Bank Northwest v. Lawrence C. Potts, Jr. ( 2010 )


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  •                United States Bankruptcy Appellate Panel
    FOR THE EIGHTH CIRCUIT
    ____________
    No. 09-6053
    ____________
    In re:                                   *
    *
    Lawrence C. Potts, Jr.;                 *
    Opal M. Potts,                          *
    *
    Debtors.                        *
    *
    *
    Bank Northwest,                          *
    * Appeal from the United States
    Creditor - Appellant,           * Bankruptcy Court for the
    * Western District of Missouri
    v.                        *
    *
    Lawrence C. Potts, Jr.;                 *
    Opal M. Potts,                          *
    *
    Debtors - Appellees.            *
    *
    ______
    Submitted: December 18, 2009
    Filed: January 12, 2010
    ______
    Before KRESSEL, Chief Judge, MAHONEY and SALADINO, Bankruptcy
    Judges.
    ______
    SALADINO, Bankruptcy Judge.
    Bank Northwest appeals from an order of the United States Bankruptcy Court
    for the Western District of Missouri1 dated August 19, 2009, overruling Bank
    Northwest’s objections and confirming debtors’ Chapter 13 plan. For the reasons
    stated below, we affirm.
    FACTS AND PROCEDURAL HISTORY
    On March 14, 2007, Lawrence C. Potts, Jr. and Opal M. Potts, husband and
    wife, together with their son, Steven C. Potts, executed a promissory note payable to
    Bank Northwest in the original principal amount of $341,479.03. The note is secured
    by two deeds of trust, each encumbering three tracts of real estate: tract 1 is a 109-
    acre parcel upon which Debtors live; and tracts 2 and 3 collectively make up a 210-
    acre parcel which is grazing and cropland. The note calls for annual payments, with
    the first payment being due on March 14, 2008, with an additional annual payment on
    March 14, 2009, and a third and final lump sum payment due on March 14, 2010, for
    the remaining balance due under the note. Together with interest and fees, the balance
    due under the note is in excess of $480,000.00. The 210-acre parcel was recently
    appraised at a value of $420,000.00. The 109-acre parcel was last appraised in 2006
    at a value of $165,000.00.
    Debtors defaulted on making the payments due to Bank Northwest, and on
    March 31, 2008, the note balance was accelerated. On February 4, 2009, Debtors filed
    this proceeding under Chapter 12 of the United States Bankruptcy Code. On March
    3, 2009, the bankruptcy court granted Debtors’ motion to convert their case from
    Chapter 12 to Chapter 13. Debtors have two primary creditors. BTC Bank is secured
    by a perfected security interest in cattle and has apparently consented to its plan
    treatment. The other is appellant Bank Northwest, which is secured by real estate. On
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    The Honorable Jerry W. Venters, United States Bankruptcy Judge for the
    Western District of Missouri.
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    March 13, 2009, Debtors filed their Chapter 13 plan which proposed to pay all
    unsecured claims in full by paying to the trustee the sum of $500.00 per month and
    to directly pay the indebtedness to Bank Northwest in annual payments with a balloon
    payment due in 2015.
    On May 5, 2009, Bank Northwest filed a motion for relief from the automatic
    stay and an objection to confirmation of Debtors’ Chapter 13 plan. BTC also objected
    to confirmation but its objection was later resolved. On July 2, 2009, an evidentiary
    hearing was held on Bank Northwest’s objection and its motion for relief. The matters
    were continued for further hearing, and an amended plan was filed on July 22, 2009.
    The amended plan provided for payment of Bank Northwest’s claim together with
    interest at 6% per annum with annual payments amortized over 20 years commencing
    no later than December 31, 2009, and a balloon payment at the end of five years.
    Bank Northwest continued to object to feasibility, and, after hearing further
    testimony and receiving further evidence on August 13, 2009, the court overruled the
    bank’s objections to confirmation and thereafter confirmed Debtors’ Chapter 13 plan.
    The bankruptcy court also entered a Conditional Denial of the bank’s motion for relief
    from stay, the condition being that if Debtors defaulted in making any of the Chapter
    13 plan payments owed to Bank Northwest, the bank would be entitled to relief from
    the automatic stay. That same relief language appears in the amended plan.
    On appeal, Bank Northwest asserts: (1) that the plan does not meet the
    feasibility requirement of 11 U.S.C. § 1326(a)(6); (2) that confirmation of the plan
    was in error because the plan impedes the creditors’ remedies subsequent to default;
    and (3) that confirmation was in error because it provides for bifurcation of a secured
    claim.
