Cite as: Keith M. Lundin, Lundin On Chapter 13, § 124.7, at ¶ ____, LundinOnChapter13.com (last visited __________).
Can a claim holder be the architect of its own right to relief from the stay after confirmation? This proposition seems absurd on its face, but some uncertainties in the construction of the Code and Rules have opened a window for secured claim holders and maybe postpetition claim holders to accomplish relief from the stay after confirmation without misconduct or default by the debtor.
Bankruptcy Rule 3002 is unclear whether a secured claim holder must file a proof of claim to protect its rights in a Chapter 13 case.1 There is some controversy whether a confirmed plan can affect the lien of a secured claim holder that fails or refuses to file a proof of claim.2 One court of appeals has taken these confusions a step further.
In Southtrust Bank of Alabama v. Thomas (In re Thomas),3 the U.S. Court of Appeals for the Eleventh Circuit concluded that a secured claim holder can choose not to file a proof of claim and ride through a Chapter 13 case with its lien unaffected. At any time, reasoned the Eleventh Circuit, the secured claim holder can move for relief from the stay and be entitled to retrieve its collateral, notwithstanding that the confirmed plan preserves the creditor’s lien and proposes full payment of the allowable secured claim. The debtor’s only protection, according to the court, is to file a proof of claim on behalf of the creditor to force payment of the secured claim through the plan.
The shadow of Thomas is substantial.4 If the Eleventh Circuit is correct, a secured claim holder can create the circumstances for its own right to postconfirmation relief from the stay by purposefully failing to file a proof of claim. If the 30-day period for filing proofs of claim by the debtor under Bankruptcy Rule 30045 has expired, the creditor would be entitled to relief from the stay notwithstanding a confirmed Chapter 13 plan that provided full payment had the creditor filed a claim. Other courts reject this outcome and hold that a secured claim holder that disables itself from receiving payment through the plan is not entitled to relief from the stay after confirmation to recover its collateral.6
Thomas suggests many complicated strategies for debtors and secured creditors. The best position for a secured claim holder might be to never file proofs of claim in Chapter 13 cases in hopes that the debtor will not file on behalf of the creditor and relief from the stay will result. Debtors’ counsel must adjust practice to routinely file proofs of claim on behalf of secured claim holders in Chapter 13 cases.7 If the debtor files first, the creditor must (quickly) determine whether it is possible to file a superseding claim before the time bar in Bankruptcy Rule 3002.8 Would the creditor have standing to object to the filing by the debtor of an untimely claim on the creditor’s behalf?
The Bankruptcy Reform Act of 1994 put some teeth in these considerations. The 1994 Act provides that late-filed claims are disallowed under § 502(b) except as described in § 726.9 Discussed more fully elsewhere,10 the filing of an untimely proof of claim on behalf of a secured claim holder that has failed or refused to file its own proof of claim may engineer disallowance of the claim. That the creditor’s claim is disallowed for purposes of distribution under the plan may be a strategically powerful position for the debtor in a battle over postconfirmation relief from the stay.
Similarly, the holders of postpetition claims under § 1305(a) control the allowance of their claims by choosing to file or not to file a proof of claim.11 A postpetition claim for which no proof of claim is filed is not allowable under § 1305 and cannot be provided for through the plan or by modification after confirmation.12 If the plan provides for payment of postpetition claims, the postpetition claim holder can enable itself to receive payments by filing a proof of claim; or the postpetition claim holder can join with the debtor in offering a postconfirmation modification of the plan to provide for payment of postpetition claims. If the confirmed plan makes no provision for payment of postpetition claims or provides for less than full payment, the postpetition claim holder has a good argument for postconfirmation relief from the stay, even when the claim holder makes the (reasonable) choice not to file a proof of claim.13 When the confirmed plan or a modified plan would pay the postpetition claim holder in full, it is less clear that the postpetition claim holder can demonstrate cause for relief from the stay when it disables itself from receiving payments by choosing not to file a proof of claim.
1 See § 280.1 [ Secured Claim Holders ] § 132.7 Secured Claim Holders.
2 See § 121.2 Notice and Due Process Considerations, Including Claims Allowance and Valuation, § 121.3 Failure to Provide For, § 135.5 Failure to File Proof of Claim, § 158.5 Claims Not Provided for by the Plan or Disallowed under § 502, § 162.3 On Liens and § 162.4 Effects of Discharge on Liens after BAPCPA.
3 883 F.2d 991 (11th Cir. 1989).
