Cite as: Keith M. Lundin, Lundin On Chapter 13, § 131.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
It is the practice in some jurisdictions to be very specific in the plan or in the order of confirmation: to identify the names of creditors and to make precise provision for payment of claims, including the gross amount of each claim, the monthly payment to the claim holder and so forth. The courts have struggled to make sense of the interaction of the claims allowance process and a plan or order of confirmation that is specific with respect to the identity, amount and treatment of claims.1
It might be argued that a detailed provision of the plan for payment of a creditor contains all the information in Official Bankruptcy Form 10 and is tantamount to filing a proof of claim on behalf of the creditor.2 On the other hand, the debtor who desires to file a proof of claim on behalf of a creditor has a clearly defined procedure in Bankruptcy Rule 3004.3 Use of the plan or the order of confirmation as a surrogate proof of claim is not a wise procedure and is likely to create confusion and lead to litigation.
Instead, if the debtor is especially concerned to see that a creditor is paid through the plan—for example, because of a cosigner4 or because the claim is nondischargeable in the Chapter 13 case5—the debtor should do two things: (1) be specific in the plan with respect to the amount, allowance and payment of the claim;6 and (2) file a proof of claim on behalf of the creditor if the creditor does not file proof of its own claim.7
If the plan makes specific provision for payment of a claim and the claim holder is not happy with the plan, the claim holder should object to confirmation of the plan and immediately file a proof of claim. If a timely objection to confirmation is no longer possible, the claim holder should at least file a proof of claim.
Several reported decisions suggest that the confirmed plan can function as an informal proof of claim if, by itself or in combination with other documents, it contains the information to satisfy the tests for an informal proof of claim. The bankruptcy court in In re Callahan8 concluded that “a properly prepared plan constitutes an informal proof of claim” for purposes of valuing collateral pursuant to Bankruptcy Rule 3012.9 In In re Babbin,10 the plan provided for a secured claim holder, and the bankruptcy court found that the confirmed plan met the five-part test for an informal proof of claim notwithstanding that no formal proof of claim had been filed by the secured claim holder.11 In contrast, in In re Edwards,12 the same bankruptcy court held that a confirmed plan failed the five-part test because the plan did not contain a clear demand for payment by the creditor and it would be inequitable to treat the plan as an informal proof of claim when the creditor had adequate notice of the plan, did not object to confirmation and did not file a proof of claim.13 Notwithstanding this holding, the bankruptcy court in Edwards concluded that the creditor was entitled to be paid, consistent with the confirmed plan, because of the requirement in § 1326(c) that “the trustee shall make payments to creditors under the plan.”14
In Washington v. Nissan Motor Acceptance Corp. (In re Washington),15 in an alternative holding, an objection to confirmation coupled with the confirmation order contained sufficient information to constitute an informal proof of claim when the objection made the debtor aware of the creditor’s intent to hold the debtor liable and the plan was adjusted to reflect the settlement of the creditor’s objection. Although the creditor never filed a formal proof of claim, the court found that “it would be overly technical to hold that [the objecting creditor] did not possess a valid proof of claim.”16 In contrast, in Grubb v. Pittsburgh National Bank (In re Grubb),17 neither a motion for relief from the stay nor the confirmed plan functioned as an informal proof of claim because the plan did not include a demand for payment by the creditor, the creditor filed three other proofs of claim in the same case and the creditor repossessed its collateral and anticipated a deficiency but failed to file a proof of claim for the deficiency for almost 19 months. One bankruptcy court rejected the argument that the plan was an informal proof of claim when the debtor filed an untimely $1 claim on behalf of a mortgage holder, the mortgage holder objected and the debtor responded that the untimely $1 claim was an amendment of the timely filed plan provision for the mortgage holder.18
The uncertainty in these cases demonstrates that no creditor should purposefully rely on the provisions of a confirmed plan as a substitute for the filing of a proof of claim. Although some courts have recognized the possibility that the plan or the plan combined with other documents may constitute an informal proof of claim, no good reason for failing to file a formal proof of claim is found in these cases. The risk of disallowance and the cost of litigation in this fact-bound environment are too great for creditors to reasonably rely on the confirmed plan rather than file a proof of claim.
Although rarely recognized in the reported decisions, the question whether a plan provision functions as an informal proof of claim is an aspect of a broader controversy in Chapter 13 practice: whether the provisions of a confirmed plan overcome the contrary provisions of an inconsistent, timely filed proof of claim. Discussed in much detail elsewhere,19 there are many reported cases in which the effects of confirmation under § 1327 are tested by a creditor asserting that its timely filed proof of claim trumps even creditor-specific provisions of the confirmed plan. In these cases, the debtor argues that notice to the creditor of its treatment by the plan engages the claims allowance process as part of confirmation, at least to the extent that the plan is inconsistent with the creditor’s claim.
