On Appeal from the United States District Court for the District of New Jersey; D.C. Civil Action No. 90-02146.
Stapleton, Greenberg, and Higginbotham, Circuit Judges.
Recognizing that "state laws are . . . suspended only to the extent of actual conflict with the system provided by the Bankruptcy [Code]," Stellwagen v. Clum, 245 U.S. 605, 613, 62 L. Ed. 507, 38 S. Ct. 215 (1918), this court has held that Chapter 13 does not authorize a debtor to reinstate his New Jersey home mortgage after a foreclosure sale and before the time for redemption has expired. In re Roach, 824 F.2d 1370, 1373 (3d Cir. 1987). Our analysis in Roach led to the conclusion that such a mortgage cannot be reinstated at any time after a foreclosure judgment has been entered. Id. at 1373. Today we hold that after a foreclosure judgment has been entered on a New Jersey home mortgage, Chapter 13 does not authorize a plan calling for payment of that judgment over the three to five years of the plan. To permit confirmation of such a plan would be to modify the rights of a claim secured only by the debtor's principal residence. Although the Bankruptcy Code ("Code") generally allows debtors to pay claims over the life of a Chapter 13 plan, it specifically excepts home mortgages from the general authorization to modify claims. 11 U.S.C. § 1322(b)(2). Accordingly, federal bankruptcy law does not preempt a New Jersey creditor's state law right to immediate payment of the foreclosure judgment entered as a result of a default on a home mortage.
The facts are not in dispute.*fn1 First National Fidelity Corporation ("First National") held a mortgage in the face amount of $11,844.22 on the residence of Ruth Perry that called for 20.99% interest. After Perry defaulted, First National obtained a foreclosure judgment. Before the foreclosure sale, however, Perry filed a Chapter 13 petition and a plan that proposed paying First National $13,562, plus the judgment interest rate of ten percent for a total of $17,292, over five years. First National moved to vacate the automatic stay, arguing, inter alia, that the proposed plan was not authorized by Chapter 13 and, alternatively, that the ten percent interest provided under the plan was inadequate because the original mortgage had provided interest of over twenty percent. The bankruptcy court denied that motion and confirmed Perry's plan. A formal order was entered March 28, 1990. On appeal, the district court found that § 1322(b)(2) barred payment of the foreclosure judgment over the life of the plan, reversed the bankruptcy court's order, and denied confirmation of Perry's plan. Perry has appealed from that judgment.
The district court has jurisdiction over an appeal from a final order of the bankruptcy court pursuant to 28 U.S.C. § 158(a), and this court has jurisdiction over a final order of the district court pursuant to 28 U.S.C. § 158(d). "We exercise plenary review of the legal standard applied by the district and bankruptcy courts", In re Abbotts Dairies, 788 F.2d 143, 147 (3d Cir. 1986), which is the sole issue in this appeal.
Section 1322(b) of the Bankruptcy Code provides in relevant part that a Chapter 13 plan may,
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence, or of holders of unsecured claims . . .
(5) notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;
(emphasis added). Thus, home mortgage lenders are to be treated differently from other claimants. Although a Chapter 13 plan may provide for "cure" of a default, it may not "modify" the rights of a home mortgage lender.
In re Roach, supra, presented the issue of "whether 11 U.S.C. § 1322(b) evidences a congressional intent to authorize cure of a default on a home mortage after there has been a contractual acceleration of the full mortgage debt, a foreclosure judgment, and a foreclosure sale, so long as the state law redemption period has not expired." 824 F.2d at 1371-2. We stressed at the outset that we were required to approach the task of ascertaining congressional intent with two things in mind:
we must approach that task with the realization that the Bankruptcy Code was written with the expectation that it would be applied in the context of state law and that federal courts are not licensed to disregard interests created by state law when ...