§ 132.5     Partially Secured Claims
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 132.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Partially secured claim holders sit in the crack between the clarity of the rules with respect to the timely filing of unsecured claims1 and the (unnecessary) lack of clarity with respect to secured claims.2 But there is nothing in § 501 or § 502 of the Code or in Bankruptcy Rule 3002 to suggest that the filing requirements and deadlines are any different for the unsecured portion of a partially secured claim than for unsecured claims generally. Logically, the secured portion should be subject to the same rules.

[2]

Lienholders are often undersecured or partially secured after valuation of collateral under § 506(a).3 An undersecured creditor is really the holder of two claims—a secured claim to the extent of the value of collateral or the amount subject to setoff, and an unsecured claim for the balance of the debt.4 The unsecured portion of a partially secured claim is an unsecured claim, proof of which “must” be filed under Bankruptcy Rule 3002(a), and that proof of claim “is timely filed if it is filed not later than 90 days after the first date set for the meeting of creditors” under Bankruptcy Rule 3002(c).

[3]

In Chapter 13 cases filed after October 22, 1994, a governmental unit has 180 days after the filing of the petition within which to timely file proof of the unsecured portion of a partially secured claim.5 In Chapter 13 cases filed after October 16, 2005, a governmental unit may have additional time to file a timely proof of a tax claim, measured from the date the debtor files any tax returns required by § 1308.6

[4]

It has been held that if no timely proof of claim is filed for the unsecured portion of a partially secured claim, the unsecured claim is not entitled to distributions under the plan and will be discharged upon completion of payments to other creditors under the plan.7 There is a potential trap here for the undersecured creditor: if a timely proof of claim is filed asserting that the debt is fully secured, but later the creditor repossesses collateral and suffers a deficiency, the creditor may be unable to then file a timely proof of claim for the unsecured deficiency.8 Part 4 of Official Form 10 instructs every creditor to state the amount of its secured and unsecured claim.9 Any secured creditor uncertain whether its claim is fully secured should comply with the Form and state both a secured and an unsecured amount, rather than create the risk that a later unsecured deficiency claim will be untimely. It has been argued—with mixed success—that an unsecured deficiency claim is an amendment to a timely filed secured claim.10 Reaching that argument may be unnecessary if the original proof of claim shows a split claim in Part 4 of Official Form 10. Obviously, if the creditor fails to file a timely claim, a late deficiency claim has nothing to relate to for amendment purposes.11

[5]

Partially secured creditors are instructed by Official Bankruptcy Form 10 to file a single proof of claim with respect to both the secured and unsecured portions of the claim.12 Partially secured creditors that follow the instructions in Part 4 of the Official Form will list the total amount of the debt, check the box for the type of secured claim, list the value of the collateral and separately state the amounts of the secured and unsecured claims.13 Although there is controversy whether the 90-day timeliness deadline in Bankruptcy Rule 3002(c) applies to nongovernmental secured creditors,14 there is no doubt that the 90-day deadline was intended by the Rules drafters to apply to the unsecured portion of a partially secured claim. That the forms instruct undersecured claim holders to file a single proof of claim with respect to both the secured and unsecured portions of their claims is consistent with §§ 501 and 502 of the Code but is difficult to reconcile with the Rules drafters’ choice to refer to only unsecured claims in Bankruptcy Rule 3002(a).15 It does not make sense that a partially secured claim holder is instructed by Official Bankruptcy Form 10 to file a single proof of claim unless the deadline for timely filing both the secured and unsecured components of that claim is the same. Any other interpretation makes either the Rule or the Official Form an invitation to disaster for partially secured creditors.

[6]

Application of Bankruptcy Rule 3002 to partially secured claim holders becomes slightly more complicated if the claim is secured only by real property that is the debtor’s principal residence. As detailed elsewhere,16 § 1322(b)(2), as interpreted by the Supreme Court in Nobelman v. American Savings Bank,17 prohibits a Chapter 13 plan from modifying the contract or state law rights of a creditor secured only by real property that is the debtor’s principal residence. Even an undersecured mortgage holder is protected by § 1322(b)(2).18 Except for mortgage claims held by governmental units in cases filed after October 22, 1994,19 the holder of a protected undersecured claim “must” file a proof of claim at least with respect to the unsecured portion of its claim within the 90-day limit in Bankruptcy Rule 3002(c). If Bankruptcy Rule 3002(c) also applies to the filing of secured claims,20 a (nongovernmental) mortgage holder with a protected claim would have to file proof of its entire claim, including the secured portion, within the 90 days.

