WISCONSIN BANKRUPTCY COURT REJECTS DEBTOR’S ATTEMPT TO INCLUDE PROPERTY OWNED BY DECEASED PARENTS IN CHAPTER 13 PLAN
Wisconsin’s Eastern District bankruptcy court refused to confirm a chapter 13 plan wherein the debtor (Sean Higgins) proposed to make payments over five years to bring his deceased parents’ mortgage current while maintaining payments to the mortgagee, Matrix Financial Services Corp. (“Matrix”), during the bankruptcy proceedings. In re: Higgins, No. 23-22024-RMB, 2023 WL 8823920, at *1 (Bankr. E.D. Wis. Dec. 20, 2023). A brief timeline of key events is helpful to understand the issues in the case:
03/10/2018 Donald & Janice Higgins execute Note and Mortgage in Favor of Paramount Equity Mortgage, LLC (Note & Mortgage later assigned to Matrix)
11/26/2020 Janice Higgins dies, property automatically passed to spouse (joint tenant) Donald Higgins
05/12/2021 Donald Higgins dies intestate, leaving at least four heirs
04/00/2022 Matrix commences in rem foreclosure proceedings
02/02/2023 Foreclosure judgment entered in Matrix favor
05/05/2023 Sean Higgins (“Higgins”) files for bankruptcy protection to prevent Matrix’s foreclosure sale from proceeding
05/17/2023 Higgins files chapter 13 plan
Matrix objected to Higgins’ chapter 13 plan arguing that Matrix was “not a creditor to the debtor,”[i] but rather a creditor to the deceased mortgagors. The court surmised that before it could determine whether Higgins could cure the arrearage and maintain payments to Matrix pursuant to 11 U.S.C. § 1322(b)(5), the court must determine whether Higgins had an ownership interest in the property.[ii] Higgins argued that Matrix’s “right to payment” and “claim against the property of the debtor”[iii] derived from Higgins’ right to distribution from his father’s probate estate which included Matrix’s mortgage which “necessarily” made the property part of Higgins’ bankruptcy estate.[iv] The court, noting that “most often” ownership in real property “involve[d] a title transfer of the property to the debtor,” disagreed with Higgins.
Providing a brief history of Wisconsin’s probate code, the court explained that after 1971, unlike most states, Wisconsin modified its probate code so that real property passed to a decedent’s personal representative upon death, rather than directly to his or her heirs, rendering title to the property “suspended until the appointment of a personal representative.”[v] The Court clarified that a personal representative could only be appointed by a probate court and only the personal representative could transfer title to the deceased’s property. The court concluded that Higgins’ “interest in his father’s probate estate is not the same thing as an interest in the Property” and noted that Matrix’s mortgage is on the property, not the estate.[vi]
Ultimately, the court found Higgins did not have an “ownership” interest in the property so Matrix did not have a claim that Higgins could include in his chapter 13 payment plan. The Court concluded that a mortgagee only has a claim under §102(2) when the debtor holds legal title to the underlying property and that a possessory or equitable interest of an heir is insufficient to confer “ownership” of the deceased’s real property to the debtor/heir.[vii] Sustaining Matrix’s objection to Higgins’ proposed chapter 13 plan, the court lifted the bankruptcy stay and allowed the mortgagee to proceed with its foreclosure sale. Notably, in most states the result would have been different since title to real property is transferred immediately upon death to the heirs, not to a personal representative.[viii]
[i] In re: Higgins, at *1-2. All future references to this case are to this citation until indicated otherwise.
[ii] In re: Higgins, at *3. All future references to this case are to this citation until indicated otherwise.
[iii] See 11 U.S.C. §§ 101(5) and 102(2), respectively; however, detailed analysis and discussion of the various code provisions cited by the court are beyond the scope of this article.
[iv] In re: Higgins, at *4.
[v] In re: Higgins, at *5. All future references to this case are to this citation until indicated otherwise.
[vi] In re: Higgins, at *7. All future references to this case are to this citation until indicated otherwise.
[vii] In re: Higgins, at *8. All future references to this case are to this citation until indicated otherwise.
[viii] In re: Higgins, at *5 n3.
