In Re: Maryann Landry
Judge F. Dennis Saylor, IV: MEMORANDUM AND ORDER REVERSING the Order of the Bankruptcy Court dated December 14, 2011.(Cicolini, Pietro)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
TD BANK, N.A.,
MEMORANDUM AND ORDER
This is an appeal from a final order of the United States Bankruptcy Court for the District
of Massachusetts. Defendant TD Bank, N.A., is the holder of a second mortgage on plaintiff
Maryann Landry’s primary residence at 47 Frost Road in Tyngsborough, Massachusetts. The
value of the property apparently declined between the date of Landry’s bankruptcy petition and
the effective date of her chapter 13 plan. Whether TD Bank’s mortgage is wholly unsecured
depends on the date of valuation.
TD Bank brought this appeal challenging the Bankruptcy Court’s determination of that
date. The Bankruptcy Court held that the proper date was the effective date of Landry’s Chapter
13 plan; TD Bank contends the proper date is the date the petition was filed. For the following
reasons, the order of the Bankruptcy Court will be reversed.
On October 31, 2005, Maryann Landry borrowed $132,000 from TD Bank N.A., secured
by a mortgage on her principal residence, located at 47 Frost Road, Tyngsborough,
Massachusetts. On April 30, 2009, Landry filed a Chapter 13 bankruptcy petition and her first
Chapter 13 Plan. In Schedules A and C of her petition, Landry listed the value of the property at
$369,486. (Record Vol. 1, at 6, 12). In Schedule D, she listed mortgages against the property
held by Countrywide Home Loans, now BAC Home Loan Security, L.P. (in the amount of
$310,240), TD Bank, N.A. (in the amount of $123,447), and Citibank, N.A. (in the amount of
$87,471). (Id. at 12-13).1
On June 10, 2011, TD Bank filed motions for relief from the automatic stay and codebtor relief under 11 U.S.C. § 362(d)(1), arguing, among other things, that it was entitled to
relief because Landry had failed to pay TD Bank on its mortgage and had been delinquent since
June 2009. On July 1, 2011, Landry filed a motion to avoid TD Bank’s secured claim, alleging
that the value of the property had fallen below the balance owed on the first mortgage.2 Landry
contended that the second and third mortgages could be avoided as they were wholly unsecured,
and, that therefore TD Bank was not entitled to relief. (See Record Vol. 2, at 2-6).
On December 14, 2011, the Bankruptcy Court held that the property must be valued at
the effective date of the Chapter 13 plan rather than the date the petition was filed. It further
held that if the property is worth the amount alleged by Landry as of the later date, then TD
Bank’s mortgage was wholly unsecured and could be avoided. The Bankruptcy Court ordered
Apparently, on June 8, 2009, TD Bank filed a secured proof of claim in the amount of $123,840.32, and
on July 6, 2009, the first mortgage holder, BAC Home Loan Servicing, L.P., filed a secured proof of claim in the
amount of $318,673.06. (Def. Mem. at 4). TD Bank has established that its mortgage has second priority—that is,
above the Citibank mortgage.
Landry filed a first motion to avoid TD Bank’s claim on July 10, 2009 (prior to the resolution of the
dispute between TD Bank and Citibank). In that motion, she asserted that the property had a value of $369,486, and
as the third mortgage holder, there was no value in the property to secure TD Bank’s claim. (Record Vol. 1, at 6668). TD Bank responded that it properly held a second mortgage position. Landry’s first motion to avoid was
withdrawn without prejudice at a Bankruptcy Court hearing on October 14, 2009. (Id. at 139-44).
(1) that Landry file an amended Chapter 13 plan that treated all but the first mortgage as wholly
unsecured; (2) that an evidentiary hearing be held to determine the fair market value of the
property for purposes of determining TD Bank’s motions for relief; and (3) that Landry’s motion
to avoid be denied without prejudice. Landry filed an amended Chapter 13 plan on December
23, 2011. In re Landry, 462 B.R. 317, 324 (Bankr. D. Mass. 2011).
