## Facts

- Joseph C. and Ellen A. Taddeo bought a home in Sayville, New York, giving Elfriede Di Pierro a purchase-money second mortgage for $13,000, payable over 15 years in monthly installments at 8.5% interest.
- After taking possession, the Taddeos asserted defects in the property and stopped making mortgage payments, placing funds with their attorney.
- Di Pierro invoked a contractual acceleration clause after default, declaring the full balance immediately due, and filed a state foreclosure action.
- About three years after the initial default, the Taddeos filed a Chapter 13 bankruptcy petition, triggering the automatic stay of the foreclosure.
- Their proposed Chapter 13 plan provided for payment of arrears over the plan term and resumption of regular monthly payments, effectively reinstating the original mortgage schedule.
- Di Pierro moved for relief from the automatic stay, arguing that acceleration under state law eliminated any right to cure except by paying the full accelerated balance.

## Issues

1. Whether 11 U.S.C. § 1322(b)(5) permits Chapter 13 debtors to cure a residential mortgage default and reinstate the original payment schedule after the mortgagee has accelerated the debt and commenced foreclosure.
2. Whether a creditor’s prepetition acceleration under state law limits the debtor to paying the entire accelerated balance to avoid foreclosure.

## Decision

- The Second Circuit affirmed the district court’s order affirming the bankruptcy court.
- The court held that Chapter 13 authorizes debtors to cure the default and reverse acceleration, reinstating the original installment terms rather than requiring immediate payment of the accelerated balance.
- The court concluded that 11 U.S.C. § 1322(b)(3) and § 1322(b)(5) permit curing arrears within a reasonable time while maintaining ongoing payments on long-term secured debt.
- The denial of stay relief was proper because the plan contemplated curing the arrearage and maintaining contract payments, preserving the creditor’s secured position.

## Legal Principles

- A Chapter 13 plan may “cure” a default under 11 U.S.C. § 1322(b)(3) and § 1322(b)(5) by undoing the consequences of default, including contractual acceleration triggered by missed payments.
- For long-term obligations where the last payment is due after completion of the plan, § 1322(b)(5) allows curing arrears within a reasonable time and maintaining current payments during the case.
- Federal bankruptcy law may modify the effect of state-law remedies; a creditor’s exercise of an acceleration clause before bankruptcy does not terminate the federal right to cure under Chapter 13.
- Confirmation safeguards (including feasibility and good faith) and the requirement of continued contract payments protect the creditor from unfair treatment while permitting reinstatement.

## Conclusion

The court held that Chapter 13 debtors may cure prepetition mortgage defaults by paying arrears over a reasonable time and continuing regular payments, which reverses a creditor’s prior acceleration and reinstates the original mortgage terms, so the creditor was not entitled to relief from the automatic stay to proceed with foreclosure.


In re Taddeo, 685 F.2d 24 (2d Cir. 1982)