§ 122.4     Effects of Confirmation on Postpetition Claims
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 122.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The effects of confirmation on a debt that arises after the petition are complicated because of the interaction among §§ 1327, 1305, 1322(b)(6) and 1328.

[2]

The Chapter 13 debtor is permitted by § 1322(b)(6) to provide in the plan for the payment of postpetition claims that are “allowed under § 1305.”1 Under § 1305, a proof of claim may be filed for some debts that arise after the petition—taxes and consumer debts “for property or services necessary for the debtor’s performance under the plan.”2 However, it is generally held that only the postpetition claim holder can file a proof of claim, and if no proof of a postpetition debt is filed, the claim is not “allowed.”3 Because filing proof of a postpetition claim is discretionary, providing for payment in the plan consistent with § 1322(b)(6) will not necessarily accomplish allowance and payment of a postpetition claim. Section 1327 would bind the claim holder to any provision of the plan concerning the payment of postpetition claims, but if the claim holder fails or refuses to file a proof of claim, the postpetition claim will not be allowable and will not be paid. A postpetition claim that is not allowed because not filed is not discharged notwithstanding that the confirmed plan provides for payment of allowed postpetition claims and the debtor completes payments to other creditors under the plan.4

[3]

The net effect of these interactions is that the holder of a postpetition claim controls many of the normal effects of confirmation on its claims. If the postpetition claim holder files a proof of claim, and if the plan provides for payment of postpetition claims, then the postpetition claim holder will be paid whatever the plan says, and the debt will be subject to discharge. If the plan makes no provision for the payment of postpetition claims or if the postpetition claim holder elects not to file a proof of claim, the postpetition claim will not be paid through the plan and will survive discharge.5

[4]

As a matter of technical statutory construction, a postpetition claim holder is bound by the confirmed plan under § 1327(a) “whether or not the claim of such creditor is provided for by the plan.”6 Section 1322(b)(6) permits a Chapter 13 debtor to “provide for the payment of all or any part of any claim allowed under § 1305 of this title.”7 Arguably, a Chapter 13 debtor is only permitted by § 1322(b)(6) to provide for the payment of allowed postpetition claims; thus, if the claim holder fails or refuses to file a proof of its postpetition claim, it does not have an allowed postpetition claim and it cannot be provided for by the plan. Notwithstanding that such a claim cannot be provided for by the plan, the plan binds the postpetition creditor under § 1327(a). This is a curious outcome. What does it mean that a confirmed plan binds a postpetition creditor if, because the postpetition claim holder has not filed a proof of claim, the debtor is prohibited from providing for the claim? Maybe the unfiled postpetition claim holder is bound to receive nothing through the plan and the claim is not discharged under § 1328(a) because it cannot be provided for under § 1322(b)(6).

[5]

There is also uncertainty whether the holder of a postpetition claim can collect its debt from the debtor or from property that vests in the debtor at confirmation under § 1327(b).8 Even though the postpetition claim holder is bound by the confirmed plan, if the postpetition claim holder chooses not to file a proof of claim and thus does not participate in distributions under the plan, can the postpetition claim holder collect its claim from the property that vested in the debtor at confirmation under § 1327(b)? Must the postpetition claim holder get relief from the stay before proceeding against the debtor or against the property that vested in the debtor at confirmation?

[6]

The answers to these questions are complicated because the courts have been unable to agree whether the vesting of property in the debtor at confirmation under § 1327(b) terminates the automatic stay under § 362(c)(1).9 If the vesting of property in the debtor at confirmation terminates the stay, then a postpetition claim holder does not need relief from the stay to collect its claim from that property—including execution upon wages that are not committed to funding the plan.10 Because the courts are not unanimous that the stay terminates with respect to property vesting in the debtor at confirmation, the holder of a postpetition claim is best advised to proceed cautiously.11 Chapter 13 debtors can avoid the possibility that confirmation frees postpetition creditors to collect from property that vests in the debtor by providing in the plan that the Chapter 13 estate is preserved until completion of payments under the plan.12

[7]

Some postpetition claim holders may be entitled to administrative expense status unless the effects of confirmation under § 1327 interrupt the ordinary application of § 503(b). Administrative expenses include the “actual, necessary costs and expenses of preserving the estate.”13 A postpetition supplier of goods or services that meets the definition of administrative expense typically is treated by the plan as the holder of a priority claim under § 507(a)(1) that must be paid in full because of § 1322(a)(2).14 However, if confirmation vests all property of the estate in the debtor, it is arguable that the costs and expenses of preserving that property cannot be administrative expenses for “preserving the estate.” The courts have struggled to determine whether postpetition debts can be administrative expenses when the plan does not preserve the estate from the vesting effect of § 1327(b).15 The postpetition claim holder has complicated strategic decisions to make. Depending on the contents of the plan and whether the estate continues after confirmation,16 the postpetition claim holder may want to hold an administrative expense under § 503, may prefer to be a postpetition claim holder under § 1305 and may or may not want to file a request for payment or a proof of claim.17

[8]

The Chapter 13 debtor is best positioned to deal with postpetition claim holders by providing in every confirmed plan that allowed postpetition claims will be paid in full.18 If the plan preserves the estate,19 the debtor can argue that a postpetition claim holder participates in distributions by filing a proof of claim or a request for payment of an administrative expense, else the claim holder must wait to collect until after completion of payments. The postpetition claim holder may decline to file a proof of claim, thus precluding allowance of its postpetition claim, and may seek relief from the stay to collect its claim from the debtor’s postpetition property or from property that is not necessary to consummation of the plan.20 The debtor cannot force the postpetition claim holder to participate.21 If the debtor neglects to provide for payment of postpetition claims in the plan, there is controversy whether the debtor can modify the plan after confirmation to pay postpetition claims.22


 

1  11 U.S.C. § 1322(b)(6). This permissive power is often overlooked, and Chapter 13 plans omit to provide for the payment of postpetition claims. See § 204.1 [ Providing for Postpetition Claims ] § 113.6  Providing for Postpetition Claims. The imperative to provide for postpetition claims arises after confirmation when the debtor is faced with a new debt and must move to modify the confirmed plan. See § 261.1 [ To Provide for Postpetition Claims ] § 127.4  To Provide for Postpetition Claims.