The confirmation process and the claims allowance process inevitably overlap in Chapter 13 cases. When the plan provides that a named creditor has an allowed claim in a specified amount that will be paid in a specified way, confirmation binds the debtor to those terms as surely as does any order allowing claims.20 A specific plan provision differs from the filing of a proof of claim by the debtor on behalf of the creditor only in the form in which it is presented to the bankruptcy court.21 Most of the reported decisions do not analyze plan provisions using the same tests that are applied to the filing of informal proofs of claim.22 Conceptually, there is little to separate these issues.
There are many reported decisions holding that the provisions of a confirmed plan overcome a contrary proof of claim.23 These courts are correctly reading § 1327. The binding effect of confirmation runs in both directions: many reported cases also recognize that debtors are bound by confirmation to the attributes and treatment of creditors provided for in the plan.24 By specific provision of the plan, the debtor can be bound to allow a creditor’s claim without regard to whether a proof of claim is filed by the creditor. If the provisions are specific enough and if notice of the content is adequate, the confirmed plan can perform many functions in a Chapter 13 case, including substituting for or doing away with the filing of a proof of claim by a creditor.
But at this writing, the interaction between the effects of confirmation under § 1327 and the filing and allowance of claims under §§ 501 and 502 is too uncertain for debtors or creditors to intentionally risk their rights.25 Creditors should always object to an unacceptable plan and file timely proofs of claim. Debtors who wish to challenge the allowance, amount or characterization of a claim should object to any proof of claim that is inconsistent with the provisions of the plan. Debtors maximize the probability that a specific plan provision will have binding effect on a creditor by being very careful about the adequacy of notice that a creditor’s rights will be at issue at confirmation.26
Treating the specific provisions of a plan as the foundation for an informal proof of claim or as the filing of a claim by the debtor on behalf of the creditor might bring some sanity to the § 1327 cases discussed elsewhere.27 The issue is notice: did parties in interest have sufficient notice of the treatment proposed by the plan that all should be bound by confirmation without regard to whether other available procedures (claims allowance, for example) were engaged?
It has to be admitted that few reported cases support this view of the interaction between the claims allowance process and confirmation. Too many courts have overbroadly stated that a timely proof of claim defeats any contrary provision of the confirmed plan, unless the debtor also tests the claim through the claims allowance process.28 But creditors don’t always benefit from this lack of respect for the confirmed plan. The U.S. Court of Appeals for the Seventh Circuit in a Chapter 12 case held that a confirmed plan reciting “[United Feeds, Inc.] was an unsecured creditor holding an allowed claim in the amount of $126,766.43” did not entitle the creditor to payment when the creditor failed to timely file a proof of claim.29 The Seventh Circuit explained, “The creditor had 90 days to file a proof of claim . . . . This requirement may not be circumvented, either by the existence of a confirmed plan, or by the presence of equitable considerations. Because UF failed to file its proof of claim within the 90-day time limitation its claim is barred.”30
Here and there in the reported decisions, courts have concluded that a specific provision in the confirmed plan can do everything that a formal proof of claim would do. For example, in In re Dennis,31 the confirmed plan identified the creditor and proposed to pay a cramdown amount as a secured claim. The creditor failed to timely file a proof of claim and did not object to confirmation. The bankruptcy court held that the creditor was bound to accept the amount provided for in the plan in full satisfaction of its lien and the debtor was bound to pay that amount through the plan notwithstanding that the creditor could not file a timely claim:
[A] debtor’s proposal in a plan to pay a “cram down” amount to a secured creditor is an admission by the debtor that such creditor has an allowed secured claim to the extent provided by the plan. Confirmation of the plan allows the secured claim to such extent because all parties are bound by the confirmation under Code section 1327(a). . . . To the extent that [In re Schaffer, 173 B.R. 393 (Bankr. N.D. Ill. 1994),] and other courts have held that a secured creditor must file a proof of claim even to receive the amount which a debtor’s plan proposes to pay it, this court disagrees, because such holdings overlook the fact that confirmation binds the debtor under Code section 1327(a). Moreover, in light of Rule 3002(a)’s omission of an explicit requirement that secured creditors must file proofs of claim, and the fact that the notice of the bar date states that proofs of claim must be filed to share in payment from the estate “except as otherwise provided by law,” a serious due process issue would exist if secured creditors who choose not to file a proof of claim in reliance on a plan’s terms could then be told after confirmation that they shall not receive the payment proposed in the plan.32
Courts not willing to find that a specific plan provision is the equivalent of a proof of claim might reason with Dennis that the same result is reached by the binding effect of confirmation under § 1327(a). Debtors have earnestly but less effectively argued for years that specific provisions of the plan that affect the rights and entitlements of creditors are binding on creditors that fail to object to confirmation.33 This principle must be reciprocal in Chapter 13 cases. The Seventh Circuit has to be wrong that a debtor can provide in the plan that a creditor has an allowed secured claim and then, after confirmation, object to that same claim on the ground that a predicate for allowance—the timely filing of a proof of claim—is absent. Ordinary rules of preclusion should have led the Seventh Circuit to a different conclusion.34
