In re Schroeder

607 B.R. 329

IN RE: Dawn L. SCHROEDER, f/k/a Dawn L. Voss, a/k/a Dawn Voss, Debtor.

Case No. 17-27289-gmh

United States Bankruptcy Court, E.D. Wisconsin, FOR THE EASTERN DISTRICT OF WISCONSIN.

Signed September 30, 2019

Christine Wolk, Oshkosh, WI 54901, Richard A. Check, Bankruptcy Law Office of Richard A. Check, Milwaukee, WI 53202, for Debtor.

Rebecca R. Garcia, Chapter 13 Trustee, Oshkosh, WI 54903-3170, for Trustee.

DECISION AND ORDER ON (1) RICHARD VOSS's OBJECTION TO DEBTOR's REQUEST TO MODIFY CONFIRMED PLAN AND (2) DEBTOR's OBJECTION TO CLAIM NUMBER 4 OF RICHARD VOSS

G. Michael Halfenger, Chief United States Bankruptcy Judge

Dawn Schroeder and her then-husband, Robert Voss, borrowed money from her former father-in-law, Richard Voss, in 2006. Schroeder and Robert Voss signed two promissory notes in the original principal amounts of $100,000 and $39,900 and granted Richard Voss a mortgage on their residence located at 481 Hallman Street, Berlin, Wisconsin, to secure repayment of the loans. Schroeder and Robert Voss divorced, and Schroeder is now the sole owner of the residence. She commenced this case under chapter 13 of the Bankruptcy Code in July 2017.

Richard Voss timely filed a proof of claim for $204,099.85 in October 2017. Claim No. 4-1. The proof of claim states that the debt is secured by Schroeder's residence in the amount of $55,100 and that the $148,999.85 remainder is unsecured. Id.

Schroeder's chapter 13 plan provides for Voss's mortgage claim by stating that the she will seek to modify the obligation through the court's Mortgage Modification Mediation program, and if mediation fails, will amend the plan to "address" the claim:

Debtor will participate in the ... Mortgage Modification Mediation Program. As such, the Trustee shall not pay on any claims for Debtors' mortgage on property located at 481 Hallman Street, Berlin, WI 54923. Upon successful completion of the mortgage modification, all mortgage claims, including any arrearage claim, will be addressed and paid outside of the plan. If mediation is unsuccessful and there is no mortgage modification reached, Debtors will file a feasible plan to address the mortgage claim.

ECF No. 8, § 10. Voss did not object to confirmation of the plan. The court confirmed it after the deadline for filing proofs of claim expired. ECF No. 39; see also ECF No. 6. Schroeder and Voss did not agree to modify the obligation.

Voss then filed an amended proof of claim in January 2019. Claim No. 4-2. The total amount of debt remained the same, but the amended proof of claim states that the debt is secured by Schroeder's residence in the amount of $175,000 (increased from $55,100) and that the $29,099.85 remainder (reduced from $148,999.85) is unsecured. Id.

Schroeder objected to Voss's claim arguing that (1) the amended proof of claim overstates the amount of the debt, and (2) Voss's attempt to increase the secured amount of the claim comes too late and should not be allowed. ECF No. 58. The parties subsequently stipulated that the total amount of the claim is $109,886.36. ECF Nos. 73, at 1, & 76, at 3. The amount of the secured claim remains in dispute.

Schroeder also filed a request to modify the confirmed plan. ECF No. 65. The plan if modified would pay $55,100 on Voss's secured claim as follows: "$500 per month until [the] claim is paid in full with a lump sum within 3 months of the confirmation of this amended plan." Id. at 2. The modification provides for 6% interest on the $9,674.37 balance due on the $39,900 note but "does not provide for interest" on the remainder of the secured claim (due on the $100,000 note). Id.

Voss objected to Schroeder's request to modify the plan. ECF No. 68. He contends that the plan must pay his claim in full. (The chapter 13 trustee objected that the request "has not been proposed in good faith [as required by] 11 U.S.C. § 1325(a)(3)." ECF No. 66, at 1. The court will separately adjudicate the trustee's objection.)

To adjudicate Schroeder's dispute with Voss, the court must answer two questions: First, may Schroeder modify the confirmed plan to pay only Voss's allowed secured claim? And, second, if Schroeder can so modify the confirmed plan, may she pay Voss the amount of the secured claim stated in his original proof of claim ($55,100) or must she pay Voss the full amount of the claim (stipulated to be $109,886.36) because his amended proof of claim states that the collateral is worth $175,000?

I

A

Voss objects that Schroeder cannot modify the confirmed plan to pay only the amount of the secured claim as stated in his original proof of claim because such treatment offends the "anti-modification" clause in 11 U.S.C. § 1322(b)(2).

