Argued: March 20, 2019
from the United States District Court for the Eastern
District of North Carolina, at Wilmington. Louise Flanagan,
District Judge. (7:17-cv-00169-FL)
Richard Preston Cook, RICHARD P. COOK, PLLC, Wilmington,
North Carolina, for Appellant.
O. Carter, CARTER & CARTER, P.A., Wilmington, North
Carolina, for Appellee.
GREGORY, Chief Judge, and WILKINSON, NIEMEYER, MOTZ, KING,
AGEE, KEENAN, WYNN, DIAZ, FLOYD, THACKER, HARRIS, RICHARDSON,
and QUATTLEBAUM, Circuit Judges.
bankruptcy case, we are asked to overrule a
twenty-two-year-old decision of this Court holding that
Chapter 13 debtors may not bifurcate a narrow subset of
undersecured home mortgage loans into separate secured and
unsecured claims and "cram down" the unsecured
portion of such loans. See Witt v. United Cos. Lending
Corp. (In re Witt), 113 F.3d 508 (4th Cir.
1997). As explained further below, we now align our circuit
with every other court that has considered this issue to hold
that the plain text of 11 U.S.C. § 1322(c)(2) authorizes
modification of such claims, not just the payment schedule
for such claims, including through bifurcation and cram down.
See, e.g., Am. Gen. Fin., Inc. v. Paschen
(In re Paschen), 296 F.3d 1203, 1209 (11th Cir.
2002); First Union Mortg. Corp. v. Eubanks (In
re Eubanks), 219 B.R. 468, 471-73 (B.A.P. 6th Cir.
1998). Accordingly, we overrule our decision in
facts material to this appeal are not in dispute. In May
2004, debtor Larry Albert Hurlburt purchased real property
located at 130 South Navassa Road, Leland, North Carolina
(the "Property"), from Juliet J. Black for $136,
000. Hurlburt paid Black $5, 000 in cash at closing. Black
financed the remaining $131, 000 of the purchase price
through a promissory note executed by Hurlburt in Black's
favor, which note was secured by a purchase-money deed of
trust naming Black as beneficiary. Under the mortgage
agreement between Hurlburt and Black, the $131, 000 principal
accrued interest at 6% per annum, payable over 119 months in
installments of $785.41, with a balloon payment of all
remaining principal and accrued interest due on May 26, 2014.
In the event of default, interest on the balance would begin
to accrue at a rate of 8% per annum. Hurlburt used the
property as his primary residence from the purchase date
until the present day.
failed to pay the balance owed upon maturation of the loan.
On January 29, 2016, Black initiated a foreclosure action in
Brunswick County, North Carolina, claiming Hurlburt owed her
approximately $136, 000 under the mortgage. On April 13,
2016, Hurlburt filed a petition for relief under Chapter 13
of the Bankruptcy Code in the Bankruptcy Court for the
Eastern District of North Carolina, which petition stayed
Black's foreclosure action. In his petition, Hurlburt
valued the Property at $40, 000. That same day, Hurlburt
brought an adversary proceeding against Black seeking to
quiet title in the Property. On June 13, 2016, Black filed a
proof of claim totaling $131, 000, comprising a $40, 000
secured claim and a $91, 000 unsecured claim. The next day,
Black filed an amended proof of claim totaling $180,
971.72 but declined to identify the amount of the
claim that was secured or unsecured as she "[did] not
know the value of the collateral." J.A. 88. Hurlburt
filed an objection to Black's proof of claim.
24, 2016, Hurlburt filed an amended complaint in the
adversary proceeding seeking to acquire quiet title or avoid
the deed of trust, while maintaining his statutory objection
to Black's claim. Approximately six months later, the
bankruptcy court granted partial summary judgment in favor of
Black, finding the deed of trust was valid. See Hurlburt
v. Black (In re Hurlburt), No.
16-00031-5-SWH-AP, 2016 WL 7076980, at *3 (Bankr. E.D. N.C.
Dec. 5, 2016).
February 2017, following the bankruptcy court's decision,
Hurlburt filed a proposed Chapter 13 repayment plan, seeking
to bifurcate Black's claim into secured and unsecured
components. Under the proposed plan, Black would hold a fully
secured claim for $41, 132.19, which amount Hurlburt
calculated by subtracting a senior Brunswick County tax lien
totaling $5, 867.81 from the Property's recently
appraised value of $47, 000. The plan proposed treating the
remainder of Black's claim as unsecured, with Black
receiving no payment for that portion of her claim. On
February 23, 2017, Black filed an objection to the amended
plan contending that Witt barred the plan's
proposed modification and bifurcation of her claim and
asserting that she was entitled to a secured claim in the
full amount due under the mortgage agreement, plus interest.
parties filed cross motions for summary judgment. In an
opinion filed June 7, 2017, the bankruptcy court first held
that Hurlburt's plan would "modify" Black's
rights under the note and deed of trust. In reaching that
conclusion, the bankruptcy court first noted that
"whereas the note itself requires repayment of $131, 000
at 6 percent, the proposed plan would require only repayment
of $41, 132.19 at 4.5 percent." Hurlburt v.
