§ 120.4     11 U.S.C. § 1327(c): Free and Clear Effect on Liens
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 120.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Section 1327(c) is the linchpin of the management of secured claims through a Chapter 13 plan. It is the section that implements at confirmation the powers exercised by the debtor to deal with lienholders. Modification of secured claims under § 1322(b)(2)1 and cramdown of secured claims under § 1325(a)(5)2 define the rights of lienholders after confirmation because of the free and clear effect in § 1327(c).

[2]

Section 1327(c) provides in full: “Except as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.”3

[3]

Section 1327(c) takes up where § 1327(b) leaves off. Section 1327(b) “vests all of the property of the estate in the debtor” unless the plan or order of confirmation provides otherwise.4 Section 1327(c) then provides that the property vesting in the debtor under subsection (b) is “free and clear” of any “claim or interest” of any creditor “provided for by the plan.”5 Each phrase of art in § 1327(c) is important.

[4]

As discussed above,6 “vest” means “to place in the control of . . . to put in possession or control of.”7 Absent a contrary instruction in the plan or the order of confirmation,8 all property of the Chapter 13 estate vests in the debtor at confirmation and becomes subject to the free and clear effect in § 1327(c).

[5]

“Free and clear” in § 1327(c) is a powerful phrase used elsewhere in the Code to describe the sale of property that is cleansed or stripped of all liens and security interests.9 In its ordinary usage, free and clear means unencumbered or without hindrance or obligation.10 Simplistically, § 1327(b) and (c) say: except as provided in the plan or the confirmation order, confirmation puts the debtor in possession and control of all estate property and that property is unencumbered by any claims or interests of creditors that are provided for by the plan.

[6]

The words “claim or interest” in § 1327(c) include “lien.” 11 U.S.C. § 101(37) defines lien as a “charge against or interest in property to secure payment of a debt or performance of an obligation.” In Johnson v. Home State Bank,11 the Supreme Court held that a lien on property of the estate is a claim notwithstanding that the debtor has discharged personal liability to the lienholder.

[7]

The Supreme Court has also instructed that the phrase “provided for” is “commonly understood to mean that a plan ‘makes a provision’ for, ‘deals with,’ or even ‘refers to’ a claim.”12

[8]

Reading these definitions all together, except as otherwise provided in the plan or order of confirmation, at confirmation, all property of the estate is placed in the possession and control of the debtor unencumbered by any lien that is dealt with by the plan.

[9]

If the plan or order of confirmation retains or preserves a lien, then the property vesting in the debtor at confirmation arrives encumbered by the lien. If the plan limits the extent of a lien or defines the terms for satisfaction of the lien—for example, by confining an undersecured lien to the value of the collateral, or by changing the interest rate from that provided in the contract—then confirmation vests the property securing that claim in the debtor unencumbered except to the extent stated in the plan.

[10]

When the plan is carefully worded—for example, that only the holders of allowed secured claims retain their liens, or that liens are retained only “up to the value of the creditor’s collateral or the allowed amount of the claim, whichever is smaller”—the lien rights of secured creditors are firmly bounded by confirmation of the plan. When the plan allows a specific dollar amount for each secured claim, the binding effect of confirmation under § 1327(a)13 coupled with the “vesting of property . . . free and clear of any claim or interest” under § 1327(b) and (c) limits the extent of each creditor’s lien to the amount provided in the confirmed plan.

[11]

In most Chapter 13 cases, secured claim holders are provided for through the plan consistent with § 1325(a)(5).14 Chapter 13 debtors are empowered by § 1322(b)(2) to modify the rights of secured claim holders,15 but lien rights are fully protected by § 1325(a)(5): absent consent or surrender of all collateral, the debtor cannot confirm a plan over the objection of a lienholder unless the plan “retain[s] the lien” and pays the lienholder at least the present value of “the allowed amount” of the secured claim.16 Put another way, the free and clear effect of confirmation under § 1327(c) is no threat to any half-awake lienholder because the debtor can’t confirm a plan that doesn’t preserve lien rights under § 1325(a)(5). The secured claim holder that is asleep is at risk: confirmation will vest property of the estate in the debtor free and clear of all liens except as specifically provided in the plan. If notice to the lienholder of the plan is inadequate—either because the plan is poorly worded or because information from the court failed or was faulty—then the effects of confirmation are less certain.17

[12]

Sections 1327(c) and 1325(a)(5) complement each other and balance the rights of lienholders and debtors in Chapter 13 cases. Debtors cannot take property rights away from lienholders through confirmation without due process. Plans cannot limit liens or invalidate liens over the objection of a secured claim holder unless the plan fully satisfies § 1325(a)(5). Retaining the lien to the extent of the allowed secured claim as required by § 1325(a)(5)(B)(i) overcomes the free and clear effect of confirmation under § 1327(c) by preserving the lender’s lien rights until payment of its allowed secured claim. As explained by one court, “Without the statutory cram down requirement, all property of the estate would revest in the debtor upon confirmation of the debtor’s plan, potentially eliminating existing liens upon confirmation. . . . It seems apparent then that the § 1325 cram down provision is meant to protect the holders of allowed secured claims from loss of their secured interest.”18

[13]

On the other side of the ledger, § 1327(c) precludes secured claim holders from coveting lien rights greater than the rights protected by § 1325(a)(5). Section 1327(c) unencumbers all property of the estate of any lien except to the extent preserved by the plan, and § 1325(a)(5) defines that extent.

[14]

Sometimes it is the extreme example that most clearly makes the point. In re Penrod19 was a Chapter 11 case in which the U.S. Court of Appeals for the Seventh Circuit analyzed the analogous provisions of §§ 1141(c)20 and 1327(c). The plan in Penrod provided for payment in full with interest of a claim holder with a lien on the debtor’s hogs. Most importantly, the plan was silent with respect to preservation of the hog lender’s lien. The lienholder filed a proof of claim and did not object to confirmation. The debtor did not object to the proof of claim or challenge the validity of the lien. The hogs were sold after confirmation, and the lienholder brought suit to enforce its lien in the proceeds. The question faced by the Seventh Circuit was whether confirmation of the plan vested the hogs in the debtor free and clear of the lien that was not preserved in the plan. The Seventh Circuit concluded that the hog lender’s lien was extinguished by confirmation:

[L]ike most generalizations about law, the principle that liens pass through bankruptcy unaffected cannot be taken literally. . . . We have concluded that the default rule for secured creditors who file claims for which provision is made in the plan of reorganization is extinction and is found in the Code itself. . . . The term ‘interest’ is not defined in the Code, but a lien is defined as an interest in property, 11 U.S.C. § 101(37), and there is no doubt that a security interest is an interest, and it is defined as a “lien created by an agreement.” . . . So section 1141(c) must cover liens, . . . and must mean, therefore, that unless the plan of reorganization, or the order confirming the plan, says that a lien is preserved, it is extinguished by the confirmation. This is provided, we emphasize, that the holder of the lien participated in the reorganization. If he did not, his lien would not be “property dealt with by the plan,” and so the section would not apply. . . . It could be argued that the plan in this case dealt with the secured creditor’s claim, but not with its lien. But this interpretation would be inconsistent with the rest of section 1141(c)—that the property dealt with by the plan is, after confirmation of the plan, to be “free and clear of all claims and interests of creditors” (and others). On the view pressed by [the lienholder], the assets of the reorganized entity would continue to be burdened by secured creditors’ claims by virtue of their liens even if the plan made provision for those claims. Our suggested interpretation reconciles the language of section 1141(c) with the principle . . . that liens pass through bankruptcy unaffected. They do—unless they are brought into the bankruptcy proceeding and dealt with there.21
[15]

Penrod is well reasoned and true to the structure of the Code. The Seventh Circuit’s interpretation of § 1141(c) illuminates how the free and clear effect of § 1327(c) should work in Chapter 13 cases.

[16]

There are a great number of reported decisions that interpret § 1327(c) accurately: after confirmation, the lien rights of secured claim holders provided for by the plan are defined by the confirmed plan.22 For example, in United States v. Richman (In re Talbot),23 the U.S. Court of Appeals for the Tenth Circuit rejected the IRS’s argument that confirmation of a Chapter 13 plan does not limit the extent of a tax lien on a debtor’s residence. In Talbot the confirmed plan trifurcated the IRS’s claims into a priority claim of $15,875, a secured claim of $18,674 and a general unsecured claim of $3,111. These amounts were determined by valuing the debtors’ residence and mathematically calculating the allowed secured claim of the IRS after reduction for other liens. The plan proposed to pay the IRS’s secured claim in full with interest, its priority claim in full without interest, and 30 percent of the general unsecured claim. The IRS filed a proof of claim for $37,660. The IRS did not contest confirmation.

[17]

Twenty months after confirmation, the debtors sold their home for $137,500. The IRS refused to release its lien until the debtors paid $38,646. When the debtors moved to amend the plan to reflect the sale of their home, the Chapter 13 trustee objected and sought to recover from the IRS the amount it extracted from the sale proceeds in excess of its allowed secured claim. The trustee argued that the IRS had already been paid $11,703 of its prepetition tax lien through payments under the plan. The United States responded that its tax lien “survived the confirmation of the Plan and was not limited to the amount of the IRS’s secured claim. . . . [T]he only way in which a federal tax lien may be avoided is through an adversary proceeding.”24 The Tenth Circuit held that confirmation bound the IRS to the limits on its lien fixed by the plan:

Absent timely appeal, the confirmed plan is res judicata and its terms are not subject to collateral attack. . . . Thus, the IRS was entitled to no more and the Talbots were obligated to pay no less than the amounts set out in the Plan and confirmation order. . . . [T]he Plan and confirmation order clearly trifurcated the IRS’ claim . . . . The Plan further provided that the IRS would retain its lien only to the extent of its secured claim. . . . Accordingly, upon confirmation of the Plan, the IRS held a lien for the present value of $18,674. Upon payment of that sum, the IRS was obligated to release its lien on the Talbot’s residence. . . . [T]he bankruptcy court had the power to order the IRS to disgorge all sums that it extracted from the Talbots in derogation of the Plan.25
[18]

In a note, the Tenth Circuit also rejected the government’s argument that release of its lien upon payment of the amount fixed by the confirmed plan was a prohibited form of “lien stripping”: “This court need not address the difficult issues surrounding lien-stripping in Chapter 13 because the United States failed to object to the treatment of its claim and the strip-down of its lien prior to the confirmation of the Plan. See In re Szostek, 886 F.2d 1405, 1413 (3d Cir. 1989).”26

[19]

Szostek demonstrates that confirmation can vest collateral in the debtor free and clear of a lienholder’s right to the present value of its allowed secured claim.27 In Szostek, the plan treated a mortgage as partially secured to be paid the full amount of the allowed secured claim but without interest. The mortgage holder timely filed a proof of claim, to which the debtor objected. On parallel courses the bankruptcy court confirmed the plan and then bifurcated the mortgage. Several months after confirmation, the lienholder attacked the confirmed plan, seeking relief from the provision that paid the secured portion of its claim without interest. The U.S. Court of Appeals for the Third Circuit held that the failure to object to confirmation left the lienholder bound to accept payment of its secured claim without interest in full satisfaction of its lien.

[20]

Consistent with Szostek, other reported decisions recognize that a lienholder’s entitlement to present value (interest) under § 1325(a)(5)(B)(ii)28 is forfeited if the plan does not provide for interest, and the creditor had notice but failed to object to confirmation. In Homebanc v. Chappell (In re Chappell),29 the confirmed plan called for 100 percent payment of a mortgage and specified that the lienholder would receive $20,661.20. The mortgage holder filed a proof of claim for the principal amount of its debt, $20,661.20, and did not object to confirmation. After the debtor completed payments under the plan, the mortgage holder asserted its right to interest on its allowed secured claim. The U.S. Court of Appeals for the Seventh Circuit held that the failure to object to confirmation barred the mortgage holder from collecting interest, and the lien was discharged notwithstanding that the present value of payments under the plan was not equal to the allowed amount of the secured claim.

