## Facts

- Leonard and Harriet Nobelman bought a Texas home using an adjustable-rate loan secured by a mortgage on their principal residence.
- After falling behind, they filed for Chapter 13 bankruptcy.
- At filing, the mortgage debt was about $71,335 and the home was worth about $23,500.
- The debtors sought, under 11 U.S.C. § 506(a), to bifurcate the lender’s claim into a $23,500 secured claim and the remaining balance as unsecured.
- Their Chapter 13 plan proposed paying only the secured portion and treating the remainder as unsecured.
- The lender and the Chapter 13 trustee objected, arguing that the plan impermissibly modified rights protected by 11 U.S.C. § 1322(b)(2) for claims secured only by the debtor’s principal residence.

## Issues

1. Whether 11 U.S.C. § 1322(b)(2) allows a Chapter 13 debtor to use 11 U.S.C. § 506(a) to strip down an undersecured mortgage secured only by the debtor’s principal residence.
2. Whether § 1322(b)(2)’s anti-modification protection applies only to the “secured” portion of the claim after § 506(a) valuation, or to the mortgagee’s full claim and associated rights.

## Decision

- The Supreme Court affirmed the judgment denying confirmation of the proposed plan.
- Section 1322(b)(2) prohibits a Chapter 13 debtor from using § 506(a) to reduce an undersecured home mortgage to the residence’s market value when the claim is secured only by the principal residence.
- The lender’s rights under the mortgage instruments—enforceable under state law—are protected from modification, even if § 506(a) would characterize part of the claim as unsecured.
- Justice Thomas wrote for a unanimous Court; Justice Stevens concurred in the judgment.

## Legal Principles

- Under § 1322(b)(2), a Chapter 13 plan may not modify the rights of the holder of a claim secured only by a security interest in the debtor’s principal residence.
- Section 506(a) valuation may identify secured and unsecured components, but it does not limit the “rights” protected by § 1322(b)(2) for qualifying home mortgages.
- The protected “rights” are defined by the mortgage instruments and applicable state law, including repayment terms, interest rate provisions, lien retention until payoff, acceleration upon default, and foreclosure remedies.
- Stripping down principal on a protected home mortgage necessarily alters these contractual rights and therefore constitutes an impermissible modification.

## Conclusion

The Court held that § 1322(b)(2) bars Chapter 13 debtors from stripping down an undersecured mortgage secured only by their principal residence, because the statute protects the mortgagee’s full set of state-law contractual rights from modification notwithstanding § 506(a) valuation.


Nobelman v. Am. Sav. Bank, 508 U.S. 324 (1993)