 

2  11 U.S.C. § 1305(a). See § 137.1  Postpetition Claims before BAPCPA and § 137.2  Postpetition Claims after BAPCPA.

 

3  11 U.S.C. § 1305(a), (b). See § 132.9  Postpetition Claims, § 137.1  Postpetition Claims before BAPCPA and § 137.2  Postpetition Claims after BAPCPA.

 

4  See § 350.1 [ Postpetition Claims ] § 158.6  Postpetition Claims.

 

5  See § 137.1  Postpetition Claims before BAPCPA, § 137.2  Postpetition Claims after BAPCPA, § 158.5  Claims Not Provided for by the Plan or Disallowed under § 502 and § 158.6  Postpetition Claims. See, e.g., In re Guevara, 258 B.R. 59, 61 (Bankr. S.D. Fla. 2001) (Confirmed plan that cured mortgage arrearages and maintained regular monthly payments did not provide for annual increases in taxes and insurance and does not preclude mortgage holder from collecting taxes and insurance paid by the mortgage holder during the Chapter 13 case. “The terms and conditions of the confirmed Chapter 13 plans are only binding on HSBC pursuant to 11 U.S.C. § 1327(a) to the extent they provided for HSBC’s debt. At the time of confirmation, however, there was no debt owed for the yet-to-be increased amount of taxes and insurance; therefore, the plan did not provide for the payment of these increases. The debt for the payment of the increased amounts of taxes and insurance rose post-petition. Thus, the orders confirming the Chapter 13 plans are not res judicata as to the increased amounts sought, because these amounts were not at issue or in existence or even known at the time of confirmation and could not have been addressed or disposed of at the confirmation hearing.”); In re Wilkoff, No. 98-34354DWS, 2001 WL 91624, at *8 (Bankr. E.D. Pa. Jan. 24, 2001) (unpublished) (Provision of confirmed plan for full payment of priority claims does not affect the IRS with respect to income taxes for 1998 in a Chapter 13 case filed in November 1998. The 1998 tax claim is a postpetition claim under § 1305. The IRS’s choice not to file a proof of claim means the 1998 taxes are not allowable, cannot be provided for by the plan and are not dischargeable. For purposes of § 1327(a), “since the IRS elected not to file a claim under § 1305(a), it is debatable whether it fits within the definition of ‘creditor’ under the Bankruptcy Code.”).

 

6  11 U.S.C. § 1327(a).

 

7  11 U.S.C. § 1322(b)(6) (emphasis added).

 

8  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.

 

9  See § 243.1 [ Does Confirmation Dissolve the Stay? ] § 124.3  Does Confirmation Dissolve the Stay?.

 

10  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 and 243.1 [ Does Confirmation Dissolve the Stay? ] § 124.3  Does Confirmation Dissolve the Stay?. See, e.g., EconoLube N’ Tune, Inc. v. Frausto (In re Frausto), 259 B.R. 201 (Bankr. N.D. Ala. 2000) (Applying “estate transformation approach” in Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000), cert. denied, 531 U.S. 1073, 121 S. Ct. 765, 148 L. Ed. 2d 666 (2001), $100,000 settlement of prepetition lawsuit vested in debtor at confirmation and is not property of Chapter 13 estate; postpetition creditor can garnish the proceeds to collect its postpetition judgment.); Montclair Property Owners Ass’n, Inc. v. Reynard (In re Reynard), 250 B.R. 241 (Bankr. E.D. Va. 2000) (The vesting of property in the debtor at confirmation under § 1327(b) does not inhibit a homeowner association from suing the debtor personally after confirmation to collect postpetition homeowner assessments; however, homeowner association will need relief from the stay to collect from postconfirmation earnings that remain property of the estate under § 1306.).

 

11  See § 245.1 [ Postpetition Claims and Relief from the Stay ] § 124.5  Postpetition Claims and Relief from the Stay.

 

12  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.

 

13  11 U.S.C. § 503(b)(1)(A) (emphasis added).

 

14  See § 73.1  Plan Must Provide Full Payment, § 73.2  What Claims Are Priority Claims?§ 73.3  Priority Claims Added or Changed by BAPCPA and discussion of priority claims beginning at § 136.1  Treatment of Priority Claims.

 

15  See § 137.1  Postpetition Claims before BAPCPA and § 137.2  Postpetition Claims after BAPCPA.

 

16  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.

 

17  See § 132.9  Postpetition Claims, § 136.1  Treatment of Priority Claims§ 137.1  Postpetition Claims before BAPCPA  and § 137.2  Postpetition Claims after BAPCPA.

 

18  See § 204.1 [ Providing for Postpetition Claims ] § 113.6  Providing for Postpetition Claims.

 

19  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).

 

20  See § 245.1 [ Postpetition Claims and Relief from the Stay ] § 124.5  Postpetition Claims and Relief from the Stay.

 

21  See § 132.9  Postpetition Claims,§ 137.1  Postpetition Claims before BAPCPA and § 137.2  Postpetition Claims after BAPCPA.

 

22  See § 261.1 [ To Provide for Postpetition Claims ] § 127.4  To Provide for Postpetition Claims.