Black (In re Hurlburt), 572 B.R. 160, 169
(Bankr. E.D. N.C. 2017). The plan's proposed changes to
the loan principal and interest rate also had the effect of
modifying "what constitutes a default under the
note," the court explained. Id. Having found
that Hurlburt's proposed plan modified Black's rights
under the note and deed of trust, the bankruptcy court
further held that the plan violated 11 U.S.C. § 1322
because, under Witt, that provision barred modifying
claims secured by a security interest on a debtor's
principal residence, like Black's, into secured and
unsecured components. See id. at 170- 71.
district court affirmed the reasoning and judgment of the
bankruptcy court in an opinion and order entered December 19,
2017. Hurlburt v. Black (In re Hurlburt),
No. 7:17-CV-169-FL (E.D. N.C. Dec. 19, 2017). Two days later,
Hurlburt filed a timely Notice of Appeal. A Fourth Circuit
panel affirmed the district court's order in an
unpublished, per curiam opinion issued on August 8, 2018.
Hurlburt v. Black (In re Hurlburt), 733
Fed.Appx. 721 (4th Cir. 2018) (unpublished) (per curiam). On
January 8, 2019, this Court granted Hurlburt's request
for a rehearing en banc, thereby vacating the panel opinion.
Hurlburt v. Black (In re Hurlburt), 747
Fed.Appx. 168 (4th Cir. 2019) (mem.).
appeal requires that we construe several provisions in the
Bankruptcy Code. When construing a statute, we "first
and foremost strive to implement congressional intent by
examining the plain language." Minor v. Bostwick
Labs., Inc., 669 F.3d 428, 434 (4th Cir. 2012) (citation
omitted). "[U]nless otherwise defined, words will be
interpreted as taking their ordinary, contemporary, common
meaning." Kennedy v. St. Joseph's Ministries,
Inc., 657 F.3d 189, 192 (4th Cir. 2011) (citation
omitted). In interpreting the plain language of the statute,
we also look to "the specific context in which the
language is used, and the broader context of the statute as a
whole." Minor, 669 F.3d at 434-35. We review de
novo questions of statutory construction. In re Sunterra
Corp., 361 F.3d 257, 263 (4th Cir. 2004).
enacted the 1978 Bankruptcy Reform Act with the overarching
goal of providing debtors with a "fresh start."
H.R. Rep. No. 95-595, at 118 (1978). Among other changes,
Congress significantly revamped Chapter 13 to better
"facilitate adjustments of the debts of individuals with
regular income through flexible repayment plans funded
primarily from future income." 8 Collier on Bankr. (MB)
¶ 1322.01 (2018). To that end, a debtor seeking relief
under Chapter 13 may file with the bankruptcy court a
proposed plan for repaying claims, like Black's, asserted
against the debtor. See Assocs. Comm. Corp. v. Rash,
520 U.S. 953, 956 (1997). Subject to confirmation by the
court, that plan may "modif[y] the rights of secured and
unsecured creditors." Tidewater Fin. Co. v.
Kenney, 531 F.3d 312, 316 (4th Cir. 2008).
1325 of the Bankruptcy Code sets forth the criteria a
debtor's proposed repayment plan must meet for a
bankruptcy court to confirm the plan. Of particular
relevance, Section 1325(a)(5) provides that a court can
confirm a plan's proposed treatment of a secured claim if
one of three conditions is satisfied: (1) "[t]he secured
creditor accepts the plan," (2) "the debtor
surrenders the property securing the claim to the
creditor," or, as Hurlburt seeks to do here, (3)
"the debtor invokes the so-called 'cram down'
power." Rash, 520 U.S. at 956-57. Under the
cram down option, which is set forth in Section
1325(a)(5)(B), "the debtor is permitted to keep the
property over the objection of the creditor; the creditor
retains the lien securing the claim, . . . and the debtor is
required to provide the creditor with payments, over the life
of the plan, that will total the present value of the
allowed secured claim. . . ." Id. at
957 (emphasis added); see also 11 U.S.C. §
506(a)(1), which governs the value of the allowed secured
claim, 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
Id. § 506(a)(1).
other words, Section 506(a)(1) "provides that a claim is
secured only to the extent of the value of the property on
which the lien is fixed," whereas "the remainder of
that claim is considered unsecured." United States
v. Ron Pair Enters., Inc., 489 U.S. 235, 239 (1989).
