Bankruptcy Judge Says Espinosa Overrules Eleventh Circuit Precedent

July 10, 2019

The Eleventh Circuit’s Bateman opinion, holding that the antimodification provision in Section 1322(b)(2) takes precedence over a confirmed plan, is no longer good law following the Supreme Court’s Espinosa decision, according to Bankruptcy Judge Erik P. Kimball of West Palm Beach, Fla.

A home mortgage lender filed an uncontested proof of claim for about $132,000. The claim included prepetition arrearages. The debtor confirmed a chapter 13 plan providing for payment of the arrearages and continuing monthly payments.

About two years into plan payments, the debtor confirmed an amended chapter 13 plan. By mistake, the amended plan incorrectly stated the ongoing monthly mortgage payments. Over the remainder of the plan, the debtor therefore underpaid the mortgage by about $5,000.

The mortgage lender received notice of the amended plan and its confirmation, but did not object. Nor did the lender appeal.

On four occasions after confirmation of the amended plan, the lender sent notices of mortgage payment changes under Bankruptcy Rule 3002.1. The lender took no further action, even though the debtor ignored the notices and did not amend the plan once again to make up the arrears.

Four years after confirmation of the amended plan, the lender objected to the trustee’s notice of final cure payments. Although the lender agreed that the debtor had paid the arrears in full, the mortgage holder contended that the debtor was about $5,000 in arrears on post-petition payments.

The debtor received her discharge and filed a motion for a declaration that the mortgage was current and that any arrearages were unenforceable.

Opposing discharge of the post-petition arrears, the lender relied primarily on Universal American Mortgage Co. v. Bateman (In re Bateman), 331 F.3d 821 (11th Cir. 2003), a 2003 Eleventh Circuit opinion that was almost precisely on point.

As Judge Kimball said in his May 22 opinion, Bateman held that a mortgage lender’s allowed claim for arrears survives confirmation of a plan. If the plan and its underpayment were to control, the Eleventh Circuit said, the plan would “deny the effect of Section 1322(b)(2).” Id. at 822. (Section 1322(b)(2) precludes a chapter 13 debtor from modifying a secured claim that is “secured only by a security interest in real property that is the debtor’s principal residence.”)

Bateman dealt with prepetition arrears, whereas Judge Kimball confronted a case involving post-petition arrears. Despite the factual difference, he said that Bateman would “apply equally” to the case at hand.

Judge Kimball nonetheless declined to follow seemingly binding circuit precedent in light of United Student Aid Funds Inc. v. Espinosa, 559 U.S. 260 (2010). He said that “Espinosa displaced the Eleventh Circuit’s . . . ruling in Bateman, that the antimodification provision in Section 1322(b)(2) prevails over the binding effect of a confirmed plan under Section 1327(a).”

In Espinosa, the chapter 13 debtor confirmed a plan that discharged student loans, in violation of the debtor’s obligation to file an adversary proceeding and obtain a declaration that the student loans were dischargeable under Section 523(a)(8). Although the plan violated Section 523(a)(8), the Supreme Court ruled that the student loans were nevertheless discharged.

Invoking Espinosa, Judge Kimball similarly ruled that the mortgage was current and that the debtor had no obligation to pay the post-petition arrears.

In substance, Judge Kimball concluded that Bateman is no longer good law following Espinosa. He interpreted Espinosa to stand “for the proposition that a confirmed chapter 13 plan is binding on all parties in interest, provided the debtor afforded such parties adequate notice, even if the plan violates the Bankruptcy Code and/or the Bankruptcy Rules.”

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