On December 28, 2011, TD Bank filed this appeal of the Bankruptcy Court’s decision,
requesting that this Court reverse the Bankruptcy Court’s orders concerning Landry’s motion to
avoid and its motion for relief from the automatic stay and co-debtor relief. Specifically, TD
Bank contends that the Bankruptcy Court erred in determining that the operative date for valuing
the property for purposes of §1322(b)(2) at “the effective date of the plan,” and instead should
have valued the property at the date the bankruptcy petition was filed.
Jurisdiction and Standard of Review
This Court has jurisdiction to hear appeals from final judgments, orders, and decrees of
the Bankruptcy Court pursuant to 28 U.S.C. § 158(a)(1). The Bankruptcy Court’s findings of
fact are reviewed for clear error and its conclusions of law are reviewed de novo. See In re Hill,
562 F.3d 29, 32 (1st Cir. 2009). This Court “may affirm, modify, or reverse [a Bankruptcy
Court’s order] or remand with instructions for further proceedings.” Fed. R. Bankr. P. 8013.
The Bankruptcy Court’s Order was a final order, and there are no disputed questions of fact
raised on appeal.
Section 506(a)(1) of the bankruptcy code provides in relevant part:
An allowed claim of a creditor secured by a lien on property in which the estate
has an interest . . . is a secured claim to the extent of the value of such creditor’s
interest in the estate’s interest in such property . . . and is an unsecured claim to
the extent that the value of such creditor’s interest . . . is less than the amount of
such allowed claim. Such value shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of such property, and in
conjunction with any hearing on such disposition or use or on a plan affecting
such creditor’s interest.
11 U.S.C. § 506(a)(1). In other words, subject to certain exceptions, claims may be generally
divided into secured and unsecured components, with the secured component being the amount
of the claim up to the value of the property at issue, and the remainder of the claim—that is, the
amount in excess of the value of the property—being unsecured.
An exception set forth in § 1322(b)(2) prohibits the modification of “a claim secured only
by a security interest in real property that is the debtor’s principal residence . . . .” 11 U.S.C. §
1322(b)(2). The Supreme Court has held that § 1322(b)(2) prohibits the bifurcation of an
undersecured home mortgage holder’s claim (that is, where the amount of the claim is only
partially secured by the value of the property) into its secured and unsecured components.
Nobelman v. American Sav. Bank, 508 U.S. 324, 332 (1993). Left unresolved by that decision is
whether § 1322(b)(2) prohibits the avoidance of a wholly unsecured mortgage on the debtor’s
principal residence. Although a subject of debate among the courts, the leading case in the First
Circuit, In re Mann, 249 B.R. 831 (B.A.P. 1st Cir. 2000), held that a wholly unsecured claim is
not protected from modification under § 1322(b)(2). In re Mann, 249 B.R. at 836-37. Thus, in
the First Circuit, a wholly unsecured claim on a principal residence—that is, a home mortgage
where there is insufficient value in the home to support even a penny of the claim—may be
modified (and possibly avoided in full) in the Chapter 13 plan.
At issue here is the question of the date on which the property should be valued in order
to determine whether § 1322(b)(2) applies. Landry contends (and the Bankruptcy Court held)
that the value of the property should be determined for these purposes as of the effective date of
the Chapter 13 plan—which, in this case, may result in a valuation of less than the value of the
first mortgage. TD Bank contends that the value of the property should be determined as of the
date the petition was filed, in which case the operative value of the property would be
approximately $369,000. It is undisputed that BAC Home Loan Servicing holds the first
mortgage on the property worth approximately $318,000. Consequently, whether TD Bank’s
mortgage is undersecured or wholly unsecured (and therefore whether it is subject to protection
from modification under § 1322(b)(2)) depends upon when the property is valued.
Determining the Proper Valuation Date
The Court’s “interpretation of the Bankruptcy Code starts ‘where all such inquiries must
begin: with the language of the statute itself.’” Ransom v. FIA Card Servs., N.A., 131 S. Ct.
716, 723-724 (2011) (citation omitted). As discussed, § 506(a)(1) dictates how courts are to
determine the value of property in order to decide whether or not a creditor’s claim is secured.
