- No. 15-1505, (4th Cir. Apr. 27, 2015)
- Chapter 13 plan that provided for payment of pre-petition arrears and post-petition payments for primary residence at non-default interest rate violated the non-modification provision of section 1322(b)(5). Default interest rate applied for all payments accrued and accruing after pre-petition default.
- Procedural context:
- The United States Bankruptcy Court for the Eastern District of North Carolina denied confirmation of the Chapter 13 plan as the plan provided for payment of pre-petition arrears and post-petition payments for primary residence at non-default interest rate violated the non-modification provision of section 1322(b)(5). The Debtors appealed to the District Court. The District Court agreed that returning to the non-default interest rate for post-confirmation payments would be an impermissible modification. However the District Court disagreed with the Bankruptcy Court on the interest rate applicable to the post-loan acceleration, pre-confirmation period. As the underlying note provided for a default interest rate or acceleration of the loan, the District Court found that, once the creditor had accelerated the loan, the creditor was not entitled to the default interest rate. However, upon plan confirmation, the District Court agreed that, as the loan was reinstated, the creditor would be entitled to the default interest rate. The Debtors again appealed to the Fourth Circuit, arguing that the non-default interest rate should apply. The Fourth Circuit affirmed in part; reversed in part; and remanded by published opinion.
- The Debtors purchased their primary residence using seller financing. Under the related note, the Debtors agreed to a non-default interest rate of 5 percent and a default interest rate of 7 percent. The note further provided that, upon default, alternatively, the lender could accelerate and foreclosure. A payment default occurred in April 2013 and continued through August 2013. On August 30, 2013, the lender initiated foreclosure proceedings. On September 16, 2013, the Debtors filed a voluntary petition under Chapter 13 of the Bankruptcy Code to halt the foreclosure proceedings.
- Before WILKINSON and NIEMEYER, Circuit Judges, and David C. NORTON, United States District Judge for the District of South Carolina, sitting by designation. Judge Wilkinson wrote the opinion, in which Judge Niemeyer and Judge Norton joined.
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