.B.C.2d 663, 6 B.C.D. 649 (S.D.Ohio Bkrtcy.1980). See also 5 L. King, ed., Collier on Bankruptcy ¶ 1325.01[2][E][l][b], at 1325-20 (15th ed. 1982). Nonetheless, the Fifth Circuit went on to make the following qualification:
“Although Chapter 13 may allow some fully secured claims to be treated outside of a plan, a plan may not provide for the making of the current payment on a mortgage claim outside the plan while curing the arrearage on that claim under the plan pursuant to § 1322(b)(5). In Case, supra, at 845, the bankruptcy court stated, in reference to treatment under § 1325(a)(5)(B), that ‘for the Court to exercise power over the secured claim in confirming a plan either with the creditor’s acceptance or pursuant to the “cram-down” provisions, the secured claim must be provided for in the plan.’ So, too, for the arrearage on a mortgage claim to be cured under § 1322(b)(5), the current mortgage payments while the case is pending must be provided for in the plan. 11 U.S.C. § 1322(b)(5) allows the debtor to ‘provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending. [Emphasis supplied by court.] Section 1322(b)(5) provides for the curing of any default, then, only when the plan also provides for the maintenance of the current mortgage payments while the case is pending. Conversely, where a fully secured mortgage claim is not treated under the provisions of 1322(b)(5), or any other provision of Chapter 13, payments on that claim need not be made under the plan. Except where a debtor is not in arrears with respect to the mortgage claim, however, it would not seem advantageous to treat the mortgage claim outside the plan by not taking advantage of § 1322(b)(5).”
Matter of Foster, supra, at 489.
At this time, the panel does not feel compelled to agree or disagree with the Fifth Circuit’s assessment that fully-secured creditors may be paid outside a Chapter 13 plan in appropriate instances. Neither do we see a need to discuss the issue of disbursement by debtors, reviewed extensively in Foster. That question is not before us. In the case at hand, the debtors are clearly attempting to make only their *8current payments to secured creditors without provisions in their respective plans. Cf. Matter of Foster, supra, at 485 (debtors argued, on appeal, that they only intended to be disbursing agents under their Chapter 13 plan). We agree with the Fifth Circuit that this bifurcation of a secured debt violates the requirements of 11 U.S.C., § 1322(b)(5). These plans, therefore, should not have been confirmed. 11 U.S.C. § 1325 (a)(1) (West Supp.1982).
III. CONCLUSION
Under the reasoning set forth above, we must hold that the confirmation of these debtors’ plans was in violation of 11 U.S.C. §§ 1322(b)(5) & 1325(a)(1). The orders of the trial court in these cases are, therefore, vacated and these matters are remanded for further proceedings not contrary to the opinion herein.
VACATED and REMANDED.