The statute provides little guidance; it simply states that “the value of [a] creditor’s interest” in
the collateral “shall be determined in light of the purpose of the valuation and of the proposed
disposition of such property, and in conjunction with any hearing on such disposition or use or
on a plan affecting such creditor’s interest.” 11 U.S.C. § 506(a)(2). The plain language of §
506(a) then requires that courts adopt a flexible approach to the determination of secured status.
See In re Sarno, 463 B.R. 163, 166 (Bankr. D. Mass. 2011); In re SW Hotel Venture, LLC, 460
B.R. 4, 31-32 (Bankr. D. Mass. 2011). Consequently, the time of valuation must also be
flexible—“[a]lthough the amount of a creditor’s claim is fixed at the petition date, there is
nothing to indicate that the value of the claim must also be determined at the petition date.” In re
Abdelgadir, 455 B.R. 896, 902 (B.A.P. 9th Cir. 2011); see also 11 U.S.C. § 502(b).
This flexibility, however, is not without limits. In determining when the valuation of the
claim should occur, courts must consider, among other things, the purpose of the valuation;
furthermore, courts are not “allow[ed to] use  different valuation standards based on the facts
and circumstances of individual cases.” Associates Commer. Corp. v. Rash, 520 U.S. 953, 965
n.5 (1997). Thus, for example, when conducting a valuation for the purpose of determining
whether proposed modifications in a debtor’s bankruptcy plan comply with the requirements of
confirmation, it may be appropriate to value the claim at the time of effective date of the plan;
however, if the purpose of the valuation is to determine whether a creditor’s claim is entitled to
certain statutory protections, it may be appropriate to fix the value of the property as of the
petition date. See In re Abdelgadir, 455 B.R. at 902; In re Mann, 249 B.R. at 838; In re SW
Hotel, 460 B.R. at 29 (citing In re Delta Resources, Inc., 54 F.3d 722, 729-30 (11th Cir. 1995)).
The purpose of the valuation at issue, therefore, is critical to the analysis. The
Bankruptcy Court stated that the purpose of the valuation was to determine how the property
should be treated under Debtor’s Chapter 13 plan. See In re Landry, 462 B.R. at 321-23.3
However, while the valuation at issue has arisen in the context of a Chapter 13 plan (as all
modifications of claims occur through such plans), its purpose is to determine whether TD Bank
is entitled to relief from the automatic stay—an issue that turns on whether its claim is entitled to
Early in its analysis the Bankruptcy Court indicated that the valuation was for “§ 1322(b)(2) purposes.”
In re Landry, 462 B.R. at 321. It later it stated that “the issue that is presented to the Court is how to value the
Property for the purpose of plan confirmation.” Id. at 322. Finally, it expressly stated that “the purpose of the
valuation of the Property is to determine how it should be treated under the Debtor’s Chapter 13 Plan by which she
intends to retain her home.” Id. at 323.
the protection from modification pursuant to § 1322(b)(2).
Relying on the “cramdown” provision of the Bankruptcy Code in § 1325(a)(5), the
Bankruptcy Court reasoned that Congress had indicated that all valuations relative to plan
confirmation should “be conducted in the context of the present, rather than the past.” Id. at
322.4 This, however, reads too much into the statute. The relevant portion of § 1325(a)(5)
simply states that the court shall confirm a plan if, “with respect to each allowed secured claim
provided for by the plan[,] . . . the value, as of the effective date of the plan, of property to be
distributed under the plan on account of such claim is not less than the allowed amount of such
claim . . . .” § 1325(a)(5)(B)(ii). As the language of the statute indicates, whether a claim is an
“allowed secured claim” must be determined before the value of the property to be distributed
under the plan is determined. In other words, “§ 1325(a)(5)(B)(ii) merely provides that the size
of a secured claim should be adjusted by a discount factor, but the section presupposes that the
value of the claim has already been fixed.” In re Brager, 39 B.R. 441, 443 (Bankr. E.D. Pa.
1984); accord In re Allen, 240 B.R. 231, 237-38 (Bankr. W.D. Va. 1999) (“[T]he ‘effective date
of the plan’ is applicable not to the valuation of the collateral but rather the valuation of the
property to be distributed to the secured creditor in payment of its ‘allowed secured
claim’ . . . .”).5 This is only logical; because § 1322(b)(2) limits the types of claims that may be
The Bankruptcy Court also relied on In re SW Hotel Venture, LLC, 460 B.R. 4 (Bankr. D. Mass. 2011).
