RIPPLE, Circuit Judge.
Homebanc, Inc. (Homebanc) appeals from the bankruptcy court's order requiring it to release a lien against certain real property. The lien secured an obligation of the debtors, Warren and Barbara Chappell (the Chappells). The bankruptcy court concluded that the debt that Homebanc held was discharged by the Chappells' completion of their Chapter 13 bankruptcy plan. The district court denied Homebanc's appeal and affirmed the bankruptcy court's decision. For the following reasons, we also affirm.
On June 14, 1985, the Chappells filed a voluntary petition for bankruptcy relief under Chapter 13 of the Bankruptcy Code. 11 U.S.C. §§ 101-1330 (1988). On their Chapter 13 statement, the Chappells listed Loves Park Savings and Loan Association (Loves Park), the predecessor to Homebanc, as the holder of two claims secured by real estate located at 536 Grand Avenue, Rockford, Illinois. The first claim was a mortgage on the property in the amount of $4,641.56 ("the first mortgage"). The second claim was for another mortgage on the property in the amount of $20,661.20 ("the second mortgage"). The Chapter 13 plan filed by the Chappells proposed that one hundred percent of these obligations be paid during the course of the bankruptcy plan. The first mortgage was "to be paid 100%, at the rate of $165.77 per month or more for the current payment and $25.00 monthly for the arrearages of $497.31" for a total payment of $4,641.56. Bankr.Ct.Record 5, Chapter 13 Plan. The second mortgage was to "be paid 100% at the rate of $293.00 per month or more for the current payment & $25.00 monthly for the arrearages of $586.00" for a total payment of $20,661.20. Id. On July 1, 1985, Loves Park filed two proofs of claims for arrearage amounts owing on both of the mortgages. The first claim was in the amount of $678.08, representing the arrearage on the first mortgage. The second claim was in the amount of $916.50 for arrearage due on the second mortgage. The proofs of claims indicated that the claims were based upon "principal, interest & escrow delinquency through 6-25-85." Bankr.Ct.Record 23, 25.
On July 25, 1985, a meeting of creditors was held pursuant to section 341 of the Bankruptcy Code. See 11 U.S.C. § 341. No representative of Loves Park attended the meeting. On that same day, the Chappells' Chapter 13 plan was confirmed, and the Chappells were directed to pay $805 per month to the trustee for distribution under the plan. Subsequently, on September 19, 1985, Loves Park filed amended proofs of claims, adding to the previously claimed arrearages the $4,641.56 figure (for the first mortgage) and the $20,661.20 figure (for the second mortgage) that the Chappells had listed on their Chapter 13 statement. These two figures were identified on the proofs of claims as representing "principal." Bankr.Ct.Record 24, 26. Attached to the proofs of claims were the promissory notes memorializing the first and second mortgages. The bankruptcy court allowed these amended claims, without objection from the Chappells.
The first mortgage was paid in full through the plan, and is not at issue here. The second mortgage, however, is at the center of this appeal. The note memorializing this obligation indicates that the final installment was to become due on August 1, 2009. Therefore, the bankruptcy plan called for the acceleration of this obligation and payment in full during the pendency of the plan. It appears that this was not a commonplace arrangement in a Chapter 13 bankruptcy. In its memorandum opinion, the bankruptcy court cited the Chapter 13 trustee's testimony that he could recall only one or two such provisions during the more than twenty years he had served as a trustee. Bankr.Ct.Mem.Op. at 8.
Apparently, the $20,661.20 figure that the Chappells had listed as due on the second mortgage represented only principal. It did not take into account any interest on the amount that would accrue during the life of the plan. Moreover, in its amended proof of claim, Loves Park had simply listed the principal owed on the obligation and had not made a separate claim for interest. As a result, the trustee applied each payment under the plan solely to the second mortgage's principal and did not make any allowances for Loves Park to receive interest. On August 27, 1986, more than a year after the Chapter 13 plan had been confirmed, Loves Park's attorney wrote the Chappells' attorney (with a copy to the trustee) expressing concern about the plan's treatment of interest on the second
B. The Bankruptcy Court and District Court Proceedings
After the closing of the bankruptcy case, Homebanc, as successor to Loves Park, brought a foreclosure action against the Chappells in Illinois state court, claiming that the Chappells were in default on obligations owed to Homebanc. The Chappells raised an affirmative defense of discharge in bankruptcy, and both parties filed motions seeking relief in the bankruptcy court.