[21]

In In re Lindgren,30 a creditor was precluded from enforcing its lien after completion of payments and discharge when the creditor failed to object to confirmation and failed to complain during five years of payments that it was not receiving interest on its allowed claim. The court limited the creditor’s lien to the principal amount of its debt and held that “the debtors’ property is free and clear of [the creditor’s] lien pursuant to 11 U.S.C. § 1327(b).”31 Similarly, in In re Hebert,32 when the plan proposed to pay the IRS claim in full but without interest, and the IRS failed to object, the confirmation order bound the IRS and the extent of the tax lien was fixed by the plan.33 Even a mortgage holder entitled to interest on arrearages cured through a Chapter 13 plan34 forfeits its right to interest and its lien is limited when the mortgage holder had notice and failed to object to a plan that pays arrearages without interest.35 When the plan provides for interest to a secured claim holder, the rate of interest in the plan defines the present value rights of the creditor notwithstanding the creditor’s assertion in a proof of claim that the rate in the plan is insufficient.36

[22]

One of the fundamental effects of § 1327(c) on secured claim holders is that the liens retained after confirmation are limited by the value of the collateral that vested in the debtor at confirmation, even when the debt is greater than that value. Discussed in detail elsewhere,37 except for claims secured only by real property that is the debtor’s principal residence,38 a Chapter 13 debtor can modify the rights of secured claim holders through the confirmed plan. Undersecured claim holders are bifurcated by § 506(a) into a secured claim up to the value of the collateral and an unsecured claim for the balance.39 Valuation of collateral is inextricably intertwined in the determination of the allowable amount of each secured claim.40 The typical Chapter 13 plan provides for payment of allowed secured claims up to the value of the collateral and provides that the lienholder will retain its lien only to that extent. Confirmation of a plan that provides for payment of secured claims vests property in the debtor free and clear of claims that exceed the value of the collateral. Put another way, even upon timely objection, the plan need not retain the secured creditor’s lien except to the extent of the value of the collateral. With the exception of real property that is the debtor’s principal residence,41 every undersecured claim holder has its lien limited by § 1327(c) at confirmation to the value of its collateral. This value-based lien-limiting effect extends to the wholly unsecured creditor—if there is no value in the collateral, the lienholder is an unsecured creditor and § 1327(c) vests the property in the debtor free of a lien.42

[23]

There are many examples in the reported decisions of value translated by § 1327(c) into a limit on liens at confirmation. In In re Murry-Hudson,43 the confirmed plan bifurcated an undersecured car loan (based on the value of a Hyundai) and provided that secured claim holders would retain liens “until their allowed secured claims have been paid.”44 The bankruptcy court correctly held that upon completion of payment of the secured portion of the claim, the car was unencumbered by the creditor’s lien. The court explained that § 1327 bound the lienholder to accept the allowed amount of its secured claim in full satisfaction of its lien:

[A] Chapter 13 debtor is permitted not merely to alter the amount and terms of payment of her secured debts, but to hold the property free and clear of liens after paying the allowed secured claims in accordance with the provisions of her confirmed plan.45
[24]

Real property that is not protected from modification by § 1322(b)(2)46 vests in the debtor at confirmation subject only to the liens retained in the plan. The bankruptcy court in Union Mortgage Company v. Avret (In re Avret)47 explained that the lien-limiting effect of confirmation under § 1327(a), (b) and (c) is accomplished through valuation under § 506(a) and modification under § 1322(b)(2). The Avret court held that after splitting an undersecured mortgage under § 506(a), the plan can provide that any lien purporting to secure the unsecured portion is satisfied at the completion of payments. Many reported decisions respect this principle that real property not protected from modification vests in the debtor at confirmation free and clear of the claims of mortgage holders that exceed the value of the property.48 At the extreme, when there is no value to secure a mortgage, confirmation vests the property in the debtor free and clear of the entire claim of the lienholder.49

[25]

Over time, lienholders have tried, without much success, to construct statutory reasons why § 1327(c) does not do in Chapter 13 cases what § 1141(c) does in Chapter 11 cases. For a while, especially after the Supreme Court’s 1992 decision in Dewsnup v. Timm,50 secured creditors argued that § 506(d) of the Code was the exclusive method for a (consumer?) debtor to strip down an undersecured lien to the value of the collateral. These creditors invited the bankruptcy courts to apply Dewsnup in Chapter 13 cases to prohibit the lien-limiting effect of confirmation under § 1327(c). Both before and after Dewsnup, a few courts have cited § 506(d) as a statutory basis for limiting the effect of § 1327(c) on liens.51

[26]

Section 506(d) provides, “To the extent the lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless— . . . .”52 Dewsnup held that a Chapter 7 debtor cannot use § 506(d) to void the portion of an undersecured claim holder’s lien that is not supported by value in its collateral.53

[27]

The lien-stripping issue in Dewsnup would be differently presented in a Chapter 13 case. Although § 506(d) could be used by a Chapter 13 debtor to void the unsecured portion of a lien, it is more likely that the plan will provide for the undersecured creditor consistent with § 1325(a)(5): the lien is retained only up to the value of the collateral, and the lien is released upon payment of the allowed secured claim. The plan would split the undersecured creditor’s claim into secured and unsecured components under § 506(a). The plan would pay the allowed amount of the secured portion of the claim in full with present value interest. The unsecured portion of the claim would be provided for consistent with the treatment of other unsecured claims. The debtor would argue that confirmation of this plan vests all property in the debtor free and clear of any lien except the lien preserved by the plan. The creditor would respond that the debtor must separately invoke § 506(d) to void the unsecured portion of its lien, presumably by filing an adversary proceeding.54 One more leap and the creditor wins: if the court applies Dewsnup, the court might conclude that § 506(d) is the exclusive source of lien-stripping authority and debtors are prohibited to use § 506(d) in Chapter 13 cases.

[28]

Only one reported opinion clearly bought the § 506(d) argument and applied Dewsnup in a Chapter 13 case to preclude the plan from limiting an undersecured lien to the value of the collateral. The decision was short-lived.

[29]

In In re Hernandez,55 the creditor’s claim substantially exceeded the value of the car that secured it. The plan bifurcated the undersecured claim and paid 100 percent of the allowed secured portion. The plan contained a standard provision that the creditor would “retain the lien securing such claim.” The bankruptcy court described the effect of Dewsnup on this plan:

Dewsnup expressly held that a debtor is not allowed to use § 506(d) to strip down the undersecured portion of a lien. . . . The Court made clear that its holding was narrow. . . . However, its rationale applies to attempts to strip down any lien in a proceeding under any chapter of the Bankruptcy Code, including Chapter 13. . . . [T]his Court finds that a Chapter 13 debtor is not allowed to “strip down” a lien, even one secured by personal property. . . . [P]ayment on the secured claim in this Chapter 13 proceeding is limited to the fair market value of collateral securing the debt. . . . The balance of the creditor’s claim is treated as unsecured. . . . Notwithstanding the for[e]going, VCI’s lien remains on the automobile, and will fully survive completion of the Chapter 13 Plan. The debtor will be discharged of personal liability if the Plan completes. However, the lien will remain on the vehicle to secure a debt that will then be without personal recourse.56
[30]

The bankruptcy court in Hernandez acknowledged that cramdown in Chapter 13 cases pursuant to § 1325(a)(5)(B) was inconsistent with the orthodoxy that “secured liens survive bankruptcy”; however, the court construed § 1325(a)(5)(B) to entitle a secured claim holder to retain its lien without limitation to the value of the collateral.

[31]

Hernandez was reversed on appeal.57 The district court found Dewsnup inapplicable to Chapter 13 because the Supreme Court limited its holding to the Chapter 7 case at hand and because the restrictions on lien impairment in pre-Code law relied upon in Dewsnup were not applicable in reorganization cases.58 Most importantly, the district court in Hernandez found in § 1327 the lien-limiting effect refused by the bankruptcy court:

The Bankruptcy Court’s result runs afoul of the “free and clear” provision of Code § 1327. Bankruptcy Code section 1327 . . . provides the mechanism by which Chapter 13 Debtors can strip down creditor’s liens without resorting to Code section 506(d).59
[32]

The district court in Hernandez is exactly right. Dewsnup focused on the voiding of liens under § 506(d) in Chapter 7 cases. Chapter 13 accomplishes its limiting effect on liens by valuation under § 506(a), modification under § 1322(b)(2), lien retention under § 1325(a)(5) and vesting free and clear under § 1327(b) and (c). Chapter 13 debtors need not void the unsecured portion of an undersecured claim holder’s lien under § 506(d); rather, a debtor retires the lienholder’s entitlement to the present value of its allowed secured claim by payments through the plan, and the property vesting in the debtor at confirmation is only subject to a lien to that extent. If the plan is carefully worded, and if notice to creditors of the content of the plan and of the opportunity to object is adequate,60 every secured claim holder is bound at confirmation by § 1327 to accept the allowed amount of its secured claim in full satisfaction of its lien.

[33]

Chapter 13 is sensitive to the lien rights of secured claim holders. No Chapter 13 plan can be confirmed that limits, satisfies, releases or otherwise defines the lien rights of secured claim holders over objection unless the plan satisfies §§ 1322 and 1325. The fear that Chapter 13 plans will disrespect the lien rights of secured claim holders, implicit in many of the cases limiting the effects of confirmation,61 is not founded on principles of statutory interpretation. The free and clear effect of confirmation on liens described in § 1327(c) arises only when notice is adequate. The creditor had an opportunity to litigate, and the plan satisfies the statutory rights of lienholders. There is no statutory or constitutional reason why a lienholder is entitled to anything more in a Chapter 13 case. Dewsnup should not be misinterpreted to require anything more.

[34]

The majority in Dewsnup instructs that its (tortured) interpretation of § 506(d) should not be read to express any opinion with respect to the rights of allowed secured claim holders in bankruptcy cases under other chapters. When a Chapter 13 version of Dewsnup reaches the Supreme Court, it can only be hoped that the Supreme Court will recognize the statutory and historical differences between Chapter 13 and Chapter 7 cases. The rehabilitative intent of Congress in the enactment of Chapter 13 is distorted and materially defeated if a Chapter 13 debtor cannot satisfy a lienholder by full payment of the present value of its collateral.62

[35]

The 1994 amendment to § 348(f) is consistent with the view that confirmation of a Chapter 13 plan limits the lien rights of secured claim holders. Prior to 1994, when a debtor paid some or all of an allowed secured claim pursuant to a confirmed plan and then converted to Chapter 7, there was controversy whether the debtor could redeem collateral in the Chapter 7 case at the balance remaining after deduction for payments pursuant to the confirmed plan. A slight majority of courts concluded that the lienholder’s rights at conversion were defined by the confirmed plan—if the debtor paid the secured portion of an undersecured claim before conversion, the debtor did not have to pay for the collateral a second time to accomplish redemption.63 A minority of courts, often citing Dewsnup, held that confirmation and payments through the plan did not affect the lien rights of the secured claim holder when the debtor sought to redeem the collateral after conversion to Chapter 7.64

[36]

In 1994, Congress amended § 348(f)(1)(B) to provide that the “valuations of property and of allowed secured claims” in a Chapter 13 case “shall apply” at conversion, and “allowed secured claims” are “reduced to the extent that they have been paid in accordance with the Chapter 13 plan.”65 After October 22, 1994, upon conversion to Chapter 7, the confirmation order and other orders entered during the Chapter 13 case control the value of collateral and allowance of secured claims. After the 1994 amendment, the debtor can redeem collateral under § 72266 at the allowed amount of a lienholder’s secured claim reduced by payments made during the Chapter 13 case.

[37]

Courts that would limit the effect of confirmation on liens have a dilemma of statutory interpretation after the 1994 amendment to § 348(f). It would be odd indeed for secured claim holders to have more extensive lien rights in a confirmed Chapter 13 case than after conversion to Chapter 7. The 1994 amendment to § 348 supports the view that lien rights are fully defined by the confirmed Chapter 13 plan and a secured claim holder’s entitlement is reduced by payments through the plan until it has received the present value of its collateral. At that point, its lien is fully satisfied. It is unlikely that Congress intended to make redemption in a Chapter 7 case more attractive than confirmation and consummation of a Chapter 13 plan.

[38]

The message for creditors is that the free and clear effect in § 1327(c) has a powerful impact on liens at confirmation of a Chapter 13 plan. The failure of a secured claim holder to object to confirmation of an unfavorable plan subjects the creditor to real jeopardy. The components of the confirmation process—including the valuation of collateral and the provisions for payment of secured claims—become components of the confirmation order that bind the lienholder. The property that vests in the debtor at confirmation will be free and clear of what a secured claim holder thinks it is entitled to except as provided in the confirmed plan. To avoid being trapped by the confirmation order, lienholders must timely file objections to confirmation. There is no substitute for vigilance by lienholders before confirmation.

[39]

The strategy for debtors is just as clear: (too) many creditors are asleep. Not for lack of clarity in the Code and notwithstanding more than two decades of exposure, there is still a reasonable probability that a specific plan provision fixing the extent of a lien will pass below the creditor’s radar and become part of the confirmation order. The debtor can force battle with a lienholder in the confirmation context by including in the plan a specific provision fixing the allowed amount of the secured claim and limiting the lien accordingly. In this way, the debtor is best positioned to litigate the extent of lien rights at the hearing on confirmation. If the debtor is successful, the confirmation order will vest all property of the estate in the debtor free and clear of the rights of lienholders except as provided in the confirmed plan.


 

1  See § 104.1 [ The Power to Modify ] § 74.11  The Power to Modify.

 

2  See discussion beginning at § 74.1  General Rules before BAPCPA.

 

3  11 U.S.C. § 1327(c) (emphasis added).

 

4  11 U.S.C. § 1327(b). See § 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate.

 

5  11 U.S.C. § 1327(c).

 

6  See § 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate.

 

7  Webster’s New 20th Century dictionary of the English Language 2033 (unabridged 2d ed. 1983).

 

8  There may be good reasons to provide otherwise. See §§ 207.1 [ Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b) ] § 113.11  Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b) and 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate.

 

9  See 11 U.S.C. § 363(f) (“The trustee may sell property . . . free and clear of any interest in such property of an entity other than the estate . . .”).

 

10  Webster’s New 20th Century dictionary of the English Language 729–30 (unabridged 2d ed. 1983).

 

11  501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (1991). Accord In re Penrod, 50 F.3d 459, 463 (7th Cir. 1995) (Addressing the similar language of § 1141(c), “[t]he term ‘interest’ is not defined in the Code, but a lien is defined as an interest in property, 11 U.S.C. § 101(37), and there is no doubt that a security interest is an interest, and it is defined as a ‘lien created by an agreement.’ 11 U.S.C. § 101(51). So section 1141(c) must cover liens.”). Contrary cases predate Johnson or have been overruled. See In re Hernandez, 162 B.R. 160 (Bankr. N.D. Ill. 1993) (Chapter 13 debtor can bifurcate an undersecured creditor’s claim for purposes of payments under the plan; however, the creditor’s lien is not limited to the value of the car that secures the claim, and the lien survives completion of payments under the plan. Court acknowledges that § 1325(a)(5)(B) is inconsistent with the general principle that liens survive bankruptcy; however, court construes § 1325(a)(5)(B) to only require “payment” under the plan in the amount of the secured “claim.” Implicit in this holding is the view that “claim” does not include “lien.” There is no discussion of Johnson v. Home State Bank. Court cites Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), for the proposition that liens pass through the Chapter 13 process notwithstanding confirmation of a plan that permissibly strips down an automobile-secured claim for purposes of distributions.), rev’d, 175 B.R. 962 (N.D. Ill. 1994); In re Bradshaw, 65 B.R. 556 (Bankr. M.D.N.C. 1986) (The portion of the “claim” defined as the “lien” never became part of the bankruptcy estate and thus did not vest in the debtor at confirmation under § 1327(c).); Work v. County of Douglas, 58 B.R. 868 (Bankr. D. Or. 1986) (Court distinguishes “claim” and “interest” by defining “claim” to mean debts that would be discharged under § 1328 and “interest” to mean liens or interest in property that would be unaffected by a discharge.); Second Nat’l Bank v. Honaker, 4 B.R. 415 (Bankr. E.D. Mich. 1980) (Section 1327 allows avoidance of “claim” or “interest” and does not provide for lifting of “liens” upon confirmation.).