However, the court in SW Hotel Venture merely concluded that, pursuant to the plain language of § 506(a)(1), courts
should apply a flexible approach to valuation, considering, among other things, the purpose that valuation would
serve. The SW Hotel Venture court then found that the petition date was not the appropriate where the purpose of
the valuation was to determine whether a secured creditor was entitled to postpetition interest and fees under Chapter
11. Id. at 26.
This is consistent with the analysis in In re Pires, 2011 Bankr. LEXIS 4259 (D. Mass. Nov. 7, 2011).
There, the court described the various options for treatment of secured claims. In describing the method at issue
here, the court presupposed that the secured status of the claim has been established before conducting a valuation
for purposes of § 1325(a)(5)(B)(ii). Specifically, the court stated:
modified through bankruptcy plans before determining how the property should be treated under
such a plan (that is, before determining how the claim should be modified), the Court must first
determine whether the claim is protected by § 1322(b)(2) (that is, whether it may be modified at
all). See In re Pires, 2011 Bankr. LEXIS 4259, at *12-*13 (D. Mass. Nov. 7, 2011).
The Bankruptcy Court’s apparent conclusion that the purpose of the valuation was to
determine how to distribute the property under the plan conflates the analysis of whether a
creditor holds a particular type of claim (a claim secured by the debtor’s principal residence)
with a determination of how the value of the property is to be distributed after the nature of the
claim has been established. See In re Benafel, 461 B.R. 581, 587 (B.A.P. 9th Cir. 2011)
(discussing In re Abdelgadir, 455 B.R. at 902). Cf. In re Crain, 243 B.R. 75, 82-83 (Bankr. C.D.
Cal. 1999) (determining that “valuation should occur on or near the time of the chapter 13
confirmation hearing” while distinguishing a case that “utilized the date of the filing of the
petition as the appropriate date for determining the extent of the lender’s collateral for purposes
of § 1322(b)(2) only.”); In re Farmer, 257 B.R. 556, 561-62 (Bankr. D. Mont. 2000) (valuing the
The second option is known as the “modification” or “lien stripping” option and is permitted by 11
U.S.C. § 1322(b)(2) but only as to secured claims other than those “secured only by a security
interest in real property that is the debtor’s principal residence.” 11 U.S.C. § 1322(b)(2). Under a
plan of this kind, the debtor modifies the rights of the secured creditor more extensively by (I)
bifurcating that claim into secured and unsecured claims in accordance with 11 U.S.C. § 506(a),
(ii) paying the unsecured claim a dividend, usually less than 100 percent, through the trustee over
the duration of the plan, which may not exceed five years, (iii) providing that the secured creditor
retains the lien securing its secured claim until the earlier of entry of discharge or payment in full
of the underlying debt as determined under nonbankruptcy law, as required by 11 U.S.C. §
1325(a)(5)(B)(I), and (iv) paying the secured claim—also through the trustee and within the term
of the plan—with a stream of equal monthly payments whose value, as of the effective date of the
plan, is not less than the allowed amount of the secured claim, as required by 11 U.S.C. §
1325(a)(5)(B)(ii) and (iii)(I). For two reasons, this option is seldom used: § 1322(d) requires
payment of the secured claim in full within a period of not more than five years, and few chapter
13 debtors can afford the payments required to accomplish this; and § 1322(b)(2) makes this
option inapplicable to claims secured only by a security interest in real property that is the debtor's
In re Pires, 2011 Bankr. LEXIS 4259, at *12-*13.
