by Nothing in the Code requires a debtor to provide for a claim secured by his principal residence in his chapter 13 plan. In re Jones, 2021 WL 4465554 (Bankr. E.D. N.C. Sept. 29, 2021) (case no. 20-03607).
When he filed for chapter 13 bankruptcy, the debtor listed food stamps and VA disability benefits as his only source of income. He also listed his principal residence as securing a debt to Bank of New York Mellon (BONY). The debtor’s second amended proposed plan omitted any provision for BONY’s claim relating to the residence. The plan also specified that the debtor could sell the property without notice to the court or the chapter 13 trustee. BONY objected to confirmation arguing that section 1325(a) required the debtor to provide for its secured claim in the plan. The trustee also objected to confirmation on feasibility grounds and because of the provision relating to non-notification in the event of sale. The standing chapter 13 trustee filed an amicus brief on the issue of notice and on the grounds that the debtor’s failure to treat the secured claim in his plan violated section 1325(a)(3) and (5).
The court began with the issue of whether the debtor had an obligation under the Code to provide for BONY’s secured claim. It found that, contrary to the standing trustee’s position, section 1325(a)(5) is not ambiguous and, while that section deals with treatment of secured claims that are provided for in the chapter 13 plan, it does not require a debtor to provide for secured claims. In fact, section 1322(b)(2) permits a debtor to “leave unaffected the rights of holders of any class of claims.”
The court cited In re Reg’l Bldg. Sys., Inc., 254 F.3d 528, 532 (4th Cir. 2001), where the circuit court noted that, under section 1327(c), unaddressed secured claims pass through bankruptcy unaffected. In that case, the court stated that a “Chapter 13 debtor can choose not to deal with certain secured claims.” Based on this, the court here found that “where, as here, a creditor holds an allowed secured claim that is secured by real property that is the chapter 13 debtor’s principal residence, the debtor is not required to ‘provide for’ that claim in the plan.”
In so holding, the court agreed with the reasoning in In re Limon, 616 B.R. 380, 381 (Bankr. E.D. Wis. 2020), that, while sections 1322(a) and 1325(a) list mandatory plan provisions, neither requires that secured claims be treated in the plan.
The court denied BONY’s objection to confirmation.
The court turned to the trustee’s objection with respect to the issue of notice. It observed that a debtor’s decision to treat secured claims outside the plan often leaves the trustee and the court in the dark about the debtor’s adherence to his payment obligations and to any changes in the debtor’s finances. Where the trustee is charged with assessing the feasibility of a debtor’s plan and with seeking plan modification in the event of change in the debtor’s financial situation, continuing access to the debtor’s financial condition is essential. However, in this case, due to the debtor’s very limited sources of income, the court found it unlikely that his mortgage would be modified or that his financial condition would allow for dividends to unsecured creditors. The court granted the trustee’s limited motion seeking notification in the event the debtor sold his residence, but did not order any other continuing notifications.