Gregory S. Palmer and Christina M. Palmer

The parties stipulated to several extensions of the deadlines for the filing of the1
post-hearing written submissions.
Ms. Palmer is the sole owner of her residential real property (“the Property”)2
where she resides with her co-debtor spouse.
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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF PENNSYLVANIA
IN RE: 	GREGORY PALMER 	: 	Chapter 13
CHRISTINA PALMER 	:
Debtor(s) 	: 	Bky. No. 06-14641ELF
O R D E R
AND NOW, upon consideration of the Motion for Relief from the Automatic Stay (“the
Motion”) filed by The Bank of New York (“BONY”);
AND, the Debtors having filed a written response to the Motion;
AND, after an evidentiary hearing on the Motion held and concluded on April 26, 2007;
AND, the parties having submitted post-hearing written submissions, the last of which
was filed on August 24, 2007; 1
Background
AND, Debtor Christina Palmer (“Ms. Palmer”) being the owner of the residential real
property located at 4945 Chester Creek Road, Brookhaven, PA 19015 (“the Property”);2
AND, the Property being encumbered by a mortgage (“the Mortgage”) resulting from a
mortgage refinance transaction (“the Transaction”) between Ms. Palmer and Ameribanq
Mortgage Group, LLC (“Ameribanq”) (BONY’s predecessor-in-interest) that took place on
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The loan documents in the Transaction refer to an initial monthly payment of3
$1,790.00 for repayment of principal and interest on the loan. This monthly payment amount
does not include an escrow component for real estate taxes and insurance. Presumably, the
addition of an escrow component increased the monthly payment from $1,790.00 to
approximately $2,300.00. By comparison,, I understood Ms. Palmer’s testimony to be that the
$1,400.00 per month payment under her prior mortgage included an escrow component, although
the record is not crystal clear on this point. Thus, the Transaction increased Ms. Palmer’s
monthly mortgage payment by approximately $900.00.
It appears that Countrywide has been either a holder or servicer of the Mortgage4
throughout much of the time period since the consummation of the Transaction.
Ms. Palmer also asserted: (1) a claim for the statutory civil penalty of $2,000.005
under TILA; (2) a claim under the federal Equal Credit Opportunity Act, 15 U.S.C. §§1691 et
seq.; and (3) the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§
201-1 et seq.
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October 6, 2004;
AND, as a result of the Transaction, Ms. Palmer’s monthly mortgage payment having
increased from approximately $1,400.00 per month to $2,300.00 per month, subject to further3
increases under the adjustable interest rate terms of the Mortgage;
AND, BONY being the current holder of the Mortgage on the Property;
the District Court Action
AND, on April 28, 2005, less than seven (7) months after the Transaction, Ms. Palmer
having filed a lawsuit against Ameribanq and Countrywide Home Loans (“Countrywide”) in the4
U.S. District Court (“the District Court Action”);
AND, in the District Court Action, Ms. Palmer having asserted, inter alia, a claim for
rescission of the Mortgage under the federal Truth-in-Lending Act, 15 U.S.C. §§1601 et seq.
(“TILA”); 5
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Countrywide filed an answer to the complaint rather than a motion to dismiss.6
BONY, acting through its servicer (Countrywide), has filed a proof of claim7
stating that it holds a secured claim of $248,417.32 and that the prepetition arrearage on the
Mortgage is $33,626.72. The attached itemization of the prepetition arrears states that the
Mortgage is delinquent back to October 2005.
Presumably, the Complaint in the State Court Action had not been served before8
the bankruptcy case was commenced and therefore, it is probable that the Debtors were unaware
of the existence of the State Court Action when they filed the bankruptcy case.
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AND, a motion to dismiss the complaint having been filed by Ameribanq in the District
Court Action on July 1, 2005; 6
AND, the District Court not yet having ruled on the motion to dismiss filed in the District
Court Action;
AND, it appearing that Ms. Palmer ceased making regular monthly mortgage payments in
repayment of the Mortgage in or about October 2005; 7
the District Court Action and this Bankruptcy Case
AND, BONY having commenced an action in mortgage foreclosure against Ms. Palmer
on October 10, 2006 in the Court of Common Pleas, Delaware County (“the State Court
Action”);
AND, the State Court Action having progressed no further than the filing of the
complaint because the next day, on October 11, 2006, the Debtors commenced this bankruptcy
case by filing a voluntary petition under chapter 7 of the Bankruptcy Code; 8
AND, on October 27, 2006, the Debtors having filed a motion to convert the bankruptcy
case from chapter 7 to chapter 13 (“the Motion to Convert”);
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In the Motion, BONY did not state specifically whether its was seeking relief9
under §362(d)(1) or (d)(2) or both. It stated only that it has “cause” for termination of the
automatic stay. 	From this, I infer that BONY seeks relief only under §362(d)(1), which provides
for relief from the automatic stay “for cause, including the lack of adequate protection of an
interest in property.” BONY’s primary argument at the hearing was consistent with my
interpretation of the Motion as a §362(d)(1) motion. BONY made no argument at the hearing on
the issue that the Property is necessary to an effective reorganization. BONY’s primary
contention was that there is cause for relief from stay because, as of the hearing date, no
postpetition contractual payments had been made and BONY lacked adequate protection. See
N.T. 8. These arguments are traditional §362(d)(1) arguments.
