In re: Jason M. Lee AND Janice Chen

CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedNovember 13, 2023
Docket22-1250
StatusPublished

This text of In re: Jason M. Lee AND Janice Chen (In re: Jason M. Lee AND Janice Chen) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re: Jason M. Lee AND Janice Chen, (bap9 2023).

Opinion

FILED NOV 13 2023 ORDERED PUBLISHED SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. CC-22-1250-FLC JASON M. LEE and JANICE CHEN, Debtors. Bk. No. 8:22-bk-10127-MH

MISSION HEN LLC, Appellant, v. OPINION JASON M. LEE; JANICE CHEN; AMRANE COHEN, Chapter 13 Trustee, Appellees.

Appeal from the United States Bankruptcy Court for the Central District of California Mark D. Houle, Bankruptcy Judge, Presiding

APPEARANCES: Sanford P. Shatz of McGlinchey Stafford argued on behalf of appellant; Michael Smith of Shioda, Langley & Chang LLP argued on behalf of appellees Jason M. Lee and Janice Chen.

Before: FARIS, LAFFERTY, and CORBIT, Bankruptcy Judges.

FARIS, Bankruptcy Judge:

INTRODUCTION

Debtors Jason M. Lee and Janice Chen proposed a chapter 13 1 plan

1 Unless specified otherwise, all chapter and section references are to the that would bifurcate and cram down the claim of Mission Hen, LLC that is

secured by a junior lien on the Debtors’ residence. The bankruptcy court

confirmed the plan over Mission Hen’s objections.

Mission Hen appeals, arguing that the plan violated the anti-

modification provision of § 1322(b)(2) by bifurcating its claim into secured

and unsecured portions. The Debtors argue that § 1322(c)(2) creates an

exception to the general rule against modification that applies to claims like

Mission Hen’s that mature during the plan term. Mission Hen also argues

that the Debtors were ineligible for chapter 13 relief and that the plan was

not feasible.

Mission Hen does not establish reversible error. We AFFIRM.

We publish to address the effect of § 1322(c)(2) on secured debts that

mature during the plan term, which appears to be an issue of first

impression at the appellate level in this circuit, and the calculation of a

chapter 13 debtor’s eligibility given the procedural history of the case.

FACTS

A. Prepetition events

In December 2006, Mr. Lee executed a promissory note in the sum of

$846,359 (the “First Mortgage”) in favor of IndyMac Bank, F.S.B. The note

was secured by a deed of trust encumbering the residence of Mr. Lee and

Ms. Chen (the “Property”). IndyMac Bank transferred its beneficial interest

Bankruptcy Code, 11 U.S.C. §§ 101-1532.

2 to Deutsche Bank National Trust Company.

Around the same time, Mr. Lee took out a home equity line of credit

(the “HELOC”) with IndyMac Bank, which was secured by a second deed

of trust on the Property. The original credit limit was $211,589, and the

maturity date was January 15, 2027. Mission Hen is the current holder of

the HELOC and deed of trust.

Beginning in 2020, Mr. Lee defaulted on both the First Mortgage and

the HELOC. Both lenders recorded notices of default. Mission Hen also

recorded a notice of trustee’s sale.

B. The bankruptcy petition

On January 26, 2022, Mr. Lee and Ms. Chen jointly filed a chapter 13

petition and schedules. In their Schedule A/B, they scheduled the Property

and stated that its current value was $1.045 million. They did not claim any

exemption in the Property.

The Debtors scheduled claims secured by the Property. They

identified the First Mortgage as a $952,510.26 secured claim and scheduled

the HELOC as a “disputed” secured claim of $465,670.41, of which

$373,180.67 was unsecured (meaning that $92,489.74 was secured). The

Debtors also scheduled two community association claims secured by the

Property ($21,030.39 and $11,060.08), both of which they indicated were

unsecured. Additionally, they scheduled $83,185.04 of unsecured

nonpriority claims.

The Debtors reported that their combined monthly income was

3 $10,010.95, which included a $1,200 monthly contribution from Ms. Chen’s

parents. After accounting for their monthly expenses, their net monthly

income was $2,197.74.

C. The proposed chapter 13 plan

The Debtors’ proposed chapter 13 plan provided that the Debtors

would cure and maintain payments on the First Mortgage. The plan would

bifurcate Mission Hen’s second-position claim into secured and unsecured

portions and pay only the secured portion at five percent interest. The plan

did not include payment of any other debt.

The Debtors indicated that they would file a motion to value the

Property and avoid Mission Hen’s lien. They also intended to avoid the

community association liens.

D. The valuation motion

Mr. Lee filed a motion for an order determining the value of the

Property (“Valuation Motion”). He sought the value determination because

he intended to bifurcate Mission Hen’s claim under § 506(a), treating the

portion of the debt covered by the value of the Property as a secured claim

and the remainder as an unsecured claim. He asserted that the Property

was worth $1.045 million. This meant that the First Mortgage was fully

secured at $952,510.26; the secured portion of the HELOC was $92,489.80;

and the unsecured portion was $364,180.61.

4 E. Mission Hen’s objections to the chapter 13 plan and Valuation Motion

Mission Hen objected to the proposed plan. First, it asserted that the

fair market value of the Property was significantly higher and that its claim

was fully secured. Second, it argued that the plan failed to properly

calculate the interest due on its claim. Third, it argued that the plan was not

feasible because the Debtors would not be able to fund the plan. Finally, it

contended that the Debtors had not established that all of the expenses in

their schedules were “reasonably necessary.”

Mission Hen similarly opposed the Valuation Motion. It contended

that the Property’s true value was $1.36 million.

The bankruptcy court held an evidentiary hearing and issued an

order (“Valuation Order”) finding that the value of the Property on the

petition date was $1.225 million. Accordingly, it ruled that the secured

portion of Mission Hen’s claim was $265,473.06 and the unsecured portion

was $204,030.50.

F. First amended plan

The Debtors filed a first amended plan. Based on the higher value of

the Property fixed by the court, they increased their plan payments to pay

the secured portion of the HELOC in full. Because their income had not

increased, they accomplished the higher plan payment by increasing

Ms. Chen’s parents’ monthly contribution from $1,200 to $4,900.

Ms. Chen’s mother, Linda Chen, filed a declaration in support of the

5 amended plan. She said that she and her husband had been residing at the

Property with the Debtors since September 2021 and paying the Debtors

$1,200 per month in rent. In January 2022, the sale of their home closed,

and they netted the $910,000 sale price minus transaction costs. (She

attached a copy of the closing statement to her declaration, although the

declaration did not directly authenticate the document.) As a result, she

stated that they were able and willing to increase their monthly

contribution to $4,900. She confirmed that she was committed to making

the contribution for the five-year plan term and did “not foresee any

financial difficulty continuing to do so.” She said that she had the ability to

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