Accordingly, when an allowed claim is undersecured-when the
claimed amount exceeds the value of the property securing the
claim-"Section 506(a)(1) requires the bifurcation of the
claim into two components: a secured claim for the value of
the collateral, and an unsecured claim for the balance."
In re Price, 562 F.3d 618, 623 (4th Cir. 2009);
see also In re Young, 199 B.R. 643, 649
(Bankr.E.D.Tenn. 1996) ("Section 506(a) simply governs
the allowance process for the secured status of a claim by
supplying the method or formula for valuation, the result of
which is bifurcation or separation of the secured claim into
its secured and unsecured components."). Once Section
506(a)(1) bifurcates an allowed claim into secured and
unsecured components, Section 1325(a)(5)(B) may then be used
to cram down the bifurcated claim to its secured amount,
effectively "stripping the lien from the portion of the
claim that exceeds that value." In re Young,
199 B.R. at 648.
Bankruptcy Code, however, does not permit bifurcation and
cram down of all undersecured claims. In particular, Section
1322(b)(2) generally prohibits Chapter 13 discharge plans
from "modify[ing] the rights of holders of secured
claims . . . secured only by a security interest in real
property that is the debtor's principal
residence." 11 U.S.C. § 1322(b)(2) (emphasis
added). In Nobelman v. American Savings Bank, 508
U.S. 324 (1993), the Supreme Court held that that, for
purposes of Section 1322(b)(2), a creditor's
"rights" are those "reflected in the relevant
mortgage instruments" and enforceable under state law,
id. at 329-30. Because the rights reflected in
mortgage instruments include the right "to repayment of
the principal . . . over a fixed term at specified . . .
rates of interest," Section 1322(b)(2) "prohibits a
Chapter 13 debtor from relying on § 506(a) to reduce an
undersecured homestead mortgage to the fair market value of
the mortgaged residence." Id. at 325-26, 329.
bankruptcy court and the district court held-and we
agree-that Hurlburt's proposed Chapter 13
"modified" Black's "rights" under the
promissory note and deed of trust. Among other modifications,
the proposed plan reduced the principal due on the loan and
reduced the interest rate at which Hurlburt must repay that
principal, and thereby constrained the circumstances in which
Black can exercise her right to foreclose on the property.
See In re Hurlburt, 572 B.R. at 169-70; see also
Nobelman, 508 U.S. at 329 (recognizing that a
creditor's rights under mortgage instruments may include,
without limitation: the right to repayment of the principal
at a specified interest rate, the right to retain the lien
until the debt is paid off, and the right to proceed against
the debtor's property via foreclosure and public sale);
Anderson v. Hancock, 820 F.3d 670, 675 (4th Cir.
2016) (holding that a debtor's Chapter 13 proposal to
reinstate a 5% pre-default interest rate in lieu of a 7%
interest rate that was triggered by default ran afoul of
§ 1322(b)(2)'s anti-modification provision);
Litton v. Wachovia Bank (In re Litton), 330
F.3d 636, 643-44 (4th Cir. 2003) (holding that Section
"1322(b)(2) prohibits modifications that would alter at
least one fundamental aspect of a claim," including
"lowering monthly payments, converting a variable
interest rate to a fixed interest rate, . . . extending the
repayment term of a note, . . . [altering] the nature and
rate of interest, and [changing] the maturity features of the
the proposed plan modified Black's rights under the loan
documents, the sole issue before this Court is whether
Black's claim falls into the narrow exception to Section
1322(b)(2) set forth in Section 1322(c)(2), which provides:
Notwithstanding subsection (b)(2) and applicable
nonbankruptcy law . . . in a case in which the last payment
on the original payment schedule for a claim secured only by
a security interest in real property that is the debtor's
principal residence is due before the date on which the final
payment under the plan is due, the plan may provide for the
payment of the claim as modified pursuant to section
1325(a)(5) of this title.