collateral as of the petition date for adequate protection purposes, and as of the confirmation date
for purposes of cramdown).6
Of course, the fact that a claim’s status under § 1322(b)(2) must be determined before
confirmation of a bankruptcy plan does not necessarily require the conclusion that the
appropriate valuation date is the petition date. The Court therefore must determine the purpose
of a valuation under § 1322(b)(2). That analysis again begins with the statutory text. Section
1322(b)(2) prohibits the modification of “a claim secured only by a security interest in real
property that is the debtor’s principal residence . . . .” 11 U.S.C. § 1322(b)(2). “A ‘claim’ is a
term of art in a bankruptcy proceeding” that defines a creditor’s right of payment and “arises at
the date of the filing of the petition.” In re Wetherbee, 164 B.R. 212, 215 (Bankr. D.N.H. 1994)
(citations omitted); In re Dean, 319 B.R. 474, 478 (Bankr. E.D. Va. 2004) (“As of [the petition
date] date, creditors’ rights are fixed (as much as possible), the bankruptcy estate is created, and
the value of the debtor’s exemptions is determined.” (quoting In re Johnson, 165 B.R. 524, 528
(Bankr. S.D. Ga. 1994)); In re Boisvert, 156 B.R. 357, 359 (Bankr. D. Mass. 1993) (“[T]he
extent of a creditor’s collateral should be evaluated at the commencement of the case.”); 11
U.S.C. § 101(5)(A) (“The term ‘claim’ means . . . a right to payment, whether . . . secured, or
unsecured.”); accord In re Abdelgadir, 455 B.R. at 903 (“[A] creditor’s right to payment,
whether it later is deemed secured or unsecured depending on the value of the collateral, is fixed
Indeed, the Bankruptcy Court acknowledged that § 1322(b)(2), by prohibiting the bifurcation of certain
secured claims, creates “a certain circularity” to its argument. In re Landry, 462 B.R. at 322. The Bankruptcy Court
nevertheless found it instructive that § 1325(a)(5)(B)(ii) directs that secured claims that can be bifurcated be treated
in accordance with the value of the collateral as of the effective date of the plan. (Id.). However, § 506(a)(1)
requires that courts consider the purpose of the valuation, and, as discussed, the different purposes of valuing the
property for § 1322(b)(2) on the one hand, and for § 1325(a)(5)(B)(ii) on the other, are critical to determining the
appropriate date on which to value the property here.
at the petition date.”). Cf. In re SW Hotel Venture, LLC, 460 B.R. at 23 (“Section 502(b) of the
Bankruptcy Code sets forth the general rule applicable to bankruptcy cases that, subject to
certain exceptions, ‘the court shall determine the amount of [a] claim . . . as of the date of the
filing of the petition, and shall allow such claim in such amount . . . .’” (citation omitted)).
The beginning of the bankruptcy case is the logical point to establish (to the extent
reasonably possible) the debtor’s and creditor’s rights. In re Johnson, 165 B.R. at 528. “The
scheme of Chapter 13 in attempting to accom[m]odate competing goals of financial
rehabilitation for the debtor and preservation of the constitutionally protected, bargained-for
rights of secured creditors is best served by valuing the collateral as of the date of filing.” In re
Dean, 319 B.R. at 478 (quoting In re Johnson, 165 B.R. at 528, and citing cases that adopted In
re Johnson’s reasoning). Additionally, it is highly likely that the value of the collateral will
increase or decrease over the course of the proceeding. Determining the parties’ rights early will
discourage them from improperly delaying or accelerating the proceeding (or using other
improper tactics) to change their substantive legal rights. See In re Dinsmore, 141 B.R. 499,
505-06 (Bankr. W.D. Mich. 1992) (“Looking to the date of filing is proper to discourage
creditors from disclaiming security interests post-petition or attempting other tactics to defeat the
debtor’s ability to modify the treatment of claims.”).
Against this backdrop, a majority of courts, including a majority of courts in this district,
have determined that the petition date is the appropriate date for determining whether the antimodification provision of § 1322(b)(2) applies to a claim. In re Benafel, 461 B.R. at 591 (“[T]he
use of the petition date for determining the anti-modification provision of § 1322(b)(2) is the
clear majority rule.”); see e.g., In re Sarno, 463 B.R. at 166 (“[T]he proper date for determining
the value of the debtors’ home and whether [creditor’s] claim is secured by that home is the
petition date . . . .” (citing In re Abdelgadir, 455 B.R. 896, 903)); In re Leigh, 307 B.R. 324, 331
(D. Mass. 2004) (“[T]he relevant time for determining the extent of a secured creditor’s
collateral for § 1322(b)(2) purposes is at the commencement of the case.”); In re Lebrun, 185
B.R. 665, 666 (D. Mass. 1995); In re French, 174 B.R. 1, 7 (Bankr. D. Mass. 1994); In re
Boisvert, 156 B.R. at 359 (“[T]he crucial time for determination as to whether a creditor is
entitled to invoke the protected status of a creditor secured only in residential real estate is the
time of the filing of the petition.” (quoting In re Amerson, 143 B.R. 413, 416 (Bankr. S.D. Miss.