1 See § 120.2 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and discussion beginning at § 121.1 Overview.
2 Bankruptcy Rule 3004 and the filing of proofs of claim by the debtor or the trustee on behalf of a creditor are discussed in § 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.
3 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.
4 See discussion on extent of codebtor stay beginning at § 65.1 Cosigners and Joint Obligors Are Protected, § 66.1 Motion Practice, § 67.1 Codebtor Received the Consideration and § 87.3 Co-signed Debts.
6 See discussion on effect of confirmation beginning at § 120.1 11 U.S.C. § 1327: Overview, § 121.3 Failure to Provide For and § 158.5 Claims Not Provided for by the Plan or Disallowed under § 502.
7 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.
8 251 B.R. 170 (Bankr. S.D. Fla. 2000).
9 251 B.R. at 172–73 (The requirement in In re King, 165 B.R. 296 (Bankr. M.D. Fla. 1994), that “the filing of a proof of claim is a prerequisite to the valuation of collateral pursuant to Rule 3012” was satisfied because “a properly-prepared Chapter 13 Plan contains a notice in compliance with Bankruptcy Rule 3012 and sets forth the proposed treatment for the claim of each secured creditor to whom the notice applies. The Court finds that such a properly-prepared plan constitutes an informal proof of claim.”).
10 156 B.R. 839 (Bankr. D. Colo.), rev’d on other grounds, 160 B.R. 848 (D. Colo. 1993).
11 See § 273.1 [ Informal Proofs of Claim: Letters, Motions, Pleadings and Conversations ] § 131.4 Informal Proofs of Claim: Letters, Motions, Pleadings and Conversations for discussion of the five-part test.
12 162 B.R. 868 (Bankr. D. Colo. 1993).
13 In re Edwards, 162 B.R. 868 (Bankr. D. Colo. 1993).
14 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 also § 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10 Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise.
15 158 B.R. 722 (Bankr. S.D. Ohio 1993).
16 158 B.R. at 724.
17 169 B.R. 341 (Bankr. W.D. Pa. 1994).
18 In re Townsville, 268 B.R. 95, 107–08 (Bankr. E.D. Pa. 2001) (Equities do not favor treating Chapter 13 plan as an informal proof of claim when debtor filed untimely $1 claim on behalf of mortgage holder. Deadline for filing claims under Bankruptcy Rule 3004 was February 22, 2001. On March 1, 2001, debtor filed a proof of claim for $1 on behalf of mortgage holder. Mortgage holder objected to debtor’s untimely proof of claim. Debtor responded that earlier filed Chapter 13 plan was an informal proof of claim that could be amended by the (untimely) formal proof of claim filed by the debtor. “[T]he equities of the instant situation do not support treating the Plan as an informal proof of claim. . . . Debtor did not have a good faith basis for limiting Bankers’ claim to [$1]. . . . Since Debtor did not file the Proof of Claim until March 1, 2001, . . . Bankers could not file a superseding claim. . . . Debtor is seeking, by filing the Proof of Claim and seeking to have the Plan treated as an informal proof of claim, to do an end run around Bankers and force it to be treated as a secured claimant with a mere $1.00 claim. I view this strategy as misguided and not deserving of the protection which equity can provide. . . . [Debtor] has offered no explanation whatsoever for her delay. In the absence of such an explanation, which would similarly be necessary under Rule 9006(b) to obtain an extension of the claims deadline imposed by Rule 3004, I find that it would be inequitable to apply the informal claims doctrine to treat the Plan as a claim filed by Debtor on Bankers’ behalf.”).
20 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.
