by In a resounding victory for Chapter 13 consumer debtors, the U.S. Court of Appeals for the Ninth Circuit affirmed that a debtor may bifurcate and “cram down” a junior mortgage claim—even when the loan is secured solely by the debtor’s principal residence—so long as the loan matures during the plan term. The opinion in Mission Hen, LLC v. Lee reinforces the flexibility and protective power of Chapter 13 and clarifies an important exception to the Bankruptcy Code’s anti-modification provision.
This favorable ruling follows a strong showing of advocacy by the National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA), who filed an amicus brief supporting the debtors, Jason Lee and Janice Chen.
The Legal Dispute: Can Short-Term Mortgages on Principal Residences Be Crammed Down?
The debtors proposed a Chapter 13 plan that bifurcated a junior mortgage held by Mission Hen, treating the unsecured portion separately. Mission Hen objected, arguing the plan violated the anti-modification rule under § 1322(b)(2), which bars modification of claims secured only by a debtor’s principal residence. The creditor also claimed the debtors were ineligible for Chapter 13 and that the plan was not feasible.
All three objections were rejected.
The Ninth Circuit confirmed that § 1322(c)(2)—a little-lit but critical carveout—permits modification of claims when the final payment on a mortgage is due before the Chapter 13 plan ends. Citing the statute’s plain language and a growing consensus among other circuits, the court concluded this provision allows not just for payment schedule tweaks, but for bifurcation of the claim itself. As the court noted, this reading is especially appropriate where the mortgage matures during the plan, placing it squarely within § 1322(c)(2)’s intended scope.
Amicus Advocacy: Clearing the Fog Around § 1322(c)(2)
NCBRC and NACBA’s joint amicus brief was instrumental in reframing the law. The brief:
- Emphasized that Congress created § 1322(c)(2) to provide flexibility for short-term, high-cost mortgages that often burden working-class families.
- Underscored the absurdity of allowing only payment-term modification but not bifurcation—especially when the latter is necessary to make a plan feasible.
- Showed how other circuits, including the Fourth and Eleventh, have correctly interpreted § 1322(c)(2) to permit cramdowns.
Their advocacy helped the Ninth Circuit align with this broader, more debtor-friendly reading—ensuring Chapter 13 remains a viable path for families trying to keep their homes.
Why It Matters for Debtors and Practitioners
This decision carries wide-ranging implications:
- Validates the use of cramdowns for maturing home loans—a critical tool for affordable plan structuring.
- Strengthens judicial recognition of § 1322(c)(2) as a real exception, not a paper tiger.
- Reaffirms the importance of court-determined valuations in assessing eligibility and plan feasibility.
- Bolsters debtor protections in circuits that had yet to weigh in on this statutory provision.
The Big Picture
The Lee decision is another powerful reminder of how strategic litigation and amicus advocacy protect consumer rights. NCBRC and NACBA continue to ensure that bankruptcy courts do not become blind enforcers of creditor preferences, but remain venues for meaningful financial rehabilitation.
As the housing and debt landscapes evolve, rulings like this one are crucial for preserving Chapter 13’s mission: giving debtors a fair shot at stability and a future.