The Bankruptcy Court’s analysis makes sense insofar as the purpose of the valuation is to
determine how the property should be distributed under Debtor’s Chapter 13 plan. It is only
logical, after all, that when distributing an asset through a bankruptcy plan that the current value
of that asset be used. See, e.g., In re King, 2003 Bankr. LEXIS 1133, *6-*7 (E.D. Pa. Sept. 2,
Several of these courts, including the court in Benafel, were deciding the slightly different question of the
appropriate time to determine whether the property is the debtor’s principal residence for purposes of § 1322(b)(2).
However, as discussed, in order for a creditor to take advantage of the protections of § 1322(b)(2), its claim must be
(1) secured by a security interest in (2) the debtor’s principal residence. When conducting this analysis, courts first
must establish that the property is the debtor’s principal residence, then determine (pursuant to § 506(a)(1)) whether
it is securing the creditor’s claim. Thus, by holding that the petition date is the operative date to determine the
applicability of § 1322(b)(2), these courts implicitly held (or at least assumed) that the value of the property must
also be determined on the petition date. See Benafel, 461 B.R. at 590 (“Therefore, only if a claim is secured by the
debtor’s principal residence at the time of the bankruptcy petition is the debtor prohibited from modifying the
creditor’s interest under the plain language of [§ 1322(b)(2)].” (emphasis added) (quoting In re Wetherbee, 164 B.R.
Moreover, it would be illogical to determine whether the property is the debtor’s principal residence for
purposes of § 1322(b)(2) on the petition date, but to determine the value of the property (which may often be related
to the use of the property) at a different date. For example, suppose a debtor used the property as his principal
residence on the petition filing date; then, prior to the effective date of the plan, stopped living there (perhaps due to
financial hardship), as a result of which the property began to deteriorate and declined in value. Or suppose the
debtor moved out and rented the property to tenants who improved the property and increased its value. It would be
incongruous to conclude that the operative date for determining each prong of the § 1322(b)(2) analysis would be
different, especially in light of the relationship between those two prongs. Such an approach would not only be
illogical, but it would allow for the possibility of gamesmanship. Cf. In re Dinsmore, 141 B.R. at 505-06.
2003) (“[T]he majority of cases addressing valuation of collateral in the cram down context
adopt the  position . . . that collateral should be valued as of or near the confirmation date.”).
However, as discussed, before conducting a valuation for the purpose of distributing the property
through the plan, the property must first be valued to determine whether the claim is entitled to
certain statutory protections. “The value of the bank’s claim, whether it is secured or unsecured,
is a distinct issue from whether [its] claim is secured by the Debtor’s principal residence.” In re
Abdelgadir, 455 B.R. at 902. These distinct issues serve a different purpose in the Bankruptcy
Code, and each valuation must be conducted in light of those purposes. “Evaluating the
character of a creditor’s security as of the date of filing . . . accords with the specific statutory
purpose of § 1322(b)(2).” In re Dinsmore, 141 B.R. at 506. Cf. In re Mann, 249 B.R. at 838
(“[F]or the purpose of determining exemptions, valuations should be fixed and not be made
subject to later determinations.” (citing In re Snyder, 249 B.R. 40 (B.A.P. 1st Cir. 2000)).
Accordingly, where, as here, the purpose of the valuation is to determine whether the
bank’s claim is entitled to the protection of § 1322(b)(2) (and therefore, whether the bank is
entitled to relief from the automatic stay), that valuation must take place as of the date the
petition was filed.
For the foregoing reasons, the Order of the Bankruptcy Court dated December 14, 2011,
is REVERSED. This matter is referred to the Bankruptcy Court for further proceedings
consistent with this opinion.
/s/ F. Dennis Saylor
F. Dennis Saylor IV
United States District Judge
Dated: September 17, 2012