 

12  Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 2193, 124 L. Ed. 2d 424 (1993). Although Rake addressed the identical “provided for” language in § 1325(a)(5), it is not unreasonable that the court would define “provided for” in § 1327(c) to mean the same as in § 1325(a)(5). But see Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992).

 

13  See § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors.

 

14  See discussion beginning at § 74.1  General Rules before BAPCPA.

 

15  See § 104.1 [ The Power to Modify ] § 74.11  The Power to Modify.

 

16  11 U.S.C. § 1325(a)(5)(B)(i), (ii). See § 74.11  The Power to Modify.

 

17  See § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

18  In re Shorter, 237 B.R. 443, 446 (Bankr. N.D. Ill. 1999).

 

19  50 F.3d 459 (7th Cir. 1995).

 

20  11 U.S.C. § 1141(c) provides:

Except as provided in subsections (d)(2) and (d)(3) of this section and except as otherwise provided in the plan or in the order confirming the plan, after confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors, equity security holders, and of general partners in the debtor.

 

21  50 F.3d at 462–63. Accord Simon v. Tip Top Credit Union (In re Simon), Nos. 94-3304, 94-3312, 1996 WL 192977 (10th Cir. Apr. 22, 1996) (Table decision at 83 F.3d 433) (applying In re Penrod, 50 F.3d 459 (7th Cir. 1995), in the context of a Chapter 12 case); Andersen v. Higher Educ. Assistance Found. (In re Andersen), 215 B.R. 792 (B.A.P. 10th Cir. 1998) (Cites In re Penrod, 50 F.3d 459 (7th Cir. 1995), in a Chapter 13 case in support of the proposition that a confirmed plan discharging educational loans is binding on the educational loan creditor so long as the “demands of due process have been honored.”), aff’d, 179 F.3d 1253 (10th Cir. 1999); Nationsbanc Mortgage v. Williams (In re Williams), 276 B.R. 899, 909 (C.D. Ill. 1999) (Confirmed plan that bifurcated Nationsbanc Mortgage’s claim and valued the allowed secured claim at $8,000 limits Nationsbanc’s lien notwithstanding an inconsistent proof of claim timely filed after confirmation. Citing In re Penrod, 50 F.3d 459 (7th Cir. 1995), and In re Pence, 905 F.2d 1107 (7th Cir. 1990), “§ 1327(c) . . . vests property of the estate in the debtor at confirmation, ‘free and clear of any claim or interest of any creditor provided for by the plan,’ unless the plan or the confirmation order provides otherwise. The provision operates in that same manner as § 1141 in Chapter 11. Thus, the Confirmation Orders could have removed the lien of a creditor who, like Nationsbanc, participated in the bankruptcy proceeding by filing a proof of claim. . . . [Deutchman v. IRS (In re Deutchman),] 192 F.3d 457 (4th Cir. 1999); Cen-Pen Corporation v. Hanson, 58 F.3d 89 (4th Cir. 1995); [Piedmont Trust Bank v. Linkous (In re Linkous),] 990 F.2d 160 (4th Cir. 1993). . . are in conflict with the controlling Seventh Circuit decisions in Penrod and Pence. The Pence Court expressly refused to follow cases which held that creditors’ liens may not be modified in the confirmation process.”); In re Echevarria, 212 B.R. 26 (Bankr. D.P.R. 1997) (Cites In re Penrod, 50 F.3d 459 (7th Cir. 1995), in support of the holding that an oversecured mortgage holder is bound by confirmation of a plan that pays its claim in full without interest. Plan retained the mortgage holder’s lien but limited the mortgage holder’s lien rights, and the mortgage holder failed to object to confirmation.).

 

