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42 Residential mortgages receive preferred treatment in Chapter 13 cases—the "anti-modification" provisions of the Bankruptcy Code generally prevent a debtor from modifying claims secured only by the debtor's residence, even when the property is "underwater." But what if the residential mortgage obligation matures prior to or during the pendency of the case and the value of the property is less than the debt? e Fourth Circuit Court of Appeals (Maryland, Virginia, West Virginia, North Carolina, and South Carolina) has recently aligned itself with the Eleventh (Alabama, Georgia, and Florida) and Sixth (Kentucky, Michigan, Ohio, and Tennessee) Circuits to clearly establish that these unfortunate lienholders have drawn the short end of the stick. Indeed, all circuit courts that have considered the issue are in agreement. e anti-modification prohibition of Chapter 13 in Section 1322(b)(2) of the Code provides that "subject to subsections (a) and (c) of this section, the plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence. is Code section seems to be a straightforward prohibition against residential mortgage modification. us, for "long-term" mortgage debt—a secured obligation which by its terms extends beyond the duration of the case—the debtor may not modify the loan and must continue making ongoing mortgage payment and cure any pre-petition arrearage owed on the loan during the pendency of the case. In addition, undersecured long-term junior liens secured only the debtor's principal residence must be cured and paid through the bankruptcy, provided there is any equity above the first lien. However, there is an anti-modification exception found in Section 1322(c)(2): "notwithstanding subsection (b)(2) 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." Section 1325(a)(5) then provides that "the court shall confirm a plan if (5) with respect to each allowed secured claim provided for by the plan (ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim." Courts have struggled with the apparent inconsistency between these two inter- related Code sections. Can the debtor only modify the payment terms, as suggested by Section 1322(c)(2)? Or can the debt be crammed down to value, as provided in Section 1325(a)(5)? The Fourth Circuit Court of Appeals has joined the Sixth and AN EXCEPTION TO CHAPTER 13 ANTI- MODIFICATION Legal Industry Update NATIONAL FOCUS By: Mark Baker and Anne Marie Throne

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