The bankruptcy court reopened the case and held a hearing on the matter. The court found in favor of the Chappells. In its findings, it concluded that
Bankr.Ct.Mem.Op. at 11-12. The bankruptcy court was also of the view that any entitlement to interest on the debt that
Homebanc appealed this decision to the district court, which affirmed. In a memorandum opinion and order, the district court began its analysis by addressing a legal argument that Homebanc had raised below, but that the bankruptcy court had not addressed — whether the second mortgage was not discharged completely because it was a long-term debt of the type specified under 11 U.S.C. § 1322(b)(5). The court concluded that
Dist.Ct.Mem.Op. at 7. With regard to Homebanc's argument that it was entitled to interest under section 506(b), the district court agreed with the bankruptcy court that Homebanc's failure to raise this issue earlier bars relief now.
Homebanc brings alternative challenges to the bankruptcy court's ruling. It alleges first that the court erred when it refused to find that the Chappells' treatment of the second mortgage conformed with 11 U.S.C. § 1322(b)(5) and that the debt therefore was not discharged when the Chappells emerged from bankruptcy. In the alternative, it claims that the district court erred in finding that it had lost any claim to interest under section 506(b) by not objecting during the course of the bankruptcy proceedings. We shall deal with each of these issues in turn. This court exercises de novo review of the district court's and the bankruptcy court's conclusions of law. Matter of Love, 957 F.2d 1350, 1354 (7th Cir.1992); Matter of Seibert, 914 F.2d 102, 104-05 (7th Cir.1990). Findings of fact made by the bankruptcy court are reviewed under a clearly erroneous standard. Matter of Bonnett, 895 F.2d 1155, 1157 (7th Cir.1989); First Wisconsin Nat'l Bank of Milwaukee v. Federal Land Bank of St. Paul, 849 F.2d 284, 286 (7th Cir.1988).
A. Operation of Section 1322(b)(5)
Homebanc first argues that the second mortgage was never discharged when the Chappells emerged from bankruptcy and that therefore its claim for interest on the loan is still valid. In making this argument, Homebanc relies on the interaction of two provisions of the Bankruptcy Code, sections 1328(a)(1) and 1322(b)(5).
Section 1328 deals generally with a Chapter 13 debtor's discharge. It states, in part:
11 U.S.C. § 1328(a). However, a subsection of that provision, section 1328(a)(1), excepts from discharge "any debt — ... provided for under section 1322(b)(5) of this title." 11 U.S.C. § 1328(a)(1).
Section 1322 concerns generally the contents of a Chapter 13 plan. One of its subsections, section 1322(b)(5), states that
A leading authority has described the operation of these two provisions in the following way:
5 Lawrence P. King, et al. Collier on Bankruptcy ¶ 1322.09 (1992) (footnotes omitted) (hereinafter Collier). The language of section 1322(b)(5) is discretionary, and a debtor may choose to treat a long-term debt in accordance with its terms. See Education Assistance Corp. v. Zellner, 827 F.2d 1222, 1226 (8th Cir.1987) ("A debtor may, but is not required to, provide for his long-term debts by using this provision."); In re Ali, 63 B.R. 591, 593 (Bankr. E.D.Wis.1986) (stating that the section is permissive in nature). Pursuant to that section, "[n]ot all long-term debts are entitled to be excepted from discharge ... but only those debts which the debtor wishes to continue treating as long-term debts." In re Smith, 8 B.R. 543, 547 (Bankr.D.Utah 1981).
As noted above, the plan filed by the Chappells proposed that the second mortgage "be paid 100% at the rate of $293.00 per month or more for the current payment & $25.00 monthly for the arrearages of $586.00" for a total payment of $20,661.20. Bankr.Ct.Record 5, Chapter 13 Plan. Homebanc argues that this treatment of the debt conformed with the requirements of section 1322(b)(5) and that it therefore was excepted from discharge by operation of section 1328(a)(1). In making this argument, Homebanc relies upon the undisputed fact that the final installment on the mortgage was due in 2009 — long after the planned termination of the Chapter 13 plan — and thus that the mortgage was the type of debt to which the Chappells could have applied section 1322(b)(5) if they had wished. See 11 U.S.C. § 1322(b)(5) (stating that the provision may be applied to debts when "the last payment is due after the date on which the final payment under the plan is due").