[7]

However, if some other limit defines the timely filing of a nongovernmental secured claim, then the issue is presented whether a proof of claim for the unsecured portion of an undersecured mortgage is timely if the proof of claim is filed after expiration of the 90-day period under Bankruptcy Rule 3002(c) but within such other time as might be applicable to the filing of proof of a secured claim. If the entire claim, including the unsecured portion, is protected from modification by § 1322(b)(2), would the filing of a proof of claim after 90 days after the first date set for the meeting of creditors entitle the mortgage holder to distributions only with respect to the secured portion?

[8]

The answer should be that both the secured and the unsecured portions of an undersecured mortgage are subject to the 90-day timeliness definition in Bankruptcy Rule 3002(c). Because Official Bankruptcy Form 10 calls for the filing of only one proof of claim, the mortgage holder protected from modification by § 1322(b)(2) should file a single proof of claim within the 90-day period in Bankruptcy Rule 3002(c), indicating on its face the amount of its total claim, the value of its collateral, and the separate amounts of secured and unsecured claims.

[9]

Similar issues arise with respect to certain undersecured purchase money claims after BAPCPA. Detailed elsewhere,21 the 2005 Act created a special class of debts secured by a purchase money security interest in a motor vehicle acquired within 910 days of the petition or secured by any other thing of value acquired within one year of bankruptcy. The BAPCPA amendments to § 1325(a)—the so-called “hanging sentence”—prohibit the bifurcation of these special secured claims without regard to the value of the collateral.22 The holder of a partially secured debt protected from bifurcation by the hanging sentence is best advised to always file a proof of claim for the entire debt within the 90 days allowed by Bankruptcy Rule 3002—notwithstanding that the creditor may be entitled to be treated as fully secured through any confirmable plan.

[10]

It is not obvious what timeliness definition applies to the arrearage claim for a nongovernmental undersecured mortgage. If the arrearage claim is treated as if it were part of the mortgage holder’s secured claim, then the time for filing proof of the arrearage should be the same as the rule in the jurisdiction for filing secured claims.23 If the arrearage is not part of the secured claim—for example, if the value of the collateral is insufficient to secure the entire arrearage amount—then the arrearage claim may be an unsecured claim subject to the 90-day limit in Bankruptcy Rule 3002(c).

[11]

There is no good reason to test these questions. The holders of partially secured claims should always protect themselves by filing a timely (for nongovernmental creditors, within 90 days of the first date set for the meeting of creditors) proof of claim for the entire debt. Official Bankruptcy Form 10 contains a place for a mortgage holder to indicate the amount of arrearages and other charges “included in secured claim . . . if any.”24 Mortgage holders should always indicate the amount of arrearages in the space provided on Official Bankruptcy Form 10, even if the arrearages are not fully secured by value in the collateral. The proof of claim should be filed within the 90 days fixed by Bankruptcy Rule 3002(c). A governmental unit can timely file proof of an undersecured mortgage claim, including arrearages, “before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide, and except that in a case under Chapter 13, a claim of a governmental unit for a tax with respect to a return filed under § 1308 shall be timely if the claim is filed on or before the date that is 60 days after the date on which such return was filed as required.”25


 

1  See § 277.1 [ Unsecured Claims ] § 132.4  Unsecured Claims.

 

2  See §§ 275.2 [ In General: Filing is Required for Allowance ] § 132.2  In General: Filing is Required for Allowance and 280.1 [ Secured Claim Holders ] § 132.7  Secured Claim Holders.

 

3  See § 103.3 [ Partially Secured Claims ] § 74.10  Partially Secured Claims and 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup. The incidence of partially secured claims in Chapter 13 cases was greatly reduced by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005). See the “hanging sentence” at the end of § 1325(a), discussed beginning at § 75.1  In General: Modification Without § 506.

