Sixth Circuit Resolved Split In Lower Courts When It Held That A Chapter 13 Debtor Who Proposes To Cure A Default Has To Pay Everything Due Even Where The Debt Is Undersecured

The Sixth Circuit resolved a split in the Southern District of Ohio as to whether the proper arrearage amount in a Chapter 13 plan includes fees and costs permitted by the contract terms and applicable non-bankruptcy law even where the debt is undersecured. In Deutsche Bank National Ass’n v. Tucker, 09-5867 (6th Cir., Sept. 15, 2010) the mortgagee was undersecured on a mortgage loan to a debtor who was in default. The debtor wanted to retain the home and proposed a Chapter 13 plan to cure the arrearage, but included in the plan only the amount of the arrearage that was secured. In In re Evans, 336 B.R. 749 (Bankr. S.D. Ohio 2006), the bankruptcy court held that a Chapter 13 debtor only needs to cure the amount of the default that is defined as secured under 11 U.S.C. §506(b). In contrast, In re Thompson, 372 B.R. 860 (Bankr. S.D. Ohio 2007), the same court ruled that a Chapter 13 debtor who proposes to cure a default has to pay everything due under the underlying agreement and non-bankruptcy law, regardless of the extent of security. The Sixth Circuit started with the language used by Congress in 11 U.S.C. §1322(e) which it found was “unambiguous.” “Notwithstanding * * * Section[] 506(b) * * * , if it is proposed in a plan to cure a default, the amount necessary to cure the default, shall be determined in accordance with the underlying agreement and applicable non-bankruptcy law.” Based on this unambiguous language the Six Circuit held that a Chapter 13 debtor who proposes to cure a default must pay everything required by the underlying agreement and non-bankruptcy law, regardless of the extent of security. The Sixth Circuit noted that the obvious reading of the statute is “not surprisingly the one virtually all of the courts to consider [this question] have applied.” Finally, the Six Circuit also examined the typical use of the term “notwithstanding,” as applied throughout the Bankruptcy Code, and concluded that its application consistently functioned “in a normal supplanting way” and that “because the statutory language is unambiguous, ‘the judicial inquiry is at an end * * * ‘ without reference to the legislative history.”

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