The Chappells argue that their plan did not avail itself of section 1322(b)(5) simply because it proposed paying 100 percent of the second mortgage over its five-year term. Consequently, the plan did not "maintain" current monthly payments, but instead modified the repayment schedule. Homebanc counters by pointing out that the plan required payments of "$293.00 per month or more for the current payment." Picking up on the language "for the current payment," Homebanc asserts that because the plan contained provisions for making regular monthly mortgage payments as they came due, it therefore met the requirements of the statute. See Landmark Fin. Servs. v. Hall, 918 F.2d 1150, 1153 (4th Cir.1990) (stating that section 1322(b)(5) requires that "regular mortgage payments be maintained"); see also Sapos v. Provident Inst. of Sav., 967 F.2d 918, 927-28 (3d Cir.1992) (stating that in applying section 1322(b)(5), courts must assure
We agree with the Chappells that their plan did not avail itself of section 1322(b)(5).
Collier at ¶ 1322.09 (1992); see also Sapos, 967 F.2d at 922 (the "cure-and-maintain option" of section 1322(b)(5) "gives the debtor an alternative to cramming down the creditor's claim and paying it off within the chapter 13 plan."); In re Epps, 110 B.R. 691, 707 (E.D.Pa.1990) (same). In this case, the Chappells' plan clearly did not take advantage of the contract repayment period of the second mortgage. Instead, it proposed accelerating the second mortgage and paying it in full during the five years in which the plan was in effect. See Bankr.Ct.Record 4, Chapter 13 Statement at 6 (noting that with respect to the second mortgage "DEBTORS PROPOSE TO PAY THE ABOVE CREDITORS 100% THROUGH Chapter 13 Plan."); see also 11 U.S.C. § 1325(a)(5)(B)(ii) (stating that a requirement for confirmation of a chapter 13 plan is that the plan provide the holders of allowed secured claims an amount "not less than the allowed amount of such claim"); In re Hayes, 111 B.R. 924, 926-27 (Bankr. D.Or.1990) (under sections 1322(b)(5) and 1325(a)(5) a debtor dealing with a secured claim may either "leave the contract intact ... or alter the terms and pay the present value of the secured claim"). The plan altered the regular monthly payment schedule on the mortgage by repaying the debt in full some nineteen years before it was scheduled to end. As a result, the Chappells did not choose to treat the second mortgage in accordance with section 1322(b)(5), and Homebanc's argument that the debt was exempted from discharge by operation of section 1328(a)(1) therefore must fail.
B. Homebanc's Claim Under Section 506(b)
In the alternative, Homebanc argues that it should receive interest on the second mortgage under 11 U.S.C. § 506(b), which provides:
This provision allows the holder of an oversecured claim — that is, a claim for an amount less than the value of the property securing it — to recover interest and fees, in addition to the prepetition amount of the claim. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 239-40, 109 S.Ct. 1026, 1029, 103 L.Ed.2d 290 (1989). In this case, the parties assume that Homebanc's claim on the second mortgage is one for which section 506(b) would provide interest. The Chappells' Chapter 13 statement values the real property securing the second mortgage at $29,000, which is several thousand dollars more than the amount the Chappells owed on the obligation. See Bankr.Ct.Record 4, Chapter 13 Statement at 8.
Homebanc claims that it is entitled to this interest because the Chappells' plan promised to pay "100 percent" of the second mortgage and that necessarily a part of this promise to pay one hundred percent of the debt was a promise to pay the interest allowed by section 506(b). Appellant's Br. at 16-17. Consequently, "[d]ebtors failed to comply with the terms of the confirmed Chapter 13 Plan because they did not pay one hundred percent (100%) of the secured claim of Loves Park as the Plan provides." Id. at 16. The bankruptcy court and the district court denied this claim on the ground that it was untimely.
Dist.Ct.Mem.Op. at 8-9 (citations omitted).
We agree with the bankruptcy and district courts that the untimeliness of Homebanc's claim under section 506(b) bars it from now obtaining any interest on the second mortgage.
It is important to note that Loves Park, Homebanc's predecessor, learned that it was not receiving interest on the second mortgage while the plan was still in effect.
Pence, 905 F.2d at 1109 (citations omitted); see also Taylor v. Freeland & Kronz, ___ U.S. ___, ___ - ___, 112 S.Ct. 1644, 1648-49, 118 L.Ed.2d 280 (1992) (trustee lost right to challenge exemption claimed by debtor, even when there was no colorable basis for the exemption, when he failed to object within time limit imposed by Bankruptcy Rules).
For the foregoing reasons, the judgment of the district court is affirmed. The Chappells may recover their costs in this court.
Bankr.Ct.Record 36 at HFX 11.