22  See, e.g., Chevy Chase Bank v. Locke (In re Locke), 227 B.R. 68, 71 (E.D. Va. 1998) (Car lender that failed to object to confirmation of a plan that valued its collateral at $8,200 cannot attack the confirmation order by motion for relief from the stay after confirmation notwithstanding the timely filing of a proof of claim for $12,004.25. Bank received copy of debtor’s plan along with notice that it had 45 days to object to confirmation. No objections were filed. Distinguishing Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995), and Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160 (4th Cir. 1993), district court observes that the debtor provided adequate notice to the bank of the proposed plan and of the time limit for filing objections. “[T]he Bank’s failure to raise an objection prior to confirmation of the plan precludes consideration of that objection after the fact.”); Tepper v. Burnham (In re Tepper), 279 B.R. 859 (Bankr. M.D. Fla. 2002) (Distinguishing Southtrust Bank of Alabama v. Thomas (In re Thomas), 883 F.2d 991 (11th Cir. 1989) (“§ 1327(c) does not operate to extinguish a lien on property passing through bankruptcy for which no proof of claim is filed.”), when debtor filed proof of claim for taxing authority, confirmation binds taxing authority to accept amount provided in plan in full satisfaction of its claim and lien.); In re Duggins, 263 B.R. 233, 237–44 (Bankr. C.D. Ill. 2001) (Distinguishing Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000), value stated in confirmed plan trumps contrary value in preconfirmation proof of claim. “Since SEARS was given proper notice and opportunity to object to the DEBTOR’S Plan but did not do so and since valuation of a secured claim is properly determined through the plan confirmation process, the binding effect of the confirmed plan pursuant to Section 1327(a) should preclude any subsequent consideration or different disposition of the valuation issue. . . . [W]here a Chapter 13 plan values a secured claim and the plan is confirmed, with or without objection of the secured creditor, the creditor is bound by the plan’s value notwithstanding that the creditor filed a proof of claim stating a higher value before confirmation and that no objection to the claim was filed before confirmation.”); Crumrine v. Blum (In re Crumrine), 261 B.R. 669, 670 (Bankr. N.D. Cal. 2001) (Creditor does not have a lien pursuant to a prepetition lis pendens because confirmed plan treated the lien as an unsecured claim. “It seems clear that the Blums had a strong claim to a constructive trust against the Crumrine home to recover the $32,000.00 of their money used by the Crumrines to make mortgage payments. However, it also seems clear that their failure to press their claim before confirmation of the plan was fatal. The plan, which called for payments of $2,000.00 per month for 60 months and 100% payment of allowed claims, makes no other provision for the Blums. . . . [T]he Blums do not have an enforceable interest in the Crumrines’ home not because the lis pendens was improperly recorded under state law but because confirmation of the Chapter 13 plan revested the home in the Crumrines free and clear of the Blums’ interest. The plan is res judicata as to all issues that could have or should have been litigated at the confirmation hearing.”); In re Hudson, 260 B.R. 421, 444–45 (Bankr. W.D. Mich. 2001) (Confirmed plan that valued car lender’s collateral at $8,000 trumps inconsistent proof of claim timely filed after confirmation when creditor had adequate notice of plan content and debtor objects to claim. “The Bank failed to object to confirmation and the Debtors’ plan was confirmed. The confirmed plan is binding upon the Bank . . . . The so-called claims allowance process does not defeat or otherwise undermine the treatment of the Bank’s secured claim pursuant to the Debtors’ confirmed chapter 13 plan.”); In re Vincent, 252 B.R. 91 (Bankr. E.D. Va. 2000) (Interest rate in confirmed plan trumps interest rate in proof of claim filed before confirmation when plan and notice warned creditor that collateral would be valued and interest rate would be determined at confirmation.); Nale v. Ray (In re Nale), 239 B.R. 235, 238–39 (Bankr. D. Colo. 1999) (In adversary proceeding more than two years after discharge, confirmation rendered creditors’ claim unsecured and creditors lost their lien by failing to object. “[T]he real issue is whether the Defendants were afforded due process notice that their lien was being affected by the Chapter 13 Plan? Before a creditor’s lien is to be voided, due process requires ‘notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ . . . Defendants were specifically given written notice . . . that the Debtor intended to treat this claim as totally unsecured and that they would receive nothing as a secured creditor, but would share pro rata with the unsecured creditors. Yet in the face of all these pleadings and notices, the Defendants did nothing. They did not object to the plans nor did they even file a proof of claim. . . . [T]he court in [Andersen v. UNIPAC-NEBHELP (In re Andersen),] 179 F.3d 1253 (10th Cir. 1999), held that a confirmed Chapter 13 plan, or any provision thereof, is not rendered void merely because a certain provision of the plan may be inconsistent with, or even contrary to, the Bankruptcy Code. . . . [H]ad the Defendants timely objected to the Debtor’s Chapter 13 Plan on the basis that it was contrary to § 1322(b)(2), or that an adversary proceeding was necessary, or that the values asserted by the Debtor were incorrect, they quite possibly would have succeeded. But when they take no action to protect their rights after they have long standing and adequate notice of possible adverse action against those rights, then they cannot be heard to complain. And in this case that means that the Defendants’ claim was converted from a secured claim to an unsecured claim upon completion of the Debtor’s Fourth Amended Plan. . . . [T]he Defendants no longer had a lien on the Debtor’s property.”); In re Jones, 238 B.R. 338, 344–45 & n.2 (Bankr. W.D. Mich. 1999) (Confirmation of plan that provided for IRS’s secured claim coupled with the debtors’ filing of a proof of claim on behalf of the IRS binds the IRS to accept the treatment in the confirmed plan in satisfaction of its lien rights. “[T]he IRS did not object to the treatment of it’s [sic] claim in the amount of $89,800. Its lien was provided for in the plan. The IRS did not object to the proof of claim filed by the Debtors on its behalf, instead it has sought only to amend it. Nor did the IRS file a proof of claim. . . . [T]his court’s interpretation of 11 U.S.C. § 1327 is that once a plan is confirmed, a creditor with notice who fails to timely file a proof of claim loses its lien rights unless those rights are specifically preserved in the plan itself or the order of confirmation. Neither has happened here. Consequently, the IRS will be paid $89,800 as provided in the plan and shall not prevent the property that is the subject of its lien from revesting in the debtor free and clear. 11 U.S.C. § 1327(c).” In a footnote, “[t]his decision does not detract from the efficacy of Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995) or Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160 (4th Cir. 1993) because here the IRS failed to file a proof of claim. We do not have the tension between the confirmed plan which proposes to treat the secured creditor’s collateral one way and the treatment the secured creditor has indicated it is entitled to in a properly filed, unobjected to proof of claim.”); In re Holmes, 225 B.R. 789, 791, 792–93 (Bankr. D. Colo. 1998) (On a mortgage holder’s motion to reconsider the order confirming a plan and disallowing a portion of its claim, debtors’ motion to confirm the plan adequately noticed mortgage holder that the amount of its secured claim was at issue and thus the confirmation process can resolve the allowable amount of the mortgage holder’s claim. “Distinguishing [Sun Finance Co., Inc. v. Howard (In re Howard),] 972 F.2d 639 (5th Cir. 1992), [Fireman’s Fund Mortgage Corp. v. Hobdy (In re Hobdy),] 130 B.R. 318 (B.A.P. 9th Cir. 1991) and [Southrust Bank of Alabama v. Thomas (In re Thomas),] 883 F.2d 991 (11th Cir. 1989), “a court may determine the amount of a secured creditor’s claim and, therefore, whether a debtor’s plan complies with 11 U.S.C. §§ 1322(b)(5) and 1325(a)(5), as part of the confirmation process. In other words, a creditor has an affirmative obligation to object to confirmation of a plan if such creditor believes the plan inadequately provides for its claim and the creditor must be prepared to offer evidence at the confirmation hearing in support of its claim. A creditor cannot simply rely, at the confirmation hearing, on the fact that it has filed a proof of claim to which the debtor has not, independently objected. . . . The Motion to Confirm in this case clearly notified secured creditors that the Debtors were seeking an order pursuant to Section 506(a) valuing the secured claims to be paid through the Plan . . . . Old Kent was clearly put on notice that its claim was in dispute.”); In re Harnish, 224 B.R. 91, 94 (Bankr. N.D. Iowa 1998) (“Because the plan was confirmed without preserving Sears’ lien, that lien was extinguished.” Sears was scheduled as an unsecured creditor. The plan was silent with respect to preserving any liens. The plan provided for payment to unsecured claim holders. Sears filed a timely proof of claim asserting both a secured and an unsecured claim. “By participating in the case by filing a proof of claim, Sears acts at its peril and cannot be excused from failing to monitor its plan treatment.”); In re Thomas, 222 B.R. 524 (Bankr. E.D. Va. 1998) (Citing Spartan Mills v. Bank of America Illinois, 112 F.3d 1251 (4th Cir. 1997), and distinguishing In re Rodnok, 197 B.R. 232 (Bankr. E.D. Va. 1996), new form of Chapter 13 plan adequately gave notice to furniture company that confirmation of a plan would value its collateral, thus confirmed plan trumped proof of claim asserting higher allowed secured claim.); In re Therneau, 214 B.R. 782 (Bankr. E.D.N.C. 1997) (Distinguishing Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995), where creditor concedes at hearing on objection to confirmation that its secured claim is not perfected, debtor can avoid the lien as part of the valuation process under § 506(a) and (d) without filing an adversary proceeding and without filing an objection to the creditor’s claim.); In re Echevarria, 212 B.R. 26, 28 (Bankr. D.P.R. 1997) (Oversecured mortgage holder is bound by confirmation of plan that pays its claim in full without interest and cannot collect interest and late charges after discharge notwithstanding that plan also provided it would retain its lien. “[D]ebtor is not required to file an adversary proceeding to provide for and subsequently obtain the discharge of a debt secured by a lien. Although the debtor’s plan in this case provided for lien retention, this cannot mean that the lien exists forever, irrespective of full payment of the underlying obligation. The general statement that liens pass through bankruptcy proceedings unaffected must be qualified. ‘They do—unless they are brought into the bankruptcy proceeding and dealt with there.’ . . . Matter of Penrod, 50 F.3d 459, 463 (7th Cir. 1995) . . . . [A] statement in a Chapter 13 payment plan providing for lien retention, only provides for lien retention until the debt is paid. . . . [T]he debtor provided for, and paid in full, Doral’s claim as filed. Therefore, the underlying lien should be extinguished. . . . After the order of confirmation, the conclusion of payments under the plan and an order of discharge that is final, the Court concludes that any claim to interest by a previously oversecured creditor, whose claim was paid in full under the plan, is waived. . . . Doral was an oversecured creditor and Doral was entitled to interest. Doral chose or at least failed to exercise this right. The proof of claim filed by Doral did not include a claim for interest. Doral did not object to confirmation of the debtor’s plan on the basis that the debtor’s plan did not provide for interest. . . . Doral is bound by the order of confirmation and the order of discharge in this case. . . . Pursuant to the discharge order and 11 U.S.C. § 1328, Doral was prohibited from attempting to collect the discharged debt. Doral will be enjoined from making any further attempts to collect the discharged debt and will be required to deliver to the debtor the mortgage note pertaining to the debt for cancellation.”); In re Siemers, 205 B.R. 583, 585–86 (Bankr. D. Minn. 1997) (Confirmed plan that provided for lien avoidance under § 522(f) avoids the lien of a creditor that filed a proof of claim. “In . . .  Harmon v. United States, 101 F.3d 574, 584 (8th Cir.1996), the United States Court of Appeals for the Eighth Circuit held that, upon confirmation of a Chapter 12 plan, 11 U.S.C. § 1227(c) operates to avoid the liens of all participating secured creditors that are provided for by the plan unless the terms of the plan provide otherwise. Similarly, pursuant to § 1141(c), a secured creditor who participates in a Chapter 11 reorganization case may also lose its lien by confirmation of a debtor’s plan of reorganization that does not expressly preserve the lien. FDIC v. Union Entities (In re Be-Mac Transp. Co.), 83 F.3d 1020, 1025–26 (8th Cir. 1996) (Citing Matter of Penrod, 50 F.3d 459, 463 (7th Cir. 1995)). . . . [T]he well-known aphorism that ‘liens pass through bankruptcy unaffected’ is actually far too broad, for there are many ways in which liens may be affected by bankruptcy proceedings. . . . [C]onfirmation of the plan acts to extinguish the lien provided that: 1) the lienholder participated in the debtor’s bankruptcy case by filing a proof of claim; and 2) the property was either ‘dealt with’ or ‘provided for’ by the plan. . . . [T]he terms of the Debtor’s Chapter 13 Plan expressly provide that the Bank’s lien against the equipment arising from the August 8, 1994 promissory note is ‘judicially avoided’ in its entirety, and that the Bank will take solely as an unsecured creditor. . . . [T]he Bank’s claim arising from the August 8, 1994 promissory note was ‘provided for by the plan’ within the meaning of § 1327(c) . . . . [T]he Bank clearly did participate in the Debtor’s Chapter 13 case, as it filed three separate proofs of claim in this case with respect to the debt arising from the August 8, 1994 promissory note. . . . [C]onfirmation of the Debtor’s Chapter 13 Plan extinguished the Bank’s lien arising from the August 8, 1994 promissory note in its entirety, leaving the Bank with nothing but an unsecured claim with respect to this loan transaction. . . .  If a creditor doesn’t like the treatment of its claim under the terms of a proposed plan, the creditor’s remedy is to object to confirmation.”); Ford Motor Credit Co. v. Feher (In re Feher), 202 B.R. 966 (Bankr. S.D. Ill. 1996) (Confirmation crammed down Ford’s lien to the $100 value stated in the plan, and at postconfirmation destruction of the car, Ford’s interest in insurance proceeds is limited to $100. Because Ford’s lien would be reinstated if the case is dismissed, Chapter 13 trustee will hold insurance proceeds subject to Ford’s “inchoate lien” until the completion of payments.); In re Brenner, 189 B.R. 121, 122–29 (Bankr. N.D. Ohio 1995) (IRS is bound by confirmed plan that treats it as a priority unsecured claim holder notwithstanding that IRS timely filed proof of its secured claim. Confirmed plan treated IRS as an unsecured priority claim to be paid in full without interest. Thirty-three months later, IRS filed an “amended proof of claim,” differing from its original proof of claim only in that it included a “stamped statement indicating that interest was payable at ten percent (10%) on the secured claim.” Debtor objected to amended claim. “[T]he claim of the IRS for interest is contrary to the plan of reorganization and should have been addressed before confirmation of the Plan. . . . Like the Court in [In re Szostek, 886 F.2d 1405 (3d Cir. 1989),] this Court also concludes that the policy regarding the binding nature of the confirmed plan outweighs the policy of a secured creditor receiving post-petition interest on its claim when such interest was not provided for in the plan. . . . [H]ad the IRS timely objected to the Plan, it surely would have prevailed. This does not, however, give the IRS the right to ignore the bankruptcy proceedings for nearly two years and expect to have its claim treated as it would have been had it timely objected to the Plan. . . . As with the Court in [Republic Supply Co. v. Shoaf,] 815 F.2d 1046 (5th Cir. 1987),] this Court feels that the IRS is presently seeking to untimely object to the confirmation of the Debtor’s Plan through another disingenuous method. The propriety of the confirmed Plan should have been addressed before confirmation and, if necessary, pursued upon direct appeal. The IRS is now precluded from seeking this Court’s review of that plan on its merits. The doctrine of res judicata, equity, and the policies underlying the Bankruptcy Code all preclude the IRS from asserting its claim for interest now, two years into the Plan. . . . [C]reditors who sleep on their rights through the confirmation process do so at their own peril. . . . [T]his Court must note that it finds no lack of good faith on the behalf of the Debtor. . . . Were bad faith found, the result would be different. . . . This Court finds that Debtor’s failure to properly treat the IRS claim as a secured claim should not change the result of the binding effect of the Plan in this case.”); Dupree v. Lomas Mortgage USA, Inc. (In re Dupree), 183 B.R. 270, 281–82 (Bankr. W.D. Okla.) (Distinguishing Simmons v. Savell (In re Simmons), 765 F.2d 547 (5th Cir. 1985), Sun Finance Co., Inc. v. Howard (In re Howard), 972 F.2d 639 (5th Cir. 1992), and Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160 (4th Cir. 1993), mortgage holder is bound by confirmation of a pre-Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), Chapter 13 plan that bifurcated its undersecured claim and provided that the lien would be released upon payment of the allowed secured portion of the claim. The mortgage holder received the debtor’s motion under § 506 for valuation of its collateral, received the order valuing its collateral, had notice of the plan that bifurcated its claim and provided for the release of the unsecured portion of its lien, and received the order of confirmation. The mortgage company did not object to the valuation of its property and did not object to or appeal confirmation. Nearly four years later, after completion of payments and entry of discharge, the mortgage company refused to release the unsecured portion of its lien and disputed the debtor’s complaint to quiet title in state court. “In this court’s opinion, . . . a secured creditor is entitled to reasonable notice that debtors propose to take an action which would adversely affect the creditor’s rights under its claim. If that notice is not given, the creditor may remain on the sidelines, and choose to rely upon its lien for payment of the debt. To hold, however, that the only acceptable means of providing that notice is the filing of an objection to the creditor’s timely filed proof of claim, is unduly restrictive. Notice that the debtor intends to value the collateral for the creditor’s debt at a lower value than the amount of the debt, and to treat only the value of the collateral as secured and the balance as unsecured, would appear to be all the notice any creditor should be entitled to, whether or not an objection is filed to its proof of claim, or for that matter, whether or not the creditor files a proof of claim. . . . [T]his court finds and concludes that debtors reasonably provided to Lomas, and that Lomas in fact received, notice of debtors’ proposed bifurcation and lien-splitting of its claim which was clearly sufficient to inform it that its rights were subject to being adversely affected. Lomas, however, took no action to protect its interests other than to file its proof of claim. It did not contest debtors’ § 506(a) motion or object to, appeal from, or otherwise challenge the order entered pursuant to it. It did not object to confirmation of debtors’ Chapter 13 plan or appeal from or otherwise challenge the order confirming it. . . . This court is of the view, notwithstanding the foregoing, that debtors are not entitled to judgment quieting title to the property subject to Lomas’ mortgage. Lomas has a valid, perfected lien against debtors’ property, securing an allowed secured claim of $31,000 as of May 10, 1991. Neither are debtors entitled to an order requiring Lomas to release its mortgage lien on that property, in whole or in part, unless and until the allowed secured claim is paid in full, with interest at the contract rate. . . . Lomas will be ordered to adjust its records to credit all mortgage payments made to it since the May 10, 1991 filing of debtors’ petition herein as though the principal balance of the mortgage was $31,000 on that date.” In addition, the court granted Lomas a second lien on the property to secure payment of the unsecured portion of its undersecured claim because the debtors’ plan proposed direct payment by the debtor of the dividend on the unsecured portion of Lomas’s claim and the debtors failed to pay that unsecured dividend prior to discharge.), on reconsideration, 188 B.R. 991 (Bankr. W.D. Okla. 1995) (Lomas Mortgage is bound by plan confirmed in 1991 to accept bifurcation of its undersecured mortgage; however, because of a mixup between the debtor and the Chapter 13 trustee, the unsecured portion of Lomas’s split claim was not paid through the plan. Lomas is entitled to a postdischarge lien on the debtor’s residence to secure portion of its unsecured claim that should have been paid during the plan. Also, Lomas is entitled to interest on its unpaid, unsecured claim to compensate for the failure to receive timely payments during the plan.); In re Williams, 166 B.R. 615, 619–20 (Bankr. E.D. Va. 1994) (Confirmed plan avoids judgment lien and is binding on Chapter 13 trustee, and debtor need not file a separate adversary proceeding to accomplish avoidance of the lien. The plan provided that a judgment lien in favor of NationsBank would be disallowed and deemed avoided because there was no value in the debtor’s residence to satisfy any portion of the lien. NationsBank did not object to confirmation. The trustee argued that the debtor could not avoid NationsBank’s judicial lien through the confirmed plan. The court distinguished Simmons v. Savell (In re Simmons), 765 F.2d 547 (5th Cir. 1985): “This case differs from Simmons. . . . First, no proof of claim has been filed by NationsBank. . . . [I]n this case the bank’s claim is fully unsecured and . . . no objection to the debtor’s Chapter 13 plan has been filed by NationsBank. . . . The expense of requiring the filing of contested matters by Chapter 13 debtors, as urged by the trustee, in order to permissibly modify secured creditors’ rights, would be unnecessarily burdensome to the debtors and to the bankruptcy courts’ dockets. . . . A potentially secured creditor whose claim is classified otherwise by the debtor in a Chapter 13 plan, has ample means to contest the plan’s treatment of the claim. A creditor can file a proof of claim to put the plan’s treatment of that claim in issue, or the offended creditor can object to confirmation of the plan and challenge the treatment of its claim at the confirmation hearing. The burden of policing a plan’s treatment of claims should be on the Chapter 13 creditors as it is on the Chapter 11 creditors. . . . The debtor in this case would accomplish little by instituting a contested matter under Rule 4003(d). A contested proceeding would serve only to duplicate the treatment of the NationsBank lien permissibly set out in the plan.”); McDonough v. Plaistow Coop. Bank (In re McDonough), 166 B.R. 9, 13 (Bankr. D. Mass. 1994) (Bank’s failure to object to confirmation precludes bank from objecting to the avoidance of its lien in the context of an adversary proceeding after confirmation. The confirmed plan treated the bank as an unsecured claim holder because its judicial lien on the debtor’s real property was junior to a first mortgage that was larger than the value of the property. The plan was confirmed without objection from the bank. In a subsequent adversary proceeding to void the bank’s judicial lien under § 506(d), the court found that the debtor’s complaint was moot because of confirmation of the plan. “From a procedural posture, [the bank’s] failure to timely object to the Plan precludes [the bank] from objecting to the avoidance of its lien in any context. This court relies on the ‘law of the case’ doctrine which prevents reconsideration of issues that have been decided either expressly or by necessary implication through final judgments and orders of the court, including decisions that were issued without opinion. . . . Accordingly, the instant Complaint is moot. The issue which the Debtor seeks to resolve has already been determined in its favor.”); Lee Servicing Co. v. Wolf (In re Wolf), 162 B.R. 98, 103, 104–08 (Bankr. D.N.J. 1993) (Confirmed plan clearly stating that second mortgage was unsecured and would be “crammed down to zero and canceled” is binding on mortgage holder. Mortgage holder received notice, filed a proof of claim, and filed an objection to confirmation on other grounds. Mortgage holder failed to appear at the hearing on confirmation. Order confirming the plan was not appealed. Five months after confirmation, mortgage holder filed a complaint to determine the extent and validity of its lien. “The plan provided for cramdown and cancellation of Lee Servicing’s lien based on the value of the property which was decided at confirmation. These plan provisions bind Lee Servicing.” Because prior to Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), the Third Circuit permitted bifurcation and cramdown of an undersecured mortgage, “Lee Servicing’s claim was completely unsecured. . . . There were no objections to the debtors’ valuation of the property or the first mortgage. The court confirmed the plan, accepting the debtors’ valuations of the property and of Lee Servicing’s secured claim. . . . Lee Servicing is bound by the debtors’ valuation of the property and terms of the confirmation order because Lee Servicing did not file a timely objection to valuation nor appear at the confirmation hearing. . . . [T]he court is not required to raise sua sponte objections to a debtor’s valuation of his or her assets and hold a separate valuation hearing. The value of a creditor’s allowed secured claim can be determined at a confirmation hearing. . . . Generally, liens pass through bankruptcy unaffected unless some action is taken by the debtor to modify the lien. . . . A secured creditor may choose not to participate in the bankruptcy process, not to file a proof of claim, and look solely to its lien for satisfaction. . . . [A] chapter 13 plan must address the creditor’s lien or it will be unaffected by the bankruptcy proceeding. . . . Although under Code section 1327(a) a secured creditor is bound by the plan regardless of whether the creditor is provided for by the plan, this does not mean that a debtor can void or otherwise extinguish a creditor’s lien without addressing the lien in the plan. . . . [S]ection 1327(c) requires a plan to ‘provide for’ a creditor in order for the plan to vest property in the debtor free and clear of the creditor’s liens. . . . In this case, however, the plan did not have to ‘otherwise provide’ for the retention of Lee Servicing’s lien because Lee Servicing was completely unsecured and did not hold an allowed secured claim. Therefore, upon confirmation the property vested in the debtors free and clear of Lee Servicing’s lien. An adversary proceeding is not required to modify a secured creditor’s rights in chapter 13. . . . Nor is a separate motion under Bankruptcy Rule 3012 necessary to modify a secured creditor’s rights in chapter 13. . . . [N]o separate objection to the allowance of a secured claim is required to modify a secured creditor’s rights in a chapter 13 plan. . . . The chapter 13 plan and confirmation process determines the amount of the allowed secured claims and no separate proceeding for allowance is required. . . . This court holds that a debtor may modify a secured creditor’s claim and cancel its lien to the extent permitted under Code section 506(a) and 1325 by so providing in a chapter 13 plan without an adversary proceeding, objection to claim or motion under Bankruptcy Rule 3012. . . . A summary of the plan’s terms in the notice to creditors puts the creditor on notice that its rights will be modified by the chapter 13 plan. That creditor has the opportunity to object or otherwise assert its rights at the confirmation hearing. This notice and opportunity to be heard at the confirmation hearing is sufficient to satisfy the requirements of due process.”); Schultz v. Hancock Bank (In re Schultz), 153 B.R. 170, 171–74 (Bankr. S.D. Miss. 1993) (Creditor is required to release the lien on a car when plan proposed to pay the value of the car in full with interest, proof of claim filed by the creditor was consistent with the plan, the payments were completed under the plan, and a discharge was entered. Creditor’s arguments based on Sun Finance Co., Inc. v. Howard (In re Howard), 972 F.2d 639 (5th Cir. 1992), Simmons v. Savell (In re Simmons), 765 F.2d 547 (5th Cir. 1985), and Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), are rejected. “The debtors’ chapter 13 plan proposed to pay Hancock the value of its claim, listed at $8,175.00, plus the contract rate of interest. . . . Hancock Bank filed its proof of claim listing the principal amount due as $15,072.90. . . . The claim filed also included the statement, ‘The fair market value of the property on which the claimant has a lien . . . is $8,175.00. . . . This claim is a general unsecured claim, except to the extent that the security interest, if any, described below is sufficient to satisfy the claim.’ . . . [A]n order approving claims was entered. . . . An order confirming the debtors’ plan was entered. . . . No objection to the plan was filed by Hancock. . . . Orders were entered . . . discharging the debtor . . . and closing the estate. . . . [T]he debtors filed a motion to reopen the bankruptcy case stating that Hancock Bank refused to release the lien and title on the vehicle.” Hancock argued from the Fifth Circuit’s opinion in In re Howard, 972 F.2d 639 (5th Cir. 1992), and its earlier opinion in In re Simmons, 765 F.2d 547 (5th Cir. 1985), “that a security interest was valid post-payout where the debtors had failed to object to a proof of claim as being secured although the debtors had specified a value in their plan and made all of the payments under the terms thereof.” The court rejected this argument because “the claim that was deemed allowed, was the claim, as filed, by Hancock Bank. Therefore, what was deemed allowed was a secured claim in the amount of $8,175.00 and an unsecured claim for the remaining balance on the debt as shown on the face of the proof of claim. . . . The debtors’ plan provided for payment of $8,175.00 as a secured debt, with interest, in accordance with Hancock’s proof of claim. . . . Upon payment in full of the allowed amount of a creditor’s secured claim, the lien is satisfied and should be canceled. . . . The debtors here obviously did not wish to challenge the amount of Hancock’s secured claim. To the contrary, the debtors indicated full agreement with it by proposing and paying the amount indicated as the secured portion of the claim. . . . Because there was no dispute over the amount or validity of the creditor’s claim as filed, it was not necessary for the debtors to file an objection to the claim. . . . Hancock Bank received what it was entitled to receive, what it apparently intended to receive, and what is contemplated under the Bankruptcy Code for a secured creditor to receive. Accordingly, the lien has been fully satisfied and should be released.” In footnotes, “a separate motion or adversary proceeding to avoid the lien” was not necessary because “there was no lien for lien avoidance by the debtor under section 506(d), because the lien was to be satisfied in full under the plan.” Also, the court rejected the creditor’s Dewsnup argument because “[p]rovision for satisfaction of the lien here was in accord with the creditor’s claim.”).

