Cite as: Keith M. Lundin, Lundin On Chapter 13, § 58.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
Postpetition claim holders have difficulty collecting their claims in Chapter 13 cases because of the interaction between §§ 362, 1305 and 1306. Section 1306 expands the definition of property of the estate in Chapter 13 cases to include postpetition earnings and postpetition property acquired by the debtor.1 11 U.S.C. § 362(a)(3) prohibits “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” Because postpetition earnings and acquisitions are property of the Chapter 13 estate prior to confirmation, there are no unprotected assets in a Chapter 13 case from which a postpetition claim holder can collect its debt without first seeking relief from the stay.
Upon confirmation, § 1327 vests property of the estate in the debtor, including postpetition earnings, unless the debtor includes a provision in the plan or order of confirmation that continues all property in the estate.2 After confirmation of a plan without such a provision, postpetition creditors may be relieved from the stay to proceed against the debtor’s postpetition property.3 It has been said that the automatic stay does not prevent a postpetition creditor from bringing suit against the debtor to collect a debt that arose after the petition, but the postpetition creditor needs relief from the stay to collect any resulting judgment from property of the estate.4
Section 1305 permits the filing of proofs of claim for debts that arise after the petition for taxes and consumer debts necessary for the debtor’s performance under the plan.5 Not all postpetition claims are allowable,6 but § 1322(b)(6) authorizes the debtor to provide for allowed postpetition claims through the plan.7 Postpetition creditors are all subject to the automatic stay, and most can be dealt with through the plan consistent with 11 U.S.C. § 1305 and 11 U.S.C. § 1322(b)(6).
The holder of a postpetition claim has options to file a claim and be paid through the plan or to seek relief from the stay to collect the postpetition claim from the debtor during the case.8 In most cases, the holder of a postpetition claim will be best off to negotiate for full payment through the Chapter 13 plan. Courts are reluctant to grant postpetition creditors relief from the stay prior to confirmation because a postpetition collection action will disrupt the debtor’s effort to confirm and consummate a plan. The debtor’s best defense to a request for relief from the stay by a postpetition creditor is to provide in the plan9 or amend the plan10 to provide for full payment of the postpetition creditor consistent with § 1322(b)(6) and § 1305. Most courts will consider confirmation of the plan before granting a postpetition creditor relief from the stay.
The Bankruptcy Reform Act of 1994 added a new exception to the automatic stay for “the creation or perfection of a statutory lien for an ad valorem property tax . . . if such tax comes due after the filing of the petition.”11 The legislative history indicates that Congress intended to overrule decisions holding that the automatic stay prevented local governments from attaching statutory liens for property taxes that accrued after a bankruptcy filing.12 In Chapter 13 cases filed after October 22, 1994, local governments can perfect statutory liens to secure postpetition real property taxes without requesting relief from the stay. This was not true under prior law.13
2 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).
3 See §§ 243.1 [ Does Confirmation Dissolve the Stay? ] § 124.3 Does Confirmation Dissolve the Stay? and 245.1 [ Postpetition Claims and Relief from the Stay ] § 124.5 Postpetition Claims and Relief from the Stay.
4 See Montclair Property Owners Ass’n, Inc. v. Reynard (In re Reynard), 250 B.R. 241 (Bankr. E.D. Va. 2000) (Homeowner association is not prevented by the automatic stay from bringing suit to collect postpetition assessments because the postpetition assessments are postpetition debts; however, the association would need relief from the stay to collect any judgment because Chapter 13 estate includes all of the property described in § 1306 acquired by the debtor after confirmation, including all of the debtor’s postconfirmation earnings notwithstanding the vesting effect of confirmation in § 1327(b).).
6 See 11 U.S.C. § 1305(b), (c). See § 302.1 [ Postpetition Claims ] § 137.1 Postpetition Claims before BAPCPA.
7 11 U.S.C. § 1322(b)(6). See § 204.1 [ Providing for Postpetition Claims ] § 113.6 Providing for Postpetition Claims.
8 See §§ 240.1 [ Representing a Postpetition Claim Holder ] § 123.4 Representing a Postpetition Claim Holder, 245.1 [ Postpetition Claims and Relief from the Stay ] § 124.5 Postpetition Claims and Relief from the Stay, 281.1 [ Postpetition Claims ] § 132.9 Postpetition Claims and 302.1 [ Postpetition Claims ] § 137.1 Postpetition Claims before BAPCPA.
9 See § 204.1 [ Providing for Postpetition Claims ] § 113.6 Providing for Postpetition Claims.
11 11 U.S.C. § 362(b)(18), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 401, 108 Stat. 4106 (1994).
12 140 Cong. Rec. H10,771 (section-by-section analysis by Congressman Brooks):
Local governments rely on real property taxes to constitute one of their principal sources of revenue. These taxes are, in turn, typically secured by statutory liens. Both the property owner and any mortgage holder recognize that their interest in real property is subject to the local government’s right to collect such property taxes. However, several circuit courts have held that the automatic stay prevents local governments from attaching a statutory lien to property taxes accruing subsequent to a bankruptcy filing. See, e.g., In re Paar Meadows, 880 F.2d 1540 (2d Cir. 1989), cert. denied, 110 S. Ct. 869 (1990); Makaroff v. City of Lockport, 916 F.2d 890 (3d Cir. 1990). These decisions create a windfall for secured lenders, who would otherwise be subordinated to such tax liens, and significantly impair the revenue collecting capability of local governments. This section overrules these cases and allows local governments to utilize their statutory property tax liens in order to secure the payment of property taxes.
13 See, e.g., In re Reamy, 169 B.R. 352 (Bankr. D. Md. 1994) (Prior to confirmation, the automatic stay precludes the State of Maryland from collecting its property taxes as a lien on property of the estate where the Chapter 13 case is filed before July 1, the day of each year on which real estate taxes become a lien on property in Maryland.).