 

4  See 11 U.S.C. § 506(a). But see discussion of claims that are undersecured but protected from bifurcation by the “hanging sentence” BAPCPA added to the end of § 1325(a) beginning at § 75.1  In General: Modification Without § 506.

 

5  11 U.S.C. § 502(b)(9). The Federal Rules of Bankruptcy Procedure may prescribe a later time. The closest thing to a “later time” is provided by Bankruptcy Rule 3002(c)(1), which, as amended in 1996, permits the court to extend a governmental unit’s time for filing a proof of claim if a motion is filed not later than 180 days after the date of the order for relief. See §§ 275.2 [ In General: Filing is Required for Allowance ] § 132.2  In General: Filing is Required for Allowance and 276.1 [ Governmental Units ] § 132.3  Governmental Units.

 

6  11 U.S.C. § 502(b)(9), as amended by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005), discussed in §§ 275.2 [ In General: Filing is Required for Allowance ] § 132.2  In General: Filing is Required for Allowance, 276.1 [ Governmental Units ] § 132.3  Governmental Units, 508.1 [ New Timing Issues ] § 133.5  Tax Claim Exception after BAPCPA and 513.1 [ Taxes ] § 136.3  Taxes after BAPCPA.

 

7  See §§ 287.1 [ Timing, Procedure and Evidence Presumption ] § 135.1  Timing, Procedure and Evidence Presumption290.1 [ Untimely Filed Claims in Cases Filed after October 22, 1994 ] § 135.7  Untimely Filed Claims in Cases Filed after October 22, 1994. See, e.g., In re Parrish, 326 B.R. 708 (Bankr. N.D. Ohio 2005) (Unsecured creditor, including undersecured creditor attempting to recover deficiency, must file proof of claim to participate in distribution.); In re Adams, 264 B.R. 901, 904 (Bankr. N.D. Ill. 2001) (Partially secured claim holder is not compelled to file a proof of claim, but if it fails to do so, it cannot recover its deficiency or seek a distribution under the confirmed plan; when partially secured claim holder files proof of claim after confirmation, and the plan does not specifically value the creditor’s collateral, the debtor can challenge valuation by motion after confirmation, and secured claim is valued at zero because all of the creditor’s collateral was repossessed after confirmation. “A secured creditor does not have to file a claim in a bankruptcy proceeding, and may look to its lien for satisfaction of the debt. . . . But if the secured creditor is undersecured and seeks to recover the deficiency through bankruptcy, or seeks a distribution under a confirmed plan, it must file a claim.”); In re Lee, 182 B.R. 354 (Bankr. S.D. Ga. 1995) (Undersecured claim holder with notice of the bankruptcy case that failed to file a proof of claim is bound by confirmation of the plan to receive nothing under the plan and may not seek a deficiency from the debtor. However, because the plan failed to “provide for” the creditor’s lien, in rem rights survive confirmation and may be asserted by a motion for relief from the stay after confirmation.); In re Van Hierden, 87 B.R. 563, 564 (Bankr. E.D. Wis. 1988) (“[A]n undersecured creditor that does not file a claim can recover only from the collateral and not from the plan payments made to the Chapter 13 trustee.”); In re Bradshaw, 65 B.R. 556 (Bankr. M.D.N.C. 1986) (Secured claim holder’s failure to timely file proof of claim does not void the creditor’s lien, but the creditor’s deficiency claim will be discharged upon completion of payments to other creditors under the plan.). See also In re Matthews, 75 B.R. 379 (Bankr. E.D. Mo. 1987) (Although partially secured claim holder failed to file a proof of claim and allowance of its late-filed claim was denied, on the creditor’s motion for relief from the automatic stay court conditioned continuation of stay on adequate protection payments that would retire the value of the creditor’s collateral with interest through the plan and pay the creditor’s unsecured claim after allowed unsecured claims have been paid in full to the extent that monies are available in the Chapter 13 case.).