Section 1322 sets forth the required and allowed terms of chapter 13 plans. Subsection (b)(2) generally provides that a plan may "modify the rights of holders of secured claims". § 1322(b)(2). Under this general grant of authority, a chapter 13 plan may provide for a secured claim by paying the holder of the claim an amount limited to the holder's interest in the bankruptcy estate's interest in the collateral—that is, the amount of the allowed secured claim under 11 U.S.C. § 506(a)(1), rather than the secured amount under nonbankruptcy law—and relegating the holder's remaining rights in the claim to those afforded to holders of unsecured claims. For example, unless a statutory limitation applies, a chapter 13 plan can provide for a $75,000 claim secured by $50,000 in property by paying the holder of the claim the $50,000 value of his allowed secured claim in the manner required by § 1325(a)(5) and providing for the $25,000 remainder of the claim as an unsecured claim, e.g., by paying the holder the pro rata share of the payments under the plan to holders of allowed unsecured claims.

Section 1322(b)(2)'s general grant of authority, however, does not authorize a chapter 13 plan to modify the rights of a holder of "a claim secured only by a security interest in real property that is the debtor's principal residence". Known as the "anti-modification clause" in bankruptcy parlance, this limitation in § 1322(b)(2) means that a chapter 13 plan generally must pay the holder of an allowed secured claim "secured only by a lien on the debtor's principal residence" the amount secured under nonbankruptcy law, typically the full amount of the debt. See Nobelman v. Am. Sav. Bank , 508 U.S. 324, 331–32, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993). Section 1322(b)(2), including its anti-modification clause, also applies to requests to modify a confirmed chapter 13 plan under 11 U.S.C. § 1329. § 1329(b)(1).

But the anti-modification clause does not prohibit the modification of all claims secured only by a security interest in the debtor's principal residence: § 1322(b) states that it is "[s]ubject to subsections (a) and (c) of [§ 1322 ]", and § 1322(c) applies "[n]otwithstanding subsection (b)(2)". Schroeder depends on § 1322(c)(2) to bifurcate Voss's claim—to pay Voss the amount of his allowed secured claim under § 506(a) —notwithstanding the anti-modification clause.

Section 1322(c)(2) provides as follows:

[I]n a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor's principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this title.

Whether § 1322(c)(2) applies here depends on whether "the last payment on the original payment schedule ... is due before the date on which the final payment under the plan is due". Id. The plan in this case, which provides for monthly payments to the trustee over 36 months, was confirmed on February 28, 2018. See ECF No. 39. The final payment under the plan is due in February 2021. The parties dispute whether the last payment on the original payment schedules is due before then.

Voss argues that the notes on which his claim is based provide for multi-decade payment schedules that began in 2006, so § 1322(c)(2) does not apply. Schroeder does not contest that the notes call for regular payments over that period. Instead she relies on the fact that the notes allow Voss to demand payment in full at any time. Both notes state, "The principal of this Note, together with any accrued but unpaid interest, shall be due and payable in full upon demand of [Voss]." Claim 4-1, pt. 2, at 1–2. Schroeder argues that under Wisconsin law this language makes all payments on both notes due immediately—i.e., before the last payment under the plan is due. Voss does not contest either that enforcement of the notes is governed by Wisconsin law or that the notes are payable on demand, as they clearly state. See Wis. Stat. § 403.108(1)(a) ("A promise or order is payable on demand if ... [i]t states that it is payable on demand ....").

Under Wisconsin law, a note that is "payable upon demand" is "due when the loan [is] made." See Bruha v. La Crosse Plow Co. , 218 Wis. 238, 260 N.W. 425, 426 (1935) ; see also London & Lancashire Indem. Co. v. Allen , 272 Wis. 75, 74 N.W.2d 793, 795 (1956) ("The note, being payable on demand, was due at once."); Accola v. Giese , 223 Wis. 431, 271 N.W. 19, 20 (1937) ("Being payable upon demand, the note was due when the loan was made ...."); Barry v. Minahan , 127 Wis. 570, 107 N.W. 488, 489 (1906) ("Upon well-established principles of law, the cause of action to recover money loaned upon demand accrues at the time of the loan."); Turner v. Benjamin , 74 Wis. 355, 43 N.W. 149, 150 (1889) ("The law is well settled that a promissory note payable on demand, whether with or without interest, is due forthwith ...."). Therefore, the notes at issue here were due on August 25, 2006, when Schroeder and her ex-husband signed them.

Voss balks at this conclusion: "The due on demand provision does not change the original payment schedule, and therefore § 1322(c) should not apply." ECF No. 78,...