Nobelman v. American Sav. Bank

Nobelman v. American Sav. Bank

Opinion

 [*325]  [***233]  [**2108]    JUSTICE THOMAS delivered the opinion of the Court.

 This case focuses on the interplay between two provisions of the Bankruptcy Code. The question is whether § 1322(b)(2) prohibits a Chapter 13 debtor from relying on § 506(a) to reduce an undersecured homestead mortgage to  [*326]  the fair market value of the mortgaged residence. We conclude that it does and therefore affirm the judgment of the Court of Appeals.

In 1984, respondent American Savings Bank loaned petitioners Leonard and Harriet Nobelman $ 68,250 for the purchase of their principal residence, a condominium in Dallas, Texas. In exchange, petitioners executed an adjustable rate note payable to the bank and secured by a deed of trust on the residence. In 1990, after falling behind in their mortgage payments, petitioners sought relief under Chapter 13 of the Bankruptcy Code. The bank filed a proof of claim with the Bankruptcy Court for $ 71,335 in principal, interest, and fees [****6]  owed on the note. Petitioners' modified Chapter 13 plan valued the residence at a mere $ 23,500 -- an uncontroverted valuation -- and proposed to make payments pursuant to the mortgage contract only up to that amount (plus prepetition arrearages). Relying on § 506(a) of the Bankruptcy Code, ² petitioners proposed to treat  [**2109]  the remainder of the bank's claim as unsecured. Under the plan, unsecured creditors would receive nothing.

 [****7]  The bank and the Chapter 13 trustee, also a respondent here, objected to petitioners' plan. They argued that the proposed bifurcation of the bank's claim into a secured claim for $ 23,500 and an effectively worthless unsecured claim modified the bank's rights as a homestead mortgagee, in violation  [*327]  of 11 U.S.C. § 1322(b)(2). The Bankruptcy Court agreed with respondents and denied confirmation of the plan. The District Court affirmed, In re Nobelman, 129 B.R. 98 (ND Tex. 1991), as did the Court of Appeals, 968 F.2d 483 (CA5 1992). We granted certiorari to resolve a conflict among the Courts of Appeals. ³ 506 U.S. 1020 (1992).

 [****8]  II

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