 

23  124 F.3d 1201 (10th Cir. 1997).

 

24  124 F.3d at 1205. See § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

25  124 F.3d at 1209.

 

26  124 F.3d at 1209 n.10. See also Simon v. Tip Top Credit Union (In re Simon), Nos. 94-3304, 94-3312, 1996 WL 192977 (10th Cir. Apr. 22, 1996) (Table decision at 83 F.3d 433) (Applies In re Penrod, 50 F.3d 459 (7th Cir. 1995), in a Chapter 12 case.).

 

27  See 11 U.S.C. § 1325(a)(5)(B)(ii), discussed in § 111.1 [ “Value, As of the Effective Date of the Plan” Means Interest ] § 77.1  “Value, As of the Effective Date of the Plan” Means Interest.

 

28  See § 111.1 [ “Value, As of the Effective Date of the Plan” Means Interest ] § 77.1  “Value, As of the Effective Date of the Plan” Means Interest.

 

29  984 F.2d 775 (7th Cir. 1993).

 

30  85 B.R. 447 (Bankr. N.D. Ohio 1988).

 

31  85 B.R. at 449. Accord In re Echevarria, 212 B.R. 26, 28 (Bankr. D.P.R. 1997) (Oversecured mortgage holder is bound by confirmation of plan that pays its claim in full without interest and cannot collect interest and late charges after discharge notwithstanding that plan also provided it would retain its lien. “[D]ebtor is not required to file an adversary proceeding to provide for and subsequently obtain the discharge of a debt secured by a lien. Although the debtor’s plan in this case provided for lien retention, this cannot mean that the lien exists forever, irrespective of full payment of the underlying obligation. The general statement that liens pass through bankruptcy proceedings unaffected must be qualified. ‘They do—unless they are brought into the bankruptcy proceeding and dealt with there.’ . . . Matter of Penrod, 50 F.3d 459, 463 (7th Cir. 1995) . . . . [A] statement in a Chapter 13 payment plan providing for lien retention, only provides for lien retention until the debt is paid. . . . [T]he debtor provided for, and paid in full, Doral’s claim as filed. Therefore, the underlying lien should be extinguished. . . . After the order of confirmation, the conclusion of payments under the plan and an order of discharge that is final, the Court concludes that any claim to interest by a previously oversecured creditor, whose claim was paid in full under the plan, is waived. . . . Doral was an oversecured creditor and Doral was entitled to interest. Doral chose or at least failed to exercise this right. The proof of claim filed by Doral did not include a claim for interest. Doral did not object to confirmation of the debtor’s plan on the basis that the debtor’s plan did not provide for interest. . . . Doral is bound by the order of confirmation and the order of discharge in this case. . . . Pursuant to the discharge order and 11 U.S.C. § 1328, Doral was prohibited from attempting to collect the discharged debt. Doral will be enjoined from making any further attempts to collect the discharged debt and will be required to deliver to the debtor the mortgage note pertaining to the debt for cancellation.”); In re Fitak, 92 B.R. 243 (Bankr. S.D. Ohio 1988) (Secured claim holder is bound by plan that fails to provide for present value/interest when creditor did not object to confirmation and filed a proof of claim that was deemed to be an acceptance of the debtor’s plan. Had the creditor rejected the plan or objected to confirmation, the creditor would have been entitled to more favorable treatment.).

 

32  61 B.R. 44 (Bankr. W.D. La. 1986).

 

33  Accord Tepper v. Burnham (In re Tepper), 279 B.R. 859, 865 (Bankr. M.D. Fla. 2002) (Distinguishing Southtrust Bank of Alabama v. Thomas (In re Thomas), 883 F.2d 991 (11th Cir. 1989) (“§ 1327(c) does not operate to extinguish a lien on property passing through bankruptcy for which no proof of claim is filed.”), when debtor filed proof of claim for taxing authority, confirmation binds taxing authority to accept amount provided in plan in full satisfaction of its claim and lien. Debtor listed county as a creditor in the amount of $2,248.99 for ad valorem taxes that constituted a lien under Florida law. County did not file a proof of claim. Almost four years later, debtor filed a $100 proof of claim on behalf of the County. Bankruptcy court gave notice, and no objection was filed to the debtor’s proof of claim. Debtor then modified the plan to pay the taxing authority consistent with the allowed proof of claim in “full and complete payment of all claims.” County did not object to the modified plan. Debtor completed payments, and after discharge, taxing authority billed the debtor for $4,042.93. “Debtor filed proof of claims on Defendant’s behalf. Defendant did not file an objection . . . . The Modification Notice filed by the Plaintiff identified the Defendant by name and proposed to make disbursements in accordance with the allowed proof of claims filed on Defendant’s behalf. Despite receiving notice that the modification would constitute a ‘full and complete payment of all [of Defendant’s] claims,’ Defendant did not object to the modified plan. As a result, Defendant was ‘provided for’ and bound by the terms of the modified plan. Therefore the property subject to the 1994 and 1995 ad valorem tax claims vested in the Plaintiff and was free and clear of Defendant’s purported statutory security interest in the property.”); In re Jones, 238 B.R. 338, 344–45 & n.2 (Bankr. W.D. Mich. 1999) (Confirmation of plan that provided for IRS’s secured claim coupled with the debtors’ filing of a proof of claim on behalf of the IRS binds the IRS to accept the treatment in the confirmed plan in satisfaction of its lien rights. “[T]he IRS did not object to the treatment of it’s [sic] claim in the amount of $89,800. Its lien was provided for in the plan. The IRS did not object to the proof of claim filed by the Debtors on its behalf, instead it has sought only to amend it. Nor did the IRS file a proof of claim. . . . [T]his court’s interpretation of 11 U.S.C. § 1327 is that once a plan is confirmed, a creditor with notice who fails to timely file a proof of claim loses its lien rights unless those rights are specifically preserved in the plan itself or the order of confirmation. Neither has happened here. Consequently, the IRS will be paid $89,800 as provided in the plan and shall not prevent the property that is the subject of its lien from revesting in the debtor free and clear. 11 U.S.C. § 1327(c).” In a footnote, “[t]his decision does not detract from the efficacy of Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995) or Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160 (4th Cir. 1993) because here the IRS failed to file a proof of claim. We do not have the tension between the confirmed plan which proposes to treat the secured creditor’s collateral one way and the treatment the secured creditor has indicated it is entitled to in a properly filed, unobjected to proof of claim.”); In re Brenner, 189 B.R. 121, 122–29 (Bankr. N.D. Ohio 1995) (IRS is bound by confirmed plan that treats it as a priority unsecured claim holder notwithstanding that IRS timely filed proof of its secured claim. Confirmed plan treated IRS as an unsecured priority claim to be paid in full without interest. Thirty-three months later, IRS filed an “amended proof of claim,” differing from its original proof of claim only in that it included a “stamped statement indicating that interest was payable at ten percent (10%) on the secured claim.” Debtor objected to amended claim. “[T]he claim of the IRS for interest is contrary to the plan of reorganization and should have been addressed before confirmation of the Plan. . . . Like the Court in [In re Szostek, 886 F.2d 1405 (3d Cir. 1989),] this Court also concludes that the policy regarding the binding nature of the confirmed plan outweighs the policy of a secured creditor receiving post-petition interest on its claim when such interest was not provided for in the plan. . . . [H]ad the IRS timely objected to the Plan, it surely would have prevailed. This does not, however, give the IRS the right to ignore the bankruptcy proceedings for nearly two years and expect to have its claim treated as it would have been had it timely objected to the Plan. . . . As with the Court in [Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir. 1987),] this Court feels that the IRS is presently seeking to untimely object to the confirmation of the Debtor’s Plan through another disingenuous method. The propriety of the confirmed Plan should have been addressed before confirmation and, if necessary, pursued upon direct appeal. The IRS is now precluded from seeking this Court’s review of that plan on its merits. The doctrine of res judicata, equity, and the policies underlying the Bankruptcy Code all preclude the IRS from asserting its claim for interest now, two years into the Plan. . . . [C]reditors who sleep on their rights through the confirmation process do so at their own peril. . . . [T]his Court must note that it finds no lack of good faith on the behalf of the Debtor. . . . Were bad faith found, the result would be different. . . . This Court finds that Debtor’s failure to properly treat the IRS claim as a secured claim should not change the result of the binding effect of the Plan in this case.”); In re Babich, 168 B.R. 617, 621 (Bankr. N.D. Ohio 1994) (On the motion of the IRS to alter or amend judgment (see In re Babich, 164 B.R. 581 (Bankr. N.D. Ohio 1993)), confirmation of Chapter 13 plan that fixed the amount to be paid the IRS at $10,400 and provided that, upon completion of payments under the plan, the liens of the IRS would be “extinguished” and the tax liability “satisfied,” was binding because the IRS failed to object. “Here the Bankruptcy Court gave the IRS notice and an opportunity to have its objections to the proposed plan heard, an opportunity the IRS failed to take. Upon confirmation, the IRS became bound to that plan and to the payment schedule that would satisfy its claim in full.”); In re Campbell, 160 B.R. 198, 200–01 (Bankr. M.D. Fla. 1993) (Upon payment in full of the IRS through the confirmed Chapter 13 plan, the debtors were entitled to an order compelling the government to release its tax lien. “26 U.S.C. § 6325(a)(1) provides that the tax lien shall remain and shall not be released until the obligation of the taxpayer is paid in full or became unenforceable. . . . The Government is apprehensive that in the event this Chapter 13 case aborts and the Chapter 13 is dismissed, the Government’s position would be put in jeopardy if its lien is not preserved. . . . These provisions of the Internal Revenue Code no doubt govern the procedures to release tax liens outside of Bankruptcy. However, it is evident that these provisions are in direct conflict with § 506(d). . . . [Section] 506(d) shall prevail and the conflicts shall be resolved in favor [of] the debtor and against the Government.”).