4 Southrust Bank of Alabama v. Thomas (In re Thomas), 883 F.2d 991 (11th Cir. 1989), resurrects the practice under the former Bankruptcy Act that secured claim holders could control the Chapter 13 case by refusing to accept the treatment proposed by the debtor’s plan. Thomas elevates the claims allowance process to a substantive veto over the content of the plan and reads out of the Code the effects of confirmation under § 1327. 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 and 234.1 [ Failure to Provide For ] § 121.3 Failure to Provide For. See also In re Geiger, 260 B.R. 83, 85–86 (Bankr. E.D. Pa. 2001) (Mortgage lienholder is entitled to relief from the stay for cause after confirmation notwithstanding that lienholder did not file a proof of claim and confirmed plan stated “ANY LIEN ALLEGED OR EXISTING OF ANY KIND, TYPE OR NATURE TO BE CANCELED OF RECORD AT DISCHARGE OF DEBTOR AND CLOSING OF DEBTORS CASE.” Lien was not affected by confirmation because the debtor failed to take the additional “affirmative step” of filing an adversary proceeding or an objection to claim. “Confirmed plan does not provide for Movant’s secured claim or lien . . . and Movant may seek relief from the automatic stay in order to satisfy the debt owed to it by Debtor from its lien.”).
5 See § 134.1 Timing, Form, Superseding and Amended Claims before 2005, § 134.2 Filing of Claims by Debtor or Trustee after 2005 Amendments to Bankruptcy Rule 3004 and § 134.3 Strategic Considerations: When to File Claims for Creditors.
6 See § 120.2 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors, § 120.3 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate, § 120.4 11 U.S.C. § 1327(c): Free and Clear Effect on Liens, § 124.2 Confirmation as a Defense to Relief from the Stay, § 132.7 Secured Claim Holders, § 135.5 Failure to File Proof of Claim, § 158.5 Claims Not Provided for by the Plan or Disallowed under § 502, § 162.3 On Liens and § 162.4 Effects of Discharge on Liens after BAPCPA. See, e.g., In re Schaffer, 173 B.R. 393, 395–98 (Bankr. N.D. Ill. 1994) (Secured claim holder must file proof of claim within the 90-day limitation fixed by Bankruptcy Rule 3002, else the claim is disallowed. “Nothing in the Bankruptcy Code or Rules requires a secured creditor to file a claim. . . . A reason for not requiring the filing of a claim by a secured creditor is that the creditor ‘may ignore the bankruptcy proceeding and look to the lien for the satisfaction of the debt.’ . . . The Supreme Court in [Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992)]. . . reemphasizes this reasoning by concluding that failure to file does not affect a lien’s validity. However, certain circumstances warrant the filing of a proof of claim by a secured creditor. The most obvious circumstance is when a secured creditor seeks distribution from the Chapter 13 plan. . . . ‘[I]n order for a secured claim to receive a distribution under a Plan pursuant to F.R.B.P. 3021, it must first be allowed pursuant to 502(a).’” In dicta, “[i]f the admittedly late filed claim is disallowed, the Debtor may be able to retain the collateral, a 1993 Nissan Truck, throughout the administration of the case and Bank One will have to await the closing of the case before pursuing its remedies. . . . Or, of course, Bank One could move to vacate the stay for cause. Cause would not likely flow from an omission (the late filing) by the party seeking relief from the stay.”).
7 For further discussion of the filing of proofs of claim by and on behalf of secured claim holders, see § 132.7 Secured Claim Holders, § 134.1 Timing, Form, Superseding and Amended Claims before 2005, § 134.2 Filing of Claims by Debtor or Trustee after 2005 Amendments to Bankruptcy Rule 3004 and § 134.3 Strategic Considerations: When to File Claims for Creditors.
9 11 U.S.C. § 502(b)(9), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 213, 108 Stat. 4106 (1994).
10 See discussion beginning at § 134.1 Timing, Form, Superseding and Amended Claims before 2005 and § 135.1 Timing, Procedure and Evidence Presumption.
12 See § 113.6 Providing for Postpetition Claims, § 127.4 To Provide for Postpetition Claims, § 132.9 Postpetition Claims,§ 137.1 Postpetition Claims before BAPCPA and § 137.2 Postpetition Claims after BAPCPA.
13 See, e.g., In re Wilkoff, No. 98-34354DWS, 2001 WL 91624 (Bankr. E.D. Pa. Jan. 24, 2001) (unpublished) (IRS’s choice not to file a proof of claim with respect to postpetition income taxes means that the postpetition taxes are not allowable, cannot be provided for by the plan, and are not dischargeable, and the IRS is entitled to relief from the stay to collect from the debtor or from property of the debtor.).