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Wilson v. Commonwealth Mortg. Corp.

filed: February 9, 1990.

FRANK AND ARLENE WILSON
v.
COMMONWEALTH MORTGAGE CORPORATION, APPELLANT



On Appeal from the United States District Court for the Western District of Pennsylvania, D.C. Civil No. 89-4203.

Sloviter, Hutchinson, and Cowen, Circuit Judges.

Author: Sloviter

Opinion OF THE COURT

SLOVITER, Circuit Judge.

Commonwealth Mortgage Corporation has appealed the order of the district court that Commonwealth's allowed secured claim against debtors Frank and Arlene Wilson was limited to the value of the debtors' home and certain items of personal property, that the remainder of its claim was unsecured, and that Commonwealth's rights as to the unsecured claim could be modified without violating 11 U.S.C. § 1322(b)(2). We will affirm on alternative grounds. We hold (1) that the unsecured portion of Commonwealth's claim may be modified and (2) that Commonwealth's claim was secured by personal property as well as by the debtors' residence and, therefore, the anti-modification provision of section 1322 does not apply.

I.

The Wilsons financed the purchase of their home in 1983 with a loan from Commonwealth's predecessor, and executed a mortgage agreement covering not only the real estate but also "any and all appliances, machinery, furniture and equipment (whether fixtures or not) of any nature whatsoever now or hereafter installed in or upon said premises."

On June 27, 1988, the Wilsons filed a petition under Chapter 13 of the Bankruptcy Code. Commonwealth filed a proof of secured claim for $38,176.75, which was the balance the debtors owed Commonwealth. The debtors filed an adversary proceeding seeking to limit Commonwealth's allowed secured claim to the fair market value of the collateral, which was their principal residence. The parties have stipulated that the fair market value of the property securing the lien is $22,000.

The bankruptcy court agreed with the debtors' position and entered an order that limited Commonwealth's allowed secured claim to $22,000 plus the value of the debtors' appliances and furniture as scheduled. Commonwealth appealed to the district court and it affirmed. Commonwealth now appeals to us. We have jurisdiction pursuant to 28 U.S.C. § 158(d). The issue before the court is one of statutory construction and our review is plenary. See Matter of Roach, 824 F.2d 1370, 1372 (3d Cir. 1987).

II.

Commonwealth argues that resolution of its appeal requires an examination of the relationship between 11 U.S.C. § 506(a), a generally applicable provision limiting a creditor's secured claim to the value of the collateral, and 11 U.S.C. § 1322(b)(2), a provision applicable only to Chapter 13 covering modification of the rights of holders of secured claims.

Section 506(a), which we have held applies to Chapter 13 proceedings, see In re Lewis, 875 F.2d 53, 55 (3d Cir. 1989), defines allowed secured and allowed unsecured claims.

An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim.

11 U.S.C. § 506(a). The Supreme Court has recently explained that section 506(a) "provides that a claim is secured only to the extent of the value of the property on which the lien is fixed; the remainder of that claim is considered unsecured." United States v. Ron Pair ...


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