 

34  See § 83.1  In General: Rake and Contracts before October 22, 1994§ 83.2  Section 1322(e): Contracts after October 22, 1994, § 83.3  Rate of Interest to Cure Default: Contracts before October 22, 1994, § 83.4  Rate of Interest to Cure Default: Contracts after October 22, 1994 and § 83.5  Undersecured Mortgage and Interest to Cure Default for discussion of the entitlement of a mortgage holder to interest on arrearages under Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993), and the effect of the Bankruptcy Reform Act of 1994 on this entitlement.

 

35  See, e.g., In re Battle, 164 B.R. 394, 395–99 (Bankr. M.D. Ga. 1994) (Although oversecured mortgage holder was entitled to interest on its arrearages under § 502(b) and Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993), where plan provided for payment of the arrearages without interest, mortgage holder had notice, and plan was confirmed without objection, mortgage holder is bound by the plan and cannot realize payment of interest by adding unmatured interest to an amended proof of claim. “The plan proposed to pay SunTrust its arrearage without interest. . . . [N]otices were sent to SunTrust. SunTrust was represented by counsel. . . . SunTrust filed an amended proof of claim. . . . The claim also asserts an arrearage claim in the amount of $4,934.69, which includes $777.43 for thirty-six months of interest on the arrearage. Counsel for SunTrust stated that the $777.43 represents the ‘estimated’ interest that would accrue on the arrearage over the term of Debtor’s Chapter 13 plan. . . . SunTrust’s claim for estimated or unmatured interest violates section 502(b)(2). . . . An oversecured creditor is entitled to preconfirmation and postconfirmation interest on a home mortgage arrearage that is cured through a Chapter 13 plan. . . . [B]ut the oversecured creditor may not claim an amount for interest that has not matured. . . . SunTrust did not object to confirmation even though the proposed plan clearly provided that no interest would be paid on the arrearage. The Court confirmed the plan. . . . SunTrust would have been entitled to interest on the arrearage if it had objected to confirmation of Debtor’s Chapter 13 plan. . . . [W]hile the policy in favor of protecting the rights of mortgage lenders granted by the Code is sound, it must under these facts give way to the wisdom of promoting the finality of the Court’s confirmation order.”); In re Stage, 79 B.R. 487 (Bankr. S.D. Cal. 1987) (Mortgage holder’s failure to object to payment of arrearages without interest is fatal to objection that interest was required.).

 

36  See § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors. See, e.g., In re Vincent, 252 B.R. 91, 94–96 (Bankr. E.D. Va. 2000) (Interest rate in confirmed plan trumps interest rate in proof of claim filed before confirmation when plan and notice warned creditor that collateral would be valued and interest rate would be determined at confirmation. Plan stated, “The debtor hereby moves to value the collateral at $900.00 . . . and debtor hereby also moves to establish the interest rate to be paid on this value of collateral in order to maintain the present value, at 8%.” Plan was served on all creditors. Transouth filed a proof of claim before confirmation claiming interest at the contract rate of 26.99%. Transouth did not object to confirmation. “[T]he Plan and Related Motions complies with the notice and due process mandates of the Fourth Circuit’s ruling in Piedmont Trust Bank v. Linkous, etc., 990 F.2d 160 (4th Cir. 1993). . . . Therefore, the confirmation order . . . is res judicata and is binding on Transouth. Thus, the plan interest rate for its secured debt is 8% and is binding on the creditor and the Chapter 13 trustee. . . . [I]f the creditor, with sufficient notice of the treatment of its claim as outlined above, does not object to confirmation of the debtor’s plan, the rate proposed in the plan governs the repayment of the debt. Thus, the rate of interest may be established by default based on the creditor’s failure to challenge the rate set by the debtor in the form plan . . . . The mere filing of a proof of claim does not put the rate in issue . . . . The trustee’s practice in this District is to make plan payment distributions according to the proofs of claim filed in the chapter 13 case. That practice comports with the intent of Congress so long as the debtor does not make a proper motion to value the secured creditor’s collateral or to repay the secured portion of its loan at other than the contract rate, as happened in this case. . . . In order to contest the plan rate of interest, Transouth or the trustee should have objected to confirmation of the debtor’s plan. . . . Since Transouth never put the issue of the debtor’s treatment of its claim before the court, the debtor’s plan provisions for the Transouth claim control the distributions to be made by the trustee to Transouth.”).

 

37  See §§ 101.1 [ General Rules ] § 74.1  General Rules before BAPCPA and 104.1 [ The Power to Modify ] § 74.11  The Power to Modify.

 

38  See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

39  See § 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

40  See discussion of valuation beginning at § 76.1  Valuation, Claim Splitting and Dewsnup.

 

41  See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

42  See § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA for discussion of wholly unsecured home mortgages.

 

43  147 B.R. 960 (Bankr. N.D. Cal. 1992).

 

44  147 B.R. at 962.

 

45  147 B.R. at 962. Accord In re Harvey, 213 F.3d 318 (7th Cir. 2000) (GMAC is bound by its failure to object to confirmation of plan that stripped its undersecured lien upon completion of payment of the allowed secured portion of its claim.); Nationsbanc Mortgage v. Williams (In re Williams), 276 B.R. 899 (C.D. Ill. 1999) (Confirmed plan that bifurcated Nationsbanc Mortgage’s claim and valued the allowed secured claim at $8,000 limits Nationsbanc’s lien notwithstanding an inconsistent proof of claim timely filed after confirmation.); Chevy Chase Bank v. Locke (In re Locke), 227 B.R. 68 (E.D. Va. 1998) (Car lender that failed to object to confirmation of a plan that valued its collateral at $8,200 cannot attack the confirmation order by motion for relief from the stay after confirmation notwithstanding the timely filing of a proof of claim for $12,004.25.); In re Hernandez, 175 B.R. 962, 965–67 (N.D. Ill. 1994) (Confirmation of a Chapter 13 plan can strip down undersecured creditor’s lien on automobile to value of collateral and frees the collateral of any lien for the unsecured portion. “In the pre-Code counterpart to Chapter 13, debtors could not affect the rights of secured claim holders. . . . This pre-Code practice was changed by the Bankruptcy Reform Act of 1978. . . . 11 U.S.C. § 1327 . . . allows Chapter 13 debtors to provide in their plans that property may vest in the Debtor free and clear of creditor’s liens. This section provides the type of evidence of Congress’s intent to change the pre-Code practice that the Supreme Court found wanting in [Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992)]. . . The Bankruptcy Court’s result runs afoul of the ‘free and clear’ provision of Code section 1327. Bankruptcy Code section 1327 . . . provides the mechanism by which Chapter 13 Debtors can strip down creditor’s liens without resorting to Code section 506(d).”); Ford Motor Credit Co. v. Lee (In re Lee), 162 B.R. 217, 222–26 (D. Minn. 1993) (Section 1322(b)(2) permits confirmation of a plan that vests an automobile in the debtor free and clear of any lien upon completion of payment of the secured portion of the undersecured car lender’s claim. Neither Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), nor Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), precludes confirmation of a plan that strips down an undersecured automobile lender to the value of its collateral. “[T]he plain language of section 1322(b) indicates that debtors may strip down FMCC’s lien to the value of the collateral. . . . [D]ebtors may strip down FMCC’s lien to the value of the collateral as of the date of the filing of the petition. . . . [D]ebtors rely on section 1322(b), not section 506(d). . . . [S]ection 1322(b) is unambiguous and allows for the modification of a secured party’s rights, a clear change from pre-Code practice. . . . [T]he Code also provides that property can vest with Chapter 13 debtors prior to completion of the plan. Section 1322(b)(9) states that ‘the plan may . . . provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any other entity.’ . . . [T]he collateral may vest in debtors upon full payment of the secured portion of FMCC’s claim. . . . FMCC, as a secured creditor, may not block confirmation of the plan if ‘the value, as of the effective date of the plan, of property to be distributed under the plan on account of [the secured] claim is not less than the allowed amount of such claim.’ 11 U.S.C. § 1325(a)(5)(B)(ii). The plan provides for full payment of FMCC’s allowed secured claim. Thus, the bankruptcy court properly approved the plan despite the fact that collateral will vest with debtors prior to completion of the plan. . . . [T]he Court is unpersuaded by FMCC’s argument that vesting of the collateral in debtors upon payment of the secured portion of the claim will provide an incentive for debtors to convert the petition to one under Chapter 7. FMCC is likely to receive at least as much in this Chapter 13 action as it would have had debtors originally filed under Chapter 7. Moreover, there are many protections in the Code preventing such abuses by debtors.”); In re Duggins, 263 B.R. 233, 244 (Bankr. C.D. Ill. 2001) (Distinguishing Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000), value stated in confirmed plan trumps contrary value in preconfirmation proof of claim. “[W]here a Chapter 13 plan values a secured claim and the plan is confirmed, with or without objection of the secured creditor, the creditor is bound by the plan’s value notwithstanding that the creditor filed a proof of claim stating a higher value before confirmation and that no objection to the claim was filed before confirmation.”); In re Hudson, 260 B.R. 421 (Bankr. W.D. Mich. 2001) (Confirmed plan that valued car lender’s collateral at $8,000 trumps inconsistent proof of claim timely filed after confirmation when creditor had adequate notice of plan content and debtor objects to claim.); Ford Motor Credit Co. v. Feher (In re Feher), 202 B.R. 966 (Bankr. S.D. Ill. 1996) (Confirmation crammed down Ford’s lien to the $100 value stated in the plan and at postconfirmation destruction of the car, Ford’s interest in insurance proceeds is limited to $100. Because Ford’s lien would be reinstated if the case is dismissed, Chapter 13 trustee will hold insurance proceeds subject to Ford’s “inchoate lien” until the completion of payments.); In re Keaton, 182 B.R. 203, 204 (Bankr. E.D. Tenn. 1995) (In dicta, confirmed plan that fixed the allowed amount of a car lender’s secured claim at $13,500 is binding notwithstanding the filing of a proof of claim for substantially more. The notice to creditors provided: “‘A claim secured by a non-voidable lien will be allowed as a secured claim only to the extent of the value of the property securing the claim and an unsecured claim as to the balance. . . . The value of the collateral proposed by the Debtors’ plan will become the value of the secured portion of the claim upon confirmation unless a timely objection to confirmation is filed.’” No objection to confirmation was filed. “[T]he Debtors’ plan was confirmed. . . . [T]he value of the collateral stated in Debtors’ plan became binding upon the Debtors and Boatmen’s.”); In re Ross, 162 B.R. 785 (Bankr. N.D. Ill. 1993) (Chapter 13 debtor satisfies the lien of a creditor undersecured by a car by bifurcating its claim and paying the allowed amount of the secured claim through the Chapter 13 plan. The debtor’s schedules and plan treated Edison as an undersecured creditor with a secured claim of $4,000 based on the debtor’s valuation of a car. Edison filed a proof of claim asserting a total claim of $11,881.85, but the proof of claim did not dispute the plan provision for valuation of Edison’s collateral at $4,000, and Edison did not object to confirmation of the plan. Two years after confirmation, the debtor objected to Edison’s claim, arguing that the car was really worth only $3,161.50. The court held that the debtor was bound by confirmation of the plan to the $4,000 value stated in the plan and the schedules. The court also rejected Edison’s argument that it should be allowed a secured claim to the full extent of its $11,881.85 claim, finding that Edison’s failure to dispute the debtor’s valuation either in its proof of claim or by objection to confirmation left Edison bound by the plan to accept $4,000 in satisfaction of its lien.); Schultz v. Hancock Bank (In re Schultz), 153 B.R. 170 (Bankr. S.D. Miss. 1993) (Without citation to § 1327, confirmation of a plan, completion of payments and entry of discharge fully provide for the holder of a claim secured by a car, and the debtors are thus entitled to release of the lien on the car. Court rejects creditor’s arguments based on Sun Finance Co., Inc. v. Howard (In re Howard), 972 F.2d 639 (5th Cir. 1992), Simmons v. Savell (In re Simmons), 765 F.2d 547 (5th Cir. 1985), and Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), that the undersecured creditor’s lien continues in the car notwithstanding payment in full of its allowed secured claim. The plan provided for payment of $8,175 in full with interest, the value of the car. The bank filed a proof of claim consistent with the plan, and the debtors completed payments under the plan. A discharge was entered, but the bank refused to release the lien on the car. The court grants the debtors’ postdischarge motion to require the bank to release the lien, finding that payment in full consistent with the plan satisfied the lien and entitled the debtors to release of the lien.).