11 U.S.C. § 1322(c)(2). The exception set forth in
Section 1322(c)(2), which Congress enacted in 1994,
potentially applies to Black's claim because it (a) is
secured only by a lien on real property that is
Hurlburt's principal residence, and (b) derives from a
loan that matured prior to the final payment due under the
Chapter 13 plan. Because Hurlburt seeks to modify Black's
claim into secured and unsecured components and cram down the
unsecured portion, the key question we must resolve is
whether the phrase "payment of the claim as
modified" authorizes modification of
"claim[s]"-including modification of the loan
principal through bifurcation and cram down-or only
modification of "payment of . . . claim[s]"-by, for
example, permitting debtors to repay the outstanding part of
a debt over the life of a repayment plan, rather than in
accordance with the payment schedule set forth in the
concluded that the meaning of that phrase is ambiguous
because "[i]t cannot be determined, merely from the
statute's text, whether the words 'as modified'
should apply to 'payment' or to
'claim.'" 113 F.3d at 511. In finding ambiguity,
Witt first recognized that "under the 'rule
of the last antecedent,' a phrase"-in this case
"as modified"-generally "should be read to
modify its immediate antecedent"-in this case
"claim"-and therefore that interpreting Section
1322(c)(2) as permitting modification of claims was
"'quite sensible as a matter of grammar.'"
Id. (quoting Nobelman, 508 U.S. at 330).
Nevertheless, Witt held that that reading "is
not compelled" because "the term 'claim' is
part of the phrase 'of the claim,' which modifies
'payment.' It is quite plausible as a matter of
common sense, we believe, that the phrase 'as
modified' also modifies 'payment' and not
'claim.'" Id. In light of this
purported ambiguity, Witt looked to Section
1322(c)(2)'s legislative history and determined that
Congress intended "that only payment may be
modified." Id. at 512.
that other aspects of Section 1322(c)(2)-not highlighted in
Witt- indicate that Congress intended for the
exception to permit modification of "claims," not
just "payment[s]," other courts universally have
criticized Witt's finding of ambiguity and
attendant reliance on the statute's legislative history.
See, e.g., In re Paschen, 296 F.3d at 1209;
In re Eubanks, 219 B.R. at 471-73; In re
Tekavec, 476 B.R. 555, 556, n. 2 (Bankr. E.D. Wis.
2012); Geller v. Grijalva (In re Grijalva),
No. 4:11-bk-25386-EWH, 2012 WL 1110291, at *3-4 (Bankr. D.
Ariz. Apr. 2, 2012); In re Reeves, 221 B.R. 756, 760
(Bankr. C.D. Ill. 1998); In re Mattson, 210 B.R.
157, 158-59 (Bankr. D. Minn. 1997). Commentators have reached
the same conclusion-the plain language of Section 1322(c)(2)
authorizes Chapter 13 plans to modify claims, not just
payment schedules. See Nat'l Bankr. Rev.
Comm'n, Report of the National Bankruptcy Review
Commission 237 (1997) ("[S]ection 1322(c)(2) authorizes
a stripdown of an undersecured residential mortgage if final
payment would become due during the course of the Chapter 13
plan."); 8 Collier on Bankr. (MB) ¶ 1322.17 (2018)
(opining that "the plain language of [§ 1322(c)(2)]
permits the modification of a claim on [a qualifying] home
mortgage through the bifurcation of that claim into secured
and unsecured components, with the unsecured component
crammed down pursuant to section 1325(a)(5)," and
characterizing Witt as a "strained reading of
the language" that runs "contrary to accepted
canons of statutory construction, as well as the great weight
of authority, and inconsistent with other language in the
subsection that specifically referred to section
we do not lightly overrule our precedent, we agree with these
courts and commentators that "the specific context in
which the language is used, and the broader context of the
statute as a whole," Minor, 669 F.3d at 434-35,
establishes that Section 1322(c)(2) is best read to authorize
modification of "claim[s]," not just
"payment[s]," and therefore that a Chapter 13 plan
may bifurcate a claim based on an undersecured homestead
mortgage, the last payment for which is due prior to a
debtor's final payment under a repayment plan, into
secured and unsecured components and cram down the unsecured
reaching this conclusion, we first emphasize-as Witt
acknowledged, 113 F.3d at 511-that the phrase "payment
of the claim as modified" is most naturally read as
permitting the modification of claims, not payments, cf.
In re Paschen, 296 F.3d at 1208 (characterizing
"[t]he Witt court's view that the phrase
'as modified' modifies 'payment,' rather than
'claim'" as "grammatically strained").
To be sure, courts are not bound to adopt the most natural
reading of statutory language. Nonetheless, when, as here,
the most natural reading of statutory language supports a
particular construction of that language, courts should be
wary of adopting an alternative construction.
dissenting opinion maintains that Section 1322(c)(2) is most
naturally read as allowing modification of only payments, not
claims, because the provision uses the term
"payment" "four times," whereas it uses
the term "claim" just once. Post at 30.
But we do not interpret a statute's meaning simply by
tallying up the number of uses of one term and then comparing
that figure to the number of times Congress uses other terms.
And all but one of Congress's four references to
"payment" in Section 1322(c)(2) are used to define
the class of homestead mortgage claims excluded from Section
1322(b)(2)'s reach-those that mature before the final