§ 74.3     Acceptance of Plan before BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 74.3, at ¶ ____, LundinOnChapter13.com (last visited __________).

Creditors do not vote to accept or reject a Chapter 13 plan. Acceptance or rejection by creditors was important under the former Bankruptcy Act.1 The only vestiges of former practice are that an allowed secured claim can be satisfied under § 1325(a)(5)(A) if the holder “has accepted the plan”2 and that priority claim holders must be paid in full under § 1322(a)(2) “unless the holder of a particular claim agrees to a different treatment.”3 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)4 did not change the statutory role of acceptance in the plan confirmation process, but BAPCPA fundamentally did change the entitlements of secured and unsecured creditors at confirmation in ways that make acceptance of plans more important and oddly problematic.5


Secured claim holders often do accept the treatment proposed by the plan because the plan proposes to pay a reasonable value for the collateral and a reasonable interest rate to protect the present value of the claim. Treatment of secured claim holders is usually negotiated by counsel, and the agreements that are reached are incorporated into the plan. Sometimes valuation of collateral and interest rate are the subjects of a separate agreed order, and the agreed order functions as an acceptance of the plan. In some jurisdictions, acceptance of the plan is accomplished orally at the hearing on confirmation.


The Bankruptcy Rules do not specify the form of acceptance of the Chapter 13 plan by a secured claim holder.6 Bankruptcy Rule 3018(c) and Official Bankruptcy Form 14 prescribe a written acceptance or rejection for use in Chapter 11 cases. Bankruptcy Rule 3018 is not applicable in Chapter 13 cases. Although the official form for a proof of claim, Official Bankruptcy Form 10,7 does not contain a place for acceptance or rejection of a plan, some jurisdictions have modified the official proof of claim form in Chapter 13 cases to allow secured claim holders to accept the plan on the face of the claim.


Secured claim holders must object to confirmation of an unacceptable plan because silence is often interpreted as an acceptance of the proposed plan.8 The Bankruptcy Rules require notice of the hearing on confirmation and not less than 28 days’ notice of the time fixed for filing objections to confirmation.9 The failure of a secured claim holder to timely file an objection to confirmation has the same effect as acceptance of the plan—the treatment of the secured claim in the plan becomes binding when the plan is confirmed.10


The secured claim holder that is not happy with the proposed plan must do more than just reject the plan. Within the time for filing objections to confirmation, the unhappy creditor must file a written objection and prepare to do battle with the debtor. Checking the rejection box or writing “I reject the plan” on the face of a proof of claim is not an objection to confirmation.11


A lienholder that fails to file an objection to confirmation may have accepted a plan that it later regrets. For example, in In re Mizell,12 the plan valued the first lienholder’s collateral at $10,000. The first lienholder did not object to confirmation and was “deemed” by the bankruptcy court to have accepted $10,000 as the amount of its secured claim. However, a second lienholder secured by the same collateral objected to confirmation and successfully proved that the collateral was worth $11,000, not $10,000. The first lienholder argued that it was entitled to the additional $1,000 of value because its lien came first. The bankruptcy court held that because the first lienholder had (through silence) accepted the $10,000 value stated in the plan, the second lienholder was entitled to a secured claim for $1,000.


The creditor that has accepted the plan probably can change or withdraw that acceptance, but withdrawal of an acceptance is not clearly controlled by the current Bankruptcy Rules. Bankruptcy Rule 3018(a) contemplates changing a vote in a Chapter 11 case “for cause shown.” Bankruptcy courts might apply a similar approach to withdrawing acceptance for purposes of § 1325(a)(5)(A). Withdrawal of a claim to effect revocation of an acceptance might be controlled by Bankruptcy Rule 3006.13


Secured claim holders sometimes make the mistake of assuming that filing a written acceptance or rejection on the face of a proof of claim ends the creditor’s involvement and fully protects the secured claim holder’s rights. Because proofs of claim are handled by the bankruptcy court clerk and by Chapter 13 trustees differently than other papers in Chapter 13 cases, it is quite likely that a written acceptance or rejection on the face of a proof of claim will not be known to the trustee, to the debtor’s counsel or to the bankruptcy court. Maybe more importantly, in many jurisdictions, the notice for the meeting of creditors and/or for the hearing on confirmation states that the debtor may modify the plan at or before the hearing on confirmation consistent with § 1323.14 It is the practice in many jurisdictions