-4-
AND, the Motion to Convert not having been contested and having been granted by
Order dated November 1, 2006;
the Motion to Transfer the District Court Action to this Court
AND, on October 30, 2006, Ms. Palmer having filed a motion in the District Court
Action, requesting that it be transferred to this court;
AND, the District Court not yet having ruled on the motion to transfer the District Court
Action to the bankruptcy court;
the Motion
AND, the Motion having been filed on January 22, 2007;
AND, BONY asserting that Ms. Palmer’s failure to pay the postpetition monthly
instalments contractually falling due constitutes “cause” for granting relief from the automatic
stay under 11 U.S.C. §362(d)(1);9
AND, a postpetition default in mortgage payments meeting a secured creditor’s burden of
production in prosecuting a motion for relief from the automatic stay under 11 U.S.C.
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See In re Dupell, 235 B.R. 783 (Bankr. E.D. Pa. 1999)(citing In re Skipworth, 6910
B.R. 526 (Bankr. E.D. Pa. 1987); In re Wright, Egan & Associates, 60 B.R. 806 (Bankr. E.D. Pa.
1986); In re Keays, 36 B.R. 1016 (Bankr. E.D. Pa. 1984)).
Debtors’ Answer to Motion of Bank of New York for Relief from the Automatic11
Stay ¶6 (Docket Entry No. 48).
Both parties viewed the merits of the TILA rescission claim as relevant in this12
court’s determination whether there is “cause” for granting relief from the automatic stay under
§362(d)(1). Ms. Palmer believes that the court should treat the District Court Action as the
functional equivalent to an objection to BONY’s proof of claim. She expects the TILA litigation
to be successful, resulting in: (1) the Mortgage being determined invalid and (2) her personal
liability for the loan given in the Transaction being adjusted in a manner that permits her to
protect her residence. Thus, Ms. Palmer contends that due to her reasonable likelihood of
success in the TILA litigation, BONY lacks “cause” for relief from the automatic stay. BONY
posits that, even if Ms. Palmer were to provide adequate protection during the pendency of the
District Court Action, maintaining the stay is pointless because Ms. Palmer’s TILA rescission
claim is patently without merit.
As explained below, in order to decide the Motion, I find it unnecessary to opine
on the merits of the TILA rescission claim. See nn.17-18, 21 & accompanying text.
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§362(d)(1);10
AND, Ms. Palmer defending against the Motion on the ground that BONY does not hold
a valid mortgage due to her rescission of the mortgage under TILA as set forth in her complaint
in the District Court Action; 11
the Hearing on the Motion and the Interim Order
AND, an evidentiary hearing on the Motion having been held on April 26, 2007;
AND, at the hearing, Ms. Palmer and BONY having introduced evidence relating to the
TILA rescission claim pending in the District Court Action, so as to permit this court to make a
preliminary assessment regarding the merits of Ms. Palmer’s TILA rescission claim; 12
AND, by Interim Order dated April 27, 2007, pending its ruling on the Motion, the court
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See 11 U.S.C. §1325(a)(5)(B); In re Bryant, 323 B.R. 635, 645 (Bankr. E.D. Pa.13
2005); see generally Till v. SCS Credit Corp., 541 U.S. 465, 468-469, 124 S.Ct. 1951, 1955
(2004) (discussing the methodology for determining the present value of a secured claim being
paid in full through a stream of plan payments).
See 11 U.S.C. §1322(b)(5); Sapos v. Provident Institution of Savings, 967 F.2d14
918, 922 (3d Cir. 1992) (referring to §1322(b)(5) as a “cure and maintain” alternative to full
payment of a secured claim), overruled on other grounds, Nobelman v. American Savings Bank
508 U..S. 324, 113 S.Ct. 2106 (1993) ; see generally 2 Keith M. Lundin, Chapter 13 Bankruptcy
¶101.1 (3d ed. 2004).