 

8  See In re Hibble, 371 B.R. 730 (Bankr. E.D. Pa. 2007) (Deficiency claim filed by undersecured creditor after claims bar date is disallowed when original claim was filed as fully secured and creditor did not reserve right to file deficiency claim.). Compare In re Evans, No. 07-80922-13, 2007 WL 2491035 (Bankr. M.D.N.C. Aug. 27, 2007) (unpublished) (Carruthers) (After relief from stay to foreclose on mobile home that plan surrendered, Green Tree is given 180 days to file deficiency claim; failure to timely file deficiency claim will deem surrender to be full satisfaction of debt.).

 

9  See § 272.1 [ Official Bankruptcy Form 10 and Variations ] § 131.1  Official Bankruptcy Form 410 and Variations.

 

10  See § 284.1 [ Amended Claims ] § 133.4  Amended Claims.

 

11  See, e.g., In re Brooks, 370 B.R. 194 (Bankr. C.D. Ill. 2007) (Perkins) (Undersecured creditor that did not file timely proof of claim for deficiency has no allowed unsecured claim; deficiency claim is prepetition debt even though collateral was sold postpetition. No secured claim had been filed to which deficiency claim could be considered an amendment. Creditor’s stay relief motion was not an informal proof of claim.).

 

12  See § 131.1  Official Bankruptcy Form 410 and Variations and § 131.2  Official Form 410 after BAPCPA.

 

13  See Official Form 10.

 

14  See § 280.1 [ Secured Claim Holders ] § 132.7  Secured Claim Holders. At least with respect to secured claims held by governmental units in Chapter 13 cases filed after October 22, 1994, the Bankruptcy Reform Act of 1994 cleared up this confusion. 11 U.S.C. § 502(b)(9), as amended by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 213, 108 Stat. 4106 (1994), defines timely filing for all claims held by governmental units as “before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide.” Without distinguishing among the types of claims that could be held by a governmental unit, the 1996 revision to Bankruptcy Rule 3002(c)(1) provides that “a proof of claim filed by a governmental unit is timely filed if it is filed not later than 180 days after the date of the order for relief.” Fed. R. Bankr. P. 3002(c)(1) (as amended effective Dec. 1, 1996). Section 502(b)(9), as amended by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005), and Bankruptcy Rule 3002(c)(1) as amended after the 2005 Act give a governmental unit additional time to timely file a tax claim, measured from the date the debtor files a tax return required by 11 U.S.C. § 1308. See discussion of tax return duties imposed on debtors by BAPCPA beginning at § 42.4  Tax Return Duties—In General and § 132.2  In General: Filing is Required for Allowance, § 132.3  Governmental Units, § 133.5  Tax Claim Exception after BAPCPA and § 136.3  Taxes after BAPCPA.

 

15  See § 275.2 [ In General: Filing is Required for Allowance ] § 132.2  In General: Filing is Required for Allowance.

 

16  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.

 

17  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993).

 

18  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. 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 a wholly unsecured mortgage.

 

19  For mortgage claims held by governmental units, 11 U.S.C. § 502(b)(9) defines “timely” filing as “before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide, and except that in a case under chapter 13, a claim of a governmental unit for a tax with respect to a return filed under section 1308 shall be timely if the claim is filed on or before the date that is 60 days after the date on which such return was filed as required.” 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), and as further amended by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005). See §§ 275.2 [ In General: Filing is Required for Allowance ] § 132.2  In General: Filing is Required for Allowance, 276.1 [ Governmental Units ] § 132.3  Governmental Units, 508.1 [ New Timing Issues ] § 133.5  Tax Claim Exception after BAPCPA and 513.1 [ Taxes ] § 136.3  Taxes after BAPCPA.

 

20  See § 280.1 [ Secured Claim Holders ] § 132.7  Secured Claim Holders.

 

21  See discussion beginning at § 75.2  Motor Vehicles and Any Other Thing of Value.

 

22  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

23  See § 280.1 [ Secured Claim Holders ] § 132.7  Secured Claim Holders.

 

24  See § 272.1 [ Official Bankruptcy Form 10 and Variations ] § 131.1  Official Bankruptcy Form 410 and Variations.

 

25  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), and as further amended by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005). See § 276.1 [ Governmental Units ] § 132.3  Governmental Units.