 

46  See § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations and discussion beginning at § 80.1  In General: Claims That Are Not Secured Only by Security Interest in Real Property That Is the Debtor’s Principal Residence.

 

47  146 B.R. 47 (Bankr. S.D. Ga. 1992).

 

48  See, e.g., United States v. Richman (In re Talbot), 124 F.3d 1201 (10th Cir. 1997) (Confirmed plan that trifurcated the IRS’s claim into a secured claim, a priority claim and a general unsecured claim based on the value of collateral binds the IRS to accept the secured portion of its claim in full satisfaction of its lien when the debtor sells the collateral after confirmation.); In re Jones, 238 B.R. 338 (Bankr. W.D. Mich. 1999) (Confirmation of plan that provided $89,800 for the IRS on account of its secured claim binds the IRS to accept that amount in full satisfaction of its lien rights notwithstanding that the IRS asserts a larger secured claim.); In re Holmes, 225 B.R. 789, 791, 792–93 (Bankr. D. Colo. 1998) (Chapter 13 plan providing to pay mortgage holder $7,806 plus interest binds mortgage holder to accept that amount in full satisfaction of its lien notwithstanding that mortgage holder filed a proof of claim for $8,072.21. Allowable amount of mortgage holder’s secured claim was determinated at the confirmation hearing and the extent of its allowed claim is fixed by the confirmed plan.); Dupree v. Lomas Mortgage USA, Inc. (In re Dupree), 183 B.R. 270 (Bankr. W.D. Okla.) (Mortgage holder is bound by confirmation of a pre-Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), Chapter 13 plan that bifurcated its undersecured claim and provided that the lien would be released upon payment of the allowed secured portion of the claim.), on reconsideration, 188 B.R. 991 (Bankr. W.D. Okla. 1995) (Lomas Mortgage is bound by plan confirmed in 1991 to accept bifurcation of its undersecured mortgage in full satisfaction of its lien rights; however, because of a mixup between the debtor and the Chapter 13 trustee, the unsecured portion of Lomas’s claim was not paid through the plan and Lomas is entitled to a postdischarge lien to secure the portion of its unsecured claim that should have been paid through the plan.); Lumbermen’s Inv. Corp. v. Moretti (In re Moretti), 172 B.R. 984, 987–88 (Bankr. W.D. Okla. 1994) (Confirmation of a plan that bifurcated and stripped down an undersecured home mortgage prior to Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), voided the mortgage holder’s lien to the extent its debt exceeded the value of its collateral.); In re Jones, 152 B.R. 155, 183 (Bankr. E.D. Mich. 1993) (Decided before Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), Chapter 13 debtor can bifurcate the claim of an undersecured home mortgage holder; court orders that the debtor’s house remain property of the estate notwithstanding confirmation to avoid invalidation of the unsecured portion of the lien until the debtor completes payments under the plan and is entitled to a discharge.). See also Kitchen v. Malmstrom Fed. Credit Union, 64 B.R. 452 (Bankr. D. Mont. 1986) (Secured claim holder is bound by consent to confirmed plan providing for payment of $300 per month for 60 months and surrender of certain collateral, notwithstanding that creditor filed a proof of claim for an amount in excess of that provided for by the plan. Upon completion of the payments, debtor will be entitled to a discharge of creditor’s claim and to a release of the creditor’s lien.); In re Allred, 45 B.R. 676 (Bankr. E.D.N.C. 1985) (Dicta suggests that § 1327 provides a sort of “lien avoidance,” vesting property in the debtor “free and clear of any claim or interest of any creditor” upon confirmation.).

 

49  See, e.g., Factors Funding Co. v. Fili (In re Fili), 257 B.R. 370, 372–74 (B.A.P. 1st Cir. 2001) (Plan that expressly provided, “The alleged secured claim of Factors Funding, Inc. is hereby discharged as there is no underlying obligation” precludes allowance of Factors’s claim though timely filed after confirmation of the plan. “We conclude that the plan confirmation process, resulting in confirmation of Fili’s amended Chapter 13 plan, effectively extinguished Fili’s alleged liability to Factors. . . . [W]e hold that in the face of notice that timely and unambiguously informs a creditor that his claim will be disallowed in total and discharged under a Chapter 13 plan pending for confirmation, the creditor may not ignore the confirmation process and fail to object simply because the bar date for filing a proof of claim has yet to expire.”); Crumrine v. Blum (In re Crumrine), 261 B.R. 669, 670 (Bankr. N.D. Cal. 2001) (Creditor does not have a lien pursuant to a prepetition lis pendens because confirmed plan treated the lien as an unsecured claim. “It seems clear that the Blums had a strong claim to a constructive trust against the Crumrine home to recover the $32,000.00 of their money used by the Crumrines to make mortgage payments. However, it also seems clear that their failure to press their claim before confirmation of the plan was fatal. The plan, which called for payments of $2,000.00 per month for 60 months and 100% payment of allowed claims, makes no other provision for the Blums. . . . [T]he Blums do not have an enforceable interest in the Crumrines’ home not because the lis pendens was improperly recorded under state law but because confirmation of the Chapter 13 plan revested the home in the Crumrines free and clear of the Blums’ interest. The plan is res judicata as to all issues that could have or should have been litigated at the confirmation hearing.”); Nale v. Ray (In re Nale), 239 B.R. 235, 238–39 (Bankr. D. Colo. 1999) (In adversary proceeding more than two years after discharge, confirmation rendered creditors’ claim unsecured and creditors lost their lien by failing to object. “[T]he real issue is whether the Defendants were afforded due process notice that their lien was being affected by the Chapter 13 Plan? Before a creditor’s lien is to be voided, due process requires ‘notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ . . . Defendants were specifically given written notice . . . that the Debtor intended to treat this claim as totally unsecured and that they would receive nothing as a secured creditor, but would share pro rata with the unsecured creditors. Yet in the face of all these pleadings and notices, the Defendants did nothing. They did not object to the plans nor did they even file a proof of claim. . . . [T]he court in [Andersen v. UNIPAC-NEBHELP (In re Andersen),] 179 F.3d 1253 (10th Cir. 1999), held that a confirmed Chapter 13 plan, or any provision thereof, is not rendered void merely because a certain provision of the plan may be inconsistent with, or even contrary to, the Bankruptcy Code. . . . [H]ad the Defendants timely objected to the Debtor’s Chapter 13 Plan on the basis that it was contrary to § 1322(b)(2), or that an adversary proceeding was necessary, or that the values asserted by the Debtor were incorrect, they quite possibly would have succeeded. But when they take no action to protect their rights after they have long standing and adequate notice of possible adverse action against those rights, then they cannot be heard to complain. And in this case that means that the Defendants’ claim was converted from a secured claim to an unsecured claim upon completion of the Debtor’s Fourth Amended Plan. . . . [T]he Defendants no longer had a lien on the Debtor’s property.”); In re Harnish, 224 B.R. 91, 93–94 (Bankr. N.D. Iowa 1998) (Sears had notice that the debtors’ plan did not preserve its lien and treated it as an unsecured claim holder and is thus bound by confirmation notwithstanding that it filed a timely proof of claim asserting secured status. Sears was listed as an unsecured creditor in the schedules. The plan did not preserve Sears’s lien. Sears timely filed a proof of claim asserting both a secured claim and an unsecured claim. Debtors did not object to the proof of claim. Two months after confirmation, the trustee filed a report on claims identifying Sears as an unsecured claim holder. Sears objected to the report. Court identified three approaches to the effect of confirmation under § 1327 and the filing of timely proofs of claim that are contrary to the confirmation order. “Under the first approach, the debtor or a party in interest must object to the creditor’s proof of claim because a Chapter 13 plan ‘does not provide the creditor with sufficient notice that the claim is disputed.’ [Simmons v. Savell (In re Simmons), 765 F.2d 547, 552 (5th Cir. 1985)]; see also [Sun Finance Co., Inc. v. Howard (In re Howard), 972 F.2d 639 (5th Cir. 1992)] . . . . Under the second approach, the debtor’s filing of a Chapter 13 petition is sufficient by itself ‘to put the creditor on notice that its rights may be altered.’ [In re Pence, 905 F.2d 1107 (7th Cir. 1990).] Under this approach, secured creditors have a duty to ‘follow the administration of the bankruptcy estate to determine what aspects of the proceeding they may want to challenge.’ Pence, 905 F.2d at 1109. The third approach looks at the contents of the notice to determine whether it is ‘reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ [Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160 (4th Cir. 1993).]” Although acknowledging that the Eighth Circuit has not ruled on the effect of confirmation in a Chapter 13 case, the court cites Harmon v. United States, 101 F.3d 574 (8th Cir. 1996), and In re Be-Mac Transportation Co., 83 F.3d 1020 (8th Cir. 1996), for the proposition that the Eighth Circuit would adopt the second approach. Applying the second approach, “Sears filed its proof of claim prior to the original date set for the confirmation hearing. This constitutes participation by Sears in the bankruptcy proceeding. The confirmed plan is silent regarding Sears’ lien. . . . The 3-page plan itself does not mention Sears’ claim. Debtors’ schedules, however, list Sears as an unsecured creditor referencing the same account for which Sears filed its proof of claim . . . . The confirmed plan provides for distribution ‘to the unsecured creditors of this estate whose claims are duly approved and allowed.’ Because Sears was scheduled as an unsecured creditor and Debtors’ plan provides for distribution to unsecured creditors, the plan provides for Sears’ claim under § 1327(c). . . . By participating in the case by filing a proof of claim, Sears acts at its peril and cannot be excused from failing to monitor its plan treatment. . . . Because the plan was confirmed without preserving Sears’ lien, that lien was extinguished.”); In re Carrillo, 215 B.R. 212, 217 (Bankr. N.D. Okla. 1997) (Confirmation order in prior Chapter 13 case that treated claim of Oklahoma Employment Security Commission as a general unsecured debt was binding on OESC; the creditor’s untimely claim in prior case was disallowed and discharged at the completion of payments. “When a creditor receives notice about a bankruptcy proceeding, the creditor is under constructive or inquiry notice that its claim may be affected. . . . OESC received ample notice that it was being treated as a general unsecured creditor, yet it never objected to the proposed plan. . . . A confirmation order is res judicata as to all issues decided or which could have been decided at the hearing on confirmation. . . . OESC had the opportunity to object to confirmation, but failed to do so and allowed the Confirmed Plan to be entered. It cannot now collaterally attack its treatment as a general unsecured creditor in the Confirmed Plan. The Confirmed Plan is binding on OESC.”); In re Therneau, 214 B.R. 782, 784–86 (Bankr. E.D.N.C. 1997) (Distinguishing Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995), admittedly unperfected security interest can be avoided as part of the confirmation process by valuation under § 506(a) and lien avoidance under § 506(d) using the procedure in Bankr. R. 3012. “The court in [Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995),] stated that ‘to extinguish or modify a lien during the bankruptcy process, some affirmative step must be taken toward that end.’ . . . While Rule 7001(2) clearly requires that the validity, priority, and the extent of liens must be challenged in an adversary proceeding, an adversary proceeding is not the only procedure for eliminating a lien. . . . [S]ecured claims may also be challenged by objection and may be modified or removed by the valuation process pursuant to 11 U.S.C. § 506(a) and (d) and Rule 3012.” American General filed a proof of claim asserting that it was secured by miscellaneous personal property. No objection to the claim was filed by the debtor, but American General was scheduled as an unsecured creditor and the proposed plan treated American General as unsecured. At the hearing on American General’s objection to confirmation, American General conceded that it had not perfected its security interest. “[W]here, as in this case, a creditor makes no claim of having a perfected security interest, an objection to the secured claim rather than an adversary proceeding would be an appropriate way to challenge the lien. Another means short of an adversary proceeding to modify the lien is the valuation process and the application of § 506(a) and (d). The debtor could have the creditor’s collateral valued and the amount of the secured claim determined pursuant to § 506(a); the lien could then be avoided under § 506(d) to the extent ‘that [the] lien secures a claim against the debtor that is not an allowed secured claim.’ . . . The procedure for valuation is provided in Rule 3012 and does not require an adversary proceeding. . . . In this case the debtors took no affirmative steps to avoid American General’s lien, but the validity of the lien became an issue when the debtor responded to American General’s objection to confirmation. American General’s objection was based on the debtors’ failure to deal with American General’s secured claim in the plan. The debtors responded that American General has no perfected security interest, and American General agreed. Because that issue has been decided, it is unnecessary for the debtors to file an objection or to use the valuation process.”); In re Siemers, 205 B.R. 583, 585–86 (Bankr. D. Minn. 1997) (Confirmed plan that provided for lien avoidance under § 522(f) avoids the lien of a creditor that filed a proof of claim. “In . . . Harmon v. United States, 101 F.3d 574, 584 (8th Cir.1996), the United States Court of Appeals for the Eighth Circuit held that, upon confirmation of a Chapter 12 plan, 11 U.S.C. § 1227(c) operates to avoid the liens of all participating secured creditors that are provided for by the plan unless the terms of the plan provide otherwise. Similarly, pursuant to § 1141(c), a secured creditor who participates in a Chapter 11 reorganization case may also lose its lien by confirmation of a debtor’s plan of reorganization that does not expressly preserve the lien. FDIC v. Union Entities (In re Be-Mac Transp. Co.), 83 F.3d 1020, 1025–26 (8th Cir. 1996) (citing Matter of Penrod, 50 F.3d 459, 463 (7th Cir. 1995)). . . . [T]he well-known aphorism that ‘liens pass through bankruptcy unaffected’ is actually far too broad, for there are many ways in which liens may be affected by bankruptcy proceedings. . . . [C]onfirmation of the plan acts to extinguish the lien provided that: 1) the lienholder participated in the debtor’s bankruptcy case by filing a proof of claim; and 2) the property was either ‘dealt with’ or ‘provided for’ by the plan. . . . [T]he terms of the Debtor’s Chapter 13 Plan expressly provide that the Bank’s lien against the equipment arising from the August 8, 1994 promissory note is ‘judicially avoided’ in its entirety, and that the Bank will take solely as an unsecured creditor. . . . [T]he Bank’s claim arising from the August 8, 1994 promissory note was ‘provided for by the plan’ within the meaning of § 1327(c) . . . . [T]he Bank clearly did participate in the Debtor’s Chapter 13 case, as it filed three separate proofs of claim in this case with respect to the debt arising from the August 8, 1994 promissory note. . . . [C]onfirmation of the Debtor’s Chapter 13 Plan extinguished the Bank’s lien arising from the August 8, 1994 promissory note in its entirety, leaving the Bank with nothing but an unsecured claim with respect to this loan transaction. . . .  If a creditor doesn’t like the treatment of its claim under the terms of a proposed plan, the creditor’s remedy is to object to confirmation.”); In re Williams, 166 B.R. 615, 620 (Bankr. E.D. Va. 1994) (Confirmed Chapter 13 plan can avoid wholly unsecured judicial lien on the debtor’s residence where NationsBank did not object to confirmation, plan clearly provided that the bank’s judgment lien would be disallowed and deemed avoided, the value of the debtor’s residence was not sufficient to satisfy any portion of the judgment lien, and NationsBank did not file a proof of claim and did not object to confirmation. Distinguishing Simmons, “the debtor in this case is entitled to provide in his Chapter 13 plan for the avoidance of NationsBank’s judicial lien pursuant to Bankruptcy Code §§ 1322(b)(2) and 1327(b) and (c). The debtor’s plan provides for the vesting of the debtor’s interest in his real estate free and clear of the NationsBank lien upon confirmation of the plan. Such treatment of a creditor’s claim is contemplated by the Code. . . . Parties in interest have sufficient opportunity to object to the treatment of claims in the debtor’s Chapter 13 plan, simply by objecting to confirmation pursuant to Bankruptcy Code § 1324.”); McDonough v. Plaistow Coop. Bank (In re McDonough), 166 B.R. 9, 13 (Bankr. D. Mass. 1994) (Failure to object to confirmation precludes bank from objecting to the avoidance of its lien in a separate adversary proceeding. The confirmed plan treated the bank as an unsecured claim holder because its judicial lien on the debtor’s real property was junior to a first mortgage that was larger than the value of the property. The plan was confirmed without objection from the bank. In a subsequent adversary proceeding by the debtor to void the bank’s judicial lien under § 506(d), the court found that the debtor’s complaint was moot because of confirmation of the plan. “From a procedural posture, [the bank’s] failure to timely object to the Plan precludes [the bank] from objecting to the avoidance of its lien in any context. This court relies on the ‘law of the case’ doctrine which prevents reconsideration of issues that have been decided either expressly or by necessary implication through final judgments and orders of the court, including decisions that were issued without opinion. . . . Accordingly, the instant Complaint is moot. The issue which the Debtor seeks to resolve has already been determined in its favor.”); In re Pettit, 18 B.R. 832 (Bankr. S.D. Ohio 1982) (Section 1327(c) converts the creditor’s claim secured by a lien on real estate into an unsecured claim; effect is to avoid judicial lien.). But see In re Mitchell, 281 B.R. 90, 94 (Bankr. S.D. Ala. 2001) (Confirmation of plan that treated mortgage holder as unsecured is binding but does not eliminate lien. “Under the plan SSFS will not receive a full distribution from the estate since the Mitchell’s [sic] plan proposes to pay unsecured, nonpriority claims 1% pro rata. This may mean forfeiting any right to a deficiency, but it does not waive the lien.” Mortgagee is not entitled to relief from the stay, and personal liability on the mortgage will be discharged; but “[w]hen the Mitchells emerge from bankruptcy . . . SSFS will still have a lien on the property to the extent the debt has not been satisfied.”). See also § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA for discussion of wholly unsecured home mortgages.