See 11 U.S.C. §1325(a)(5)(C).15
See In re Waldman, 75 B.R. 1005 (Bankr. E.D. Pa. 1987); 8 Collier on16
Bankruptcy ¶1322.06[1][a] (15 	rev. ed. 2006); see generally 	Lellock v. Prudential Ins. Co. ofth
America, 811 F.2d 186 (3d Cir. 1987) (even though underlying debt is discharged, lien created by
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having conditioned the maintenance of the automatic stay on Ms. Palmer providing BONY
adequate protection of its interest in the Property in the form of:
A. monthly payments to BONY of $1,669.00 per month,
B. payment of all real estate taxes as they fall due, and
C. maintenance of property insurance on the Property;
the Debtors’ Treatment of BONY’s Claim in their Proposed Chapter 13 Plan
AND, a chapter 13 debtor generally having four (4) options in treating a secured claim in
a chapter 13 case:
(1) providing for full payment of the claim; 13
(2) providing for a “cure” of the prepetition delinquency; 14
(3) surrendering the secured property to the secured creditor; 	and15
(4) “not providing for” the secured claim at all, in which case the claim and the
lien pass through the bankruptcy case unaffected; 16
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the debt is not affected by the discharge order); Matter of Tarnow, 749 F.2d 464 (7 	Cir. 1984)th
(a creditor’s lien is not affected by the bankruptcy discharge, unless the lien is modified during
the case pursuant to a specific Code provision, such as 11 U.S.C. §§522(f) or 1322(b)(2)).
Paragraph 3 of the amended plan says nothing more than that the Debtors wish to17
litigate the amount of BONY’s claim and that no plan can be confirmed until the amount of the
claim is judicially determined. It may be true that a plan proposing to treat a claim cannot be
confirmed until litigation regarding the validity, status or amount the claim is concluded.
However, the plan must still state what the proposed treatment would be after the debtor
succeeds in the claims litigation. In this case, the Debtors’ amended plan does not propose to
employ any rehabilitation provision of chapter 13 that I recognize to treat BONY’s claim after
the allowed amount is determined. This is not surprising. Given the original principal amount of
the loan in the Transaction ($217,600.00), Ms. Palmer will likely still owe BONY a considerable
amount even if she achieves a successful outcome in the District Court Action. Her remaining
liability will likely exceed any amount that she could pay off in the five (5) year term permitted
under chapter 13.
The reality is that Ms. Palmer is not proposing a plan that invokes any chapter 13 tool for
adjustment of her debt relationship with BONY. Rather, Ms. Palmer expects to resolve her
mortgage problem through a successful litigation outcome under applicable nonbankruptcy law
(i.e., the consumer protection statutes that she has invoked in the District Court Action). Her
rehabilitation theory is premised on the expectation that the District Court Action will result in
either: (1) BONY agreeing to recast the Mortgage (and forgive the prepetition arrears) or (2) the
District Court providing her an extended period of time in which to tender the loan principal
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AND, paragraph 3 of the Debtors’ amended chapter 13 plan providing, in pertinent part:
The Wife-Debtor has rescinded her loan presently owned by [BONY], but which
is serviced by with [sic] Countrywide . . . the first mortgage on the home owned
by her . . . . She has filed a lawsuit in federal District Court to enforce their [sic]
rescission rights . . . and has moved the District Court to refer the action to this
court for determination. In this action, the Debtor is in effect attacking the proof
of claim filed in this case by Countrywide. It is believed that the decision in this
action will for the most part determine the validity of the proof of claim of
Countrywide, and therefore a decision in this case must precede confirmation of
the Debtor’s [sic] plan. In the interim, the Debtor will make mortgage payments
of $1668/month, plus maintain insurance and tax payments, pending confirmation.
See Docket Entry No. 63 (emphasis added);
AND, the court concluding that the Debtors’ amended chapter 13 plan does not provide
for BONY’s claim;17
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following enforcement of her TILA rescission, see In re Sterten, 352 B.R. 380 (Bankr. E.D.
Pa.2006). While this may be an excellent strategy, it does not constitute providing for BONY
through the Debtors’ chapter 13 plan.
