## Facts

- Richard and Doreen Paschen filed a Chapter 13 case while owing American General Finance, Inc. about $11,392 on a second mortgage secured only by their principal residence.
- The residence value and senior lien left only about $2,752 of collateral value supporting American’s claim; the remaining roughly $8,640 was undersecured.
- The mortgage was short-term: the last payment under the original loan schedule would come due before the final payment under the proposed Chapter 13 plan.
- The plan proposed valuing the collateral and bifurcating American’s claim into a secured claim equal to the available equity and an unsecured remainder, paying the secured portion in full through the plan and treating the balance as unsecured.
- American objected, contending the Chapter 13 antimodification rule for claims secured only by the debtor’s principal residence barred bifurcation and lien strip-down.

## Issues

1. Whether 11 U.S.C. § 1322(c)(2) creates an exception to § 1322(b)(2)’s antimodification protection for a home mortgage whose last payment is due before the plan’s final payment.
2. If an exception applies, whether § 1322(c)(2) permits application of § 506(a) to bifurcate the claim into secured and unsecured portions and strip down the lien to collateral value through § 1325(a)(5).

## Decision

- The Eleventh Circuit affirmed confirmation of the plan.
- The court held § 1322(c)(2) is an express exception to § 1322(b)(2) for covered short-term home mortgages.
- The court held that, within § 1322(c)(2), a debtor may modify the claim pursuant to § 1325(a)(5), which allows valuation under § 506(a) and treatment of only the secured portion as secured.
- American’s claim could be bifurcated, with the lien effectively limited to the secured value and the remainder treated as unsecured.

## Legal Principles

- Section 1322(b)(2) generally bars modification of the rights of a holder of a claim secured only by a security interest in the debtor’s principal residence.
- Section 1322(c)(2), beginning with “notwithstanding subsection (b)(2),” permits different treatment for a residence mortgage whose last scheduled payment is due before the plan’s final payment.
- By authorizing payment of the claim “as modified pursuant to § 1325(a)(5),” § 1322(c)(2) permits Chapter 13 secured-claim treatment that relies on § 506(a) valuation, including bifurcation into secured and unsecured portions and cramdown of the secured amount to collateral value.
- The exception is limited to the statutory timing category; long-term residential mortgages extending beyond the plan remain subject to § 1322(b)(2)’s antimodification protection.

## Conclusion

The Eleventh Circuit held that a short-term home mortgage maturing before completion of a Chapter 13 plan may be modified under § 1322(c)(2) through § 1325(a)(5), including § 506(a) bifurcation and lien strip-down to the value of the collateral, notwithstanding § 1322(b)(2).


In re Paschen, 296 F.3d 1203 (11th Cir. 2002)