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    STANDARD OF REVIEW
    The bankruptcy court’s findings of fact shall not be set aside “unless clearly
    erroneous, and due regard shall be given to the opportunity of the bankruptcy court
    to judge the credibility of the witnesses.” Fed. R. Bankr. P. 8013. The bankruptcy
    court’s findings of fact are reviewed for clear error and its conclusions of law are
    reviewed de novo. First Nat’l Bank of Olathe v. Pontow (In re Pontow), 
    111 F.3d 604
    ,
    609 (8th Cir. 1997). “A finding is ‘clearly erroneous’ when although there is evidence
    to support it, the reviewing court on the entire evidence is left with the definite and
    firm conviction that a mistake has been committed.” United States v. United States
    Gypsum Co., 
    333 U.S. 364
    , 395, 
    68 S. Ct. 525
    , 542, 
    92 L. Ed. 746
    (1948). The
    feasibility of a plan is a finding of fact. Gen. Motors Acceptance Corp. v. Gardner (In
    re Gardner), 
    25 B.R. 297
    , 299 (D. Ark. 1982).
    DISCUSSION
    Bank Northwest’s first assignment of error is that the plan should not have been
    confirmed because it is not feasible. The confirmation hearing occurred over the
    course of two days, July 2, 2009, and August 13, 2009. Bank Northwest is owed about
    $480,000.00 and admits that it is substantially over-secured. At the August hearing,
    Debtors introduced into evidence a revised budget which showed income adequate to
    pay expenses and to make plan payments. Debtors’ income comes from Mrs. Potts’
    off-farm income, both Debtors’ Social Security income, cash rent and cattle sales. It
    is clear from the transcript that the court made inquiry into Debtors’ income sources
    and expense amounts. While admitting it was a close call, the bankruptcy court found
    that Debtors had the ability to perform the plan.
    Bank Northwest argues that the projected income from cattle sales was
    speculative considering the condition of the cattle herd. However, the bankruptcy
    court recognized that there was some room in the budget even if the herd did not
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    generate the full amount of the projected sale income and that the Debtors might have
    to engage in some further belt-tightening. The bottom line is that Bank Northwest
    simply does not agree with Debtors’ projections. Simple disagreement is not sufficient
    to establish clear error by the court. Anderson v. City of Bessemer City, N.C., 
    470 U.S. 564
    , 574, 
    106 S. Ct. 1504
    , 1511, 
    84 L. Ed. 2d 518
    (1985) (stating that the clear error
    standard of review “plainly does not entitle a reviewing court to reverse the finding
    of the trier of fact simply because it is convinced that it would have decided the case
    differently.”). Bank Northwest is unable to identify any objective fact which clearly
    establishes that the bankruptcy court erred in determining that the plan was feasible
    based on the projections of Debtors.
    Bank Northwest further argues that the bankruptcy court erred in confirming
    the plan because it impedes the bank’s remedies subsequent to Debtors’ default.
    Specifically, the plan provides that Bank Northwest is entitled to relief from the
    automatic stay to take possession of and dispose of its collateral if payments are not
    timely made. However, the lifting of the automatic stay “shall be conditioned upon the
    sale of the 210-acre tract first and, after that sale has been closed and the remaining
    balance determined, Debtors shall have ten days to file an amended plan proposing
    payment of any balance due.” This provision was apparently included in the plan in
    the hope that a foreclosure of the 210-acre parcel would produce a sale price sufficient
    to pay off most of what is owed to Bank Northwest. That would leave Debtors with
    a more manageable, smaller debt secured by the 109-acre homestead parcel.
    Bank Northwest’s objection seems to be based on the belief that the plan cannot
    modify the default remedies of the creditor. Bank Northwest is incorrect. 11 U.S.C.
    § 1322(b)(2) specifically provides that a Chapter 13 plan may “modify the rights of
    holders of secured claims . . .” Bank Northwest has been unable to identify any
    provision of the Bankruptcy Code which would prohibit the modification of a secured
    creditor’s default remedies, primarily because no such prohibition exists. Since there
    is no such prohibition, and since the Bankruptcy Code expressly authorizes
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    modification of the rights of the holders of secured claims, the bankruptcy court did
    not err.
    Finally, Bank Northwest argues that the Chapter 13 plan provides for a
    bifurcation of its secured claim after it has already been allowed as fully secured.
    However, contrary to the bank’s assertions, the claim is not bifurcated at all. The
    claim is allowed as a fully secured claim and under the plan it remains secured by the
    same collateral as existed at the time the loan was made. The plan does not “bifurcate”
    the claim into secured and unsecured portions. Bank Northwest is simply incorrect in
    asserting that this plan bifurcates its claim.
    CONCLUSION
    For the foregoing reasons, the decision of the United States Bankruptcy Court
    for the Western District of Missouri is affirmed.
    ______________________________
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