The Debtors’ initial chapter 13 plan provided for plan payments totaling only18
$540.00 over three (3) years. It is obvious that after payment of the Chapter 13 Trustee’s
commission and compensation to the Debtors’ counsel under 11 U.S.C. §330, the initial plan
would have provided virtually no distribution to unsecured creditors. The Debtors’ amended
chapter 13 plan increased the aggregate plan payment to $3,510.00 over three (3) years.
However, this increase may have been motivated by the filing of an unscheduled (and probably
unanticipated) priority tax claim filed by the Pennsylvania Department of Revenue in the amount
of $1,300.83 and increased counsel fees arising from the services provided by the Debtors’
attorney in contesting the Motion. Even with the increased plan funding, the Debtors’ proposed
plan will provide virtually no distribution to unsecured creditors. As Chief Judge Sigmund
observed in a related context, while the Debtors apparently need bankruptcy relief, “it is to
discharge debts, not reorganize.” In re Wile, 304 B.R. 98, 208 (Bankr. E.D. Pa. 2004).
See 8 Collier on Bankruptcy ¶1325.06[1][b] (15 	rev. ed. 2007); In re Hogan, 34619 	th
B.R. 715, 723 (Bankr. N.D Tex. 2006) (in context of case in which secured creditor did not file a
proof of claim, stating principle that chapter 13 debtor cannot remain in possession of a secured
creditor's collateral during the pendency of its plan where the debtor's plan makes no provision
the claim); In re Vincente, 260 B.R. 354, 357-58 (Bankr. E.D. Pa. 2001) (in context of
considering motion to dismiss case, stating principle that secured creditor that is not provided for
by the debtor’s plan is entitled to stay relief); 	In re Evans, 66 B.R. 506, 510 (Bankr. E.D.
Pa.1986), aff'd, 77 B.R. 457 (E.D. Pa. 1987) (same principle stated in context of objection to
confirmation).
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the Granting of the Motion
AND, it appearing that there is no substantial rehabilitative purpose to this bankruptcy
case, other than to obtain a bankruptcy stay of the State Court Action; 18
AND, as a general principle, a secured creditor whose claim is not provided for in a
chapter 13 plan is entitled to relief from the automatic stay under §362(d)(1) to pursue its
collateral or its contractual remedies against the chapter 13 debtor; 19
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See In re Chedick, 1996 WL 762329 (Bankr. D.D.C. March 22, 1996). In20
Cheddick, a decision that the court characterized as the exception to the ordinary rule, the court
denied relief from the automatic stay to a secured creditor whose claim was not provided for in
confirmed plan because: (a) the confirmed plan stated that the claim would be challenged in
litigation and (b) the debtor demonstrated that the secured creditor was adequately protected by
an equity cushion. In this case, there is no equity in the Property (although since the entry of the
Interim Order, the Debtors have been making adequate protection payments to BONY). More
importantly, there is no confirmed plan in this case. In this case, rather than accepting the
“outside-of-bankruptcy litigation” treatment proposed by the Debtors’ plan (as the Cheddick
creditor apparently had), BONY has come forward and, by filing the Motion, has, in effect,
objected to the proposed plan treatment.
If Ms. Palmer had proposed to address BONY’s claim through her chapter 1321
plan, her potential for success in the District Court Action may have been relevant in the
determination whether to maintain the stay in place. In a case in which the confirmability of a
plan hinges on the outcome of litigation that will determine the allowability and amount of a
secured claim, the merits of the litigation may be relevant in deciding whether the automatic stay
should remain in effect, especially if the claim dispute is being determined in a nonbankruptcy
forum. In such a case, the existence or non-existence of adequate protection also may be
significant.
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AND, absent unusual circumstances not present here, 	the presumptive right of a secured20
creditor not provided for by a debtor’s chapter 13 plan to pursue its claims under applicable
nonbankruptcy law making it unnecessary for the court to make any preliminary finding as to the
merits of Ms. Palmer’s TILA rescission claim; 21
AND, although there have been delays in the resolution of Ms. Palmer’ claims in the
District Court Action, it appears that she will suffer no prejudice if relief from the automatic stay
is granted because she can assert her TILA rescission claim as a defense in the State Court Action
and, if necessary, seek a stay of the State Court Action from the District Court;
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It is hereby ORDERED that:
1. 	The Motion is GRANTED.
2. 	The automatic stay is MODIFIED to permit BONY to exercise its rights and remedies under
applicable nonbankruptcy law to seek foreclosure and possession of the property located at
495 Chester Creek Road, Brookhaven, PA 19015.
Date: 	November 14, 2007
ERIC L. FRANK
U.S. BANKRUPTCY JUDGE
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