UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

COVINGTON DIVISION

IN RE:

STEPHEN LAWRENCE SHORT, JR.

CASE NO. 08-20830

DEBTOR

MEMORANDUM OPINION AND ORDER

     This matter having come before the court on an Objection to Claim (DOC 28), and a hearing having been held on September 9, 2008, and the court having taken the matter under submission, the court hereby issues this memorandum opinion and order.

     This matter is submitted to the court on the issue of whether $1,665.23 in debt listed as secured on GMAC Mortgage, LLC’s Proof of Claim # 1 should be treated as an unsecured debt.

    FACTS. The facts are not in dispute. GMAC Mortgage, LLC’s claim is for debt owed on Debtor’s real property. Debtor lists the value of the real property as $119,000.00 on his schedules. GMAC Mortgage, LLC’s proof of claim lists debt of $122,067.43. Thus, GMAC Mortgage, LLC’s claim is undersecured. GMAC Mortgage, LLC’s proof of claim lists $8,753.93 for arrearage and other charges; the other charges total $1,665.23 and are for late charges, inspections, and escrow balance. Debtor argues that this $1,665.23 should be treated as an unsecured debt.

     CONCLUSIONS OF LAW. 11 U.S.C. § 506(b) does not allow postpetition interest, fees, costs and charges as part of a secured claim unless the claim is oversecured. Here, there is no dispute that the claim is undersecured. Thus, GMAC Mortgage, LLC’s claim does not meet the requirements of 11 U.S.C. § 506(b).

     However, GMAC Mortgage, LLC now argues that as an undersecured creditor, 11 U.S.C. § 506(b) does not apply at all, and that it only needs to meet the requirements of 11 U.S.C. § 1322(e). “Notwithstanding subsection (b)(2) of this section and sections 506(b) and 1325(a)(5) of this title, if it is proposed in a plan to cure a default, the amount necessary to cure the default, shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.” 11 U.S.C. 1322(e).

     Other courts have ruled that 11 U.S.C. § 506(b) does apply to undersecured creditors based on an analysis of the legislative history of 11 U.S.C. § 1322(e). “What is important to consider in the legislative history is that § 1322(e) was added to the Bankruptcy Code to address the Supreme Court’s decision in Rake that in effect required the bankruptcy courts to grant mortgagees interest on interest. The concept of the legislators in adopting § 1322(e) was to add a requirement that if a creditor was to receive interest on interest, then it also had to be allowed by the laws of the relevant state. This indicates to this Court that the purpose of § 1322(e) was not to supplant but to supplement the requirements of § 506(b). Section 506(b) first establishes the amount of the creditor’s claim that is secured. If a fee cannot be part of a creditor’s secured claim in the first instance, how can it become a part of the secured arrearage claim?” In re Evans, 336 B.R. 749, 755 (Bankr. S.D. Ohio 2006).

     GMAC Mortgage, LLC urges this court to adopt a different line of reasoning and cites In re Thompson, 372 B.R. 860 (Bankr. S.D. Ohio 2007) which held that an undersecured creditor may add interest, costs, and fees to its arrearage claim as long as those items otherwise meet the requirements of 11 U.S.C. § 1322(e) because the Thompson court reasoned that the Evans court’s analysis of legislative history conflicted with the plain language of 11 U.S.C. § 1322(e).

     However, the Evans court did review in detail the language of

11 U.S.C. § 1322(e) and various case law interpreting the language of the statute at pages 752-754. This court agrees with Evans in its interpretation of 11 U.S.C. § 1322(e) and various case law that the statute is ambiguous and that it is appropriate to consider the legislative history of the statute. This court adopts both the analysis of the legislative history and the holding that

11 U.S.C. § 506(b) does apply to undersecured creditors pursuant to Evans.

     For that reason, Debtor’s Objection to Claim (DOC 28) is hereby SUSTAINED. GMAC Mortgage, LLC’s Proof of Claim # 1 shall be treated as an unsecured debt in the amount of $1,665.23. The remaining portion of GMAC Mortgage, LLC’s Proof of Claim # 1 shall be treated as secured debt.

Copies to:

Michael L. Rice, Esq.

Crystal L. Ford, Esq.

Debtor

Beverly M. Burden, Esq.