Deutsche Bank held an under-secured home mortgage from a Chapter 13 debtor. The debtor was in arrears, but wanted to retain possession and control of her home. Thus, in her Chapter 13 plan, the debtor proposed to cure the arrearage, as required by 11 U.S.C. § 1322(e). The problem, however, was that the parties could not agree on the arrearage amount. The bank asserted that the arrearage amount should include fees and costs permitted by the underlying note and mortgage, such as attorney fees to prepare the proof of claim and “bankruptcy fees.” The debtor, however, argued that the arrearage amount should not include such fees and costs because § 506(b) of the Bankruptcy Code provides that holder of a secured claim is only entitled to fees, costs, or charges provided for by the security agreement if the value of the collateral is greater than the amount of the claim. In other words, the debtor argued that the arrearage amount cannot include fees and costs when the creditor is under-secured.
Relying on In re Evans, 336 B.R. 749 (Bankr. S.D. Ohio 2006), the bankruptcy court agreed with the debtor. The bank then appealed to the United States District Court for the Eastern District of Kentucky, which certified the issue to the Sixth Circuit. The Sixth Circuit accepted certification of the issue in order to “resolve a conflict on the issue in the decisions of the bankruptcy courts in this Circuit,” and in Deutsche Bank National Trust Co. v. Tucker, __ F.3d __, 2010 WL 3565185 (6th Cir. Sept. 15, 2010), it ruled in favor of the bank.
The Sixth Circuit framed the question in this way: “are fees and costs that are allowed by the contract documents and applicable non-bankruptcy law amounts that are part of the arrearage cure amount, even when the debt holder is under-secured under section 506(b)?” The Sixth Circuit viewed the “pivotal issue” as one of statutory construction, and it had little difficulty concluding that the bank’s position was correct. The key was the language found in § 1322(e) of the Bankruptcy Code, which states in relevant part that “Notwithstanding . . . section [ ] 506 (b) . . . of this title, 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.” The bankruptcy court had essentially ignored this language because it found the term “notwithstanding” to be ambiguous, but the Sixth Circuit saw no ambiguity whatsoever. In fact, if concluded that “[i]t is hard to imagine a clearer statement of congressional intent . . . .” Thus, the Sixth Circuit held that “[w]hen it comes to cure under section 1322(e), . . . section 506(b) is beside the point if the parties’ agreement says otherwise.” And because the agreement between the parties in Deutsche Bank said otherwise, the debtor’s arrearage amount properly included the fees and costs permitted by the underlying note and mortgage.
This holding abrogates In re Evans and puts to rest a serious conflict among the bankruptcy courts in the Sixth Circuit.