22 See § 273.1 [ Informal Proofs of Claim: Letters, Motions, Pleadings and Conversations ] § 131.4 Informal Proofs of Claim: Letters, Motions, Pleadings and Conversations.
23 See discussion on effect of confirmation beginning at § 120.1 11 U.S.C. § 1327: Overview.
24 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.
25 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.
26 See § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen for discussion of notice after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005).
27 See discussion on limitations on effects of confirmation beginning at § 121.1 Overview.
28 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. See, e.g., Sun Fin. Co. v. Howard (In re Howard), 972 F.2d 639, 641–42 (5th Cir. 1992) (“The general applicability of res judicata to bankruptcy plan confirmations must give way, however, to the interest of the secured creditor . . . that its lien is secure unless a party in interest objects to it. . . . [A] debtor who wishes to challenge the amount of a secured claim either by asserting a counterclaim or offset against it or by disputing the amount or validity of the lien must file an objection to the creditors’ claim in order to put the creditor on notice that it must participate in the bankruptcy proceedings.”); In re Parker, 148 B.R. 604, 606 (Bankr. D. Idaho 1992) (Citing concurring opinion in Fireman’s Fund Mortgage Corp. v. Hobdy (In re Hobdy), 130 B.R. 318 (B.A.P. 9th Cir. 1991), “it is inconsistent with section 502(a) and Fed. R. Bankr. P. 3007, regarding allowance of and objection to claims, if a plan effectively determines the amount of the secured claim. . . . [A]ll of the statutory elements of the allowance and disallowance of claims must be applied before a secured creditor’s lien may be ‘crammed down.’ The res judicata effect of a Chapter 13 plan can no more act to bind the creditor in an objection to its proof of claim than it could if no such objection were filed.”).
29 United Feeds, Inc. v. Greenig (In re Greenig), 152 F.3d 631, 632 (7th Cir. 1998).
30 152 F.3d at 636. Accord In re Baldridge, 232 B.R. 394, 396 (Bankr. N.D. Ind. 1999) (“No one is ever required to file a proof of claim in any bankruptcy proceeding; it is just that not doing so has consequences. . . . The Bankruptcy Rules do not state a specific consequence for a secured creditor’s failure to file a proof of claim and it is generally said that, after the bankruptcy, they may look to their collateral for satisfaction of the secured claim. . . . Before a creditor can have a secured claim, it must first have an allowed claim . . . and the first step to having an allowed claim is to file a proof of claim. . . . [T]he majority of the courts that have considered the issue have concluded that, in order to receive a distribution under a confirmed Chapter 13 plan, even secured creditors must first file a proof of claim or have one filed on their behalf.”).
31 230 B.R. 244 (Bankr. D.N.J. 1999).
32 230 B.R. at 252–53. Accord In re Cameron, 274 B.R. 457, 459 (Bankr. N.D. Tex. 2002) (Without discussion, confirmed plan that valued car at $5,628 and provided for payment in full with interest had the “effect” of “grant[ing] CPS an allowed secured claim in the Case in the amount of $5,628.00 in accordance with § 506(a) of the Bankruptcy Code.” Debtor cannot amend this plan to surrender the car in full satisfaction of the secured claim notwithstanding that lienholder never filed a proof of claim. That bankruptcy court sustained debtor’s objection to the (unfiled) claim disallowed any deficiency but (apparently) did not upset allowance by the confirmed plan of the secured portion of the claim.). Contra In re Zich, 291 B.R. 883, 886 (Bankr. M.D. Ga. 2003) (Provision of confirmed plan that respondent’s claim would “be paid 100%” does not absolve claim holder of responsibility to timely file a proof of claim. “The law is clear that a claim is disallowed unless a timely proof of claim is filed. . . . [A]fter confirmation of a Chapter 13 plan, distribution is only made to creditors whose claims have been ‘allowed.’ . . . [A]bsent a timely proof of claim, a creditor is not entitled to receive a distribution even though the confirmed plan provides for payments on the claim.”); Hildebrand v. Hays Imports, Inc. (In re Johnson), 279 B.R. 218 (Bankr. M.D. Tenn. 2002) (Confirmation of a plan that fixed the value, interest rate and monthly payment with respect to a lienholder did not allow or disallow the lienholder’s secured claim; lienholder must file a proof of claim and confirmation did not preclude complaint under §§ 547 and 549 when creditor filed a proof of claim, after confirmation that revealed an avoidable security interest.).
34 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 and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2 Notice and Due Process Considerations, Including Claims Allowance and Valuation for further discussion of the tension between confirmation and the claims allowance process, including the Seventh Circuit’s decision in Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000).