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The U.S. District Court in Boston has upheld a bankruptcy decision that prevents the Massachusetts Housing Finance Agency from claiming more money from a Boston couple’s bankruptcy plan because the value of their home soared in the city’s lucrative housing market. In the case, Massachusetts Housing Finance Agency v. Evora, No. 99-12669-WGY, the finance agency argued that a lump-sum payment Oteldino and Marie Evora had made to pay the agency’s $80,000 secured claim amounted to a modification of the Chapter 13 bankruptcy plan filed by the couple in 1997. The couple was able to pay off the claim with a large payment because two years after the plan was filed, the value of their house nearly doubled. When their motion to refinance their home was presented to the bankruptcy court and they proposed to pay the obligations of their Chapter 13 plan, the U.S. district court ruled, it was not in violation of the Bankruptcy Code. In the Nov. 13 ruling, Chief Judge William G. Young agreed with the March decision by U.S. Bankruptcy Court Judge Joan N. Feeney that although a bankruptcy plan may be modified to increase or reduce the amount of payments, it cannot be changed as to the amount of a creditor’s secured claim. “The courts that have addressed this issue have held that appreciation does not alter the amount of the secured claims,” stated Judge Young, citing Ford Motor Credit Co. v. Stevens, 130 F.3d 1027, 1029 (11th Cir. 1997). “Both debtors and creditors are bound by the amount of allowed secured claims set forth in the plan. Just as debtors must shoulder the loss associated with depreciation, so must creditors assume the loss accompanying appreciation. To hold otherwise would provide no finality to a confirmed [bankruptcy] plan and would subject both creditors and debtors to the whims of the market,” Judge Young explained in the decision. “The code does not provide a second bite at the apple.” The Evoras’ counsel, Pamela Smith Holleman of Boston’s Sullivan & Worcester, says that the case “really does establish as a precedent that secured creditors are not able to take appreciation on collateral.” Her firm took the case pro bono because, Holleman says, “the Evoras are the kind of people the Bankruptcy Code was set up to protect.” Her opposing counsel, Deirdre Keady of the Harmon Law Offices in Newton, says that she was disappointed but not surprised by the outcome. “If this had been an unsecured claim, it might have been a different result,” says Keady, noting the effect of Boston’s skyrocketing housing market. Real estate in this area “has created a detriment to creditors.” Judge Young noted the “red hot housing market that has gripped the Boston area,” and acknowledged that the focus of the finance agency’s claim is “to reflect the rapid appreciation of a home in which it has a security interest.” He wrote further, that “The finance agency relies on the one-time lump-sum payment to support its assertion that the [Evoras' refinancing] motion was a modification. [11 U.S.C.] 1329 allows a plan to be modified to ‘extend or reduce the time for � payments.’ Because the Evoras sought to accelerate the payments that were to be made, they were modifying the plan. Or so the argument goes�. There is nothing in the language of the Bankruptcy Code to suggest that a one-time payment requires formal modification. The finance agency presents no case law to support its interpretation of the statute.” On the other hand, case law indicates that the same Sec. 1329 of the code “does not state that the plan may be modified to increase or reduce the amount of the secured claim,” states Judge Young, citing Chrysler Financial Corp. v. Nolan, 234 B.R. 390, 395-96 (M.D. Tenn. 1999) and Taras v. Commonwealth Mortgage Corp. of America, 136 B.R. 941, 949 (Bankr. E.D. Pa. 1992).

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