 

50  502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992).

 

51  See Fleet Real Estate Funding Corp. v. Fewell (In re Fewell), 164 B.R. 153, 156, 156–57 (Bankr. D. Colo. 1993) (“A bankruptcy discharge will not prevent enforcement of valid liens. As an in rem action on a secured claim, the secured creditor may proceed to enforce the lien and is not barred by Section 524 of the Code. Unavoided liens pass through Section 506(d) without action by the lienholder.” Confirmed plan calling for payment of mortgage arrearages in the amount of $6,000 limits distributions to the mortgage holder to $6,000, notwithstanding the mortgage holder’s timely filed proof of claim for arrearages in the amount of $9,001.69; however, “the portion of the Creditor’s allowed claim that remains unpaid after the payments have been received through the plan survives and is an enforceable claim against the debtors.”); In re Hernandez, 162 B.R. 160, 164–66 (Bankr. N.D. Ill. 1993) (“[Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992),] expressly held that a debtor is not allowed to use § 506(d) to strip down the undersecured portion of a lien. . . . [I]ts rationale applies to attempts to strip down any lien in a proceeding under any chapter of the Bankruptcy Code, including Chapter 13. . . . [A] Chapter 13 debtor is not allowed to ‘strip down’ a lien, even one secured by personal property. . . . The debtor will be discharged of personal liability if the Plan completes. However, the lien will remain on the vehicle to secure a debt that will then be without personal recourse.”), rev’d, 175 B.R. 962 (N.D. Ill. 1994); Washington v. Nissan Motor Acceptance Corp. (In re Washington), 158 B.R. 722 (Bankr. S.D. Ohio 1993) (The general provisions of § 1327(c) cannot “vitiate the express language of § 506(d)(2).” Citing Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), Long v. Bullard, 117 U.S. 617, 6 S. Ct. 917, 29 L. Ed. 1004 (1886), and Southrust Bank of Alabama v. Thomas (In re Thomas), 883 F.2d 991 (11th Cir. 1989), cert. denied, 497 U.S. 1007, 110 S. Ct. 3245, 111 L. Ed. 2d 756 (1990), debtor cannot avoid Nissan’s lien under § 1327(c) because of the exception to the lien-voiding power in § 506(d)(2).); In re Glow, 111 B.R. 209 (Bankr. N.D. Ind. 1990) (Absent invocation of § 506(d) at cramdown or by adversary proceeding, confirmation of a Chapter 13 plan that fails to make reference to or deal with a lien does not affect the lien.); Spadel v. Household Consumer Discount Co., 28 B.R. 537 (Bankr. E.D. Pa. 1983) (Provision of confirmed plan avoiding mortgage lien is inconsistent with § 506(d)(1) and is not effective.).

 

52  11 U.S.C. § 506(d).

 

53  See § 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

54  See § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

55  162 B.R. 160 (Bankr. N.D. Ill. 1993), rev’d, 175 B.R. 962 (N.D. Ill. 1994).

 

56  162 B.R. at 164–66.

 

57  In re Hernandez, 175 B.R. 962 (N.D. Ill. 1994).

 

58  175 B.R. at 965.

 

59  175 B.R. at 967. Accord Ford Motor Credit Co. v. Lee (In re Lee), 162 B.R. 217 (D. Minn. 1993) (Section 1322(b)(2) permits confirmation of a plan that vests an automobile in the debtor free and clear of any lien upon completion of payment of the secured portion of the undersecured car lender’s claim. Neither Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), nor Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), precludes confirmation of a plan that strips down an undersecured automobile lender to the value of its collateral.); Lumbermen’s Inv. Corp. v. Moretti (In re Moretti), 172 B.R. 984 (Bankr. W.D. Okla. 1994) (Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), is “simply inapposite” to the question whether confirmation of a plan that bifurcated and stripped down an undersecured mortgage had the effect of voiding the mortgage holder’s lien to the extent its debt exceeded the value of its collateral. The avoidance of an undersecured mortgage holder’s lien is “accomplished by operation of law pursuant to § 506(d)” upon confirmation of the plan.); In re Ross, 162 B.R. 785 (Bankr. N.D. Ill. 1993) (Neither Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), nor Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), prevent a Chapter 13 debtor from satisfying the lien of a creditor undersecured by a car by bifurcating its claim and paying the allowed amount of the secured claim through the Chapter 13 plan.); Schultz v. Hancock Bank (In re Schultz), 153 B.R. 170 (Bankr. S.D. Miss. 1993) (Confirmation of a plan, completion of payments and entry of discharge fully provide for the holder of an undersecured claim secured by a car, and the debtor is thus entitled to release of the lien on the car. Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), is not controlling because the plan provision for satisfaction of the bank’s lien in full did not implicate § 506(d).).

 

60  See § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

61  See § 121.1  Overview § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation§ 121.3  Failure to Provide For  and § 121.4  Other Limitations. 

 

62  See discussion beginning at § 74.1  General Rules before BAPCPA.

 

63  See § 319.1 [ In Cases Filed before October 22, 1994 ] § 145.1  In Cases Filed before October 22, 1994. See, e.g., In re Cooke, 169 B.R. 662, 668 (Bankr. W.D. Mo. 1994) (In re Tluscik, 122 B.R. 728 (Bankr. W.D. Mo. 1991), is still good law notwithstanding Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992). Upon conversion from Chapter 13 to Chapter 7, the debtor can redeem personal property subject to liens under § 722 at the balance remaining on the allowed secured claim, here zero dollars because the allowed secured claim of GMAC was paid in full before conversion. “[L]iens satisfied in Chapter 13 are not revived upon conversion to a Chapter 7. . . . Rather, those liens are extinguished; . . . and Dewsnup is not offended because no lien exists upon conversion to be stripped down. Any lien stripping that has occurred has been fully completed within the context of the Chapter 13 portion of the case where such practice is explicitly authorized by § 1322.”); Ford Motor Credit Co. v. Pickett (In re Pickett), 151 B.R. 471, 473–74 (Bankr. M.D. Tenn. 1992) (At conversion from Chapter 13 to Chapter 7, a secured claim holder’s lien does not revive where the creditor’s allowed secured claim was paid in full during the Chapter 13 case. “Based on § 1325(a)(5) and its legislative history, the Debtors, under their Chapter 13 plan, satisfied Ford’s lien in full. . . . [A] lien does not survive in Chapter 7 after full satisfaction in a prior Chapter 13. . . . The Supreme Court in [Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992),] however, was careful to limit its decision. . . . [T]his case involves Chapter 7 debtors who have satisfied an allowed secured claim on personal property under a preconversion Chapter 13 plan. The question is not whether the Debtors can strip down Ford’s lien, but whether the Debtors already have satisfied Ford’s secured claim under Chapter 13, thereby extinguishing the lien. Therefore, Dewsnup does not support Ford’s position.”); In re Bunn, 128 B.R. 281 (Bankr. D. Idaho 1991) (After conversion from Chapter 13 to Chapter 7, debtor can redeem car by paying the principal balance of the claim remaining at conversion plus interest through the date of conversion at the rate specified in the confirmed plan. To allow secured claim holder to recover the total principal amount paid through the Chapter 13 plan and the current value of the car at conversion would be a windfall to the secured creditor.); In re Tluscik, 122 B.R. 728, 729 (Bankr. W.D. Mo. 1991) (Citing In re Hargis, 103 B.R. 912 (Bankr. E.D. Tenn. 1989), with approval, upon conversion from Chapter 13 to Chapter 7, debtor can redeem a car that was partially paid for in the prior Chapter 13 case by payment of the balance due on the secured portion of the creditor’s claim. “To rule otherwise would be to afford an undersecured creditor two bites of the same apple.”); In re Hargis, 103 B.R. 912 (Bankr. E.D. Tenn. 1989) (Once Chapter 13 debtor has paid allowed amount of an undersecured creditor’s claim in full, lien is satisfied and lien does not “spring back into existence” at conversion from Chapter 13 to Chapter 7.); In re Tunget, 96 B.R. 89 (Bankr. W.D. Ky. 1988) (At conversion from Chapter 13 to Chapter 7, if debtor has paid a secured claim holder the value of its collateral in the Chapter 13 case, debtor has redeemed the property. The amount debtor must have paid in the Chapter 13 case appears to be the allowed amount of the secured claim plus accrued interest.); In re Estep, 96 B.R. 87 (Bankr. E.D. Ky. 1988).

 

64  See § 319.1 [ In Cases Filed before October 22, 1994 ] § 145.1  In Cases Filed before October 22, 1994; Liberty Nat’l Bank & Trust Co. v. Burba (In re Burba), No. 93-6479, 1994 WL 709314 (6th Cir. Nov. 10, 1994) (Table decision at 42 F.3d 1388) (In a case filed before the effective date of the 1994 Act, at conversion from Chapter 13 to Chapter 7, debtor cannot redeem a car at the balance due on the allowed secured claim after reduction for the payments made through the Chapter 13 plan; rather, the claim holder is entitled to have the collateral revalued and must be paid a lump sum equal to the lesser of the balance of its claim or the (new) value of its collateral.); Gammon v. Chrysler Credit Corp. (In re Gammon), 155 B.R. 15 (W.D. Okla. 1993) (Citing Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), after conversion from Chapter 13 to Chapter 7, debtor cannot redeem personal property subject to liens at the balance remaining on the allowed secured claims after payments under the plan.); McDonough v. Plaistow Coop. Bank (In re McDonough), 166 B.R. 9, 14 (Bankr. D. Mass. 1994) (In dicta, lien stripping in a Chapter 13 case “should not” survive conversion from Chapter 13 to Chapter 7. If “lienstripping were to survive conversion to Chapter 7, § 348 would effect lienstripping in a case deemed originally filed under Chapter 7, in violation of [Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992)].”).

 

65  11 U.S.C. § 348(f)(1)(B), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 311, 108 Stat. 4106 (1994). See § 320.1 [ In Cases Filed after October 22, 1994 ] § 145.2  In Cases Filed after October 22, 1994.

 

66  11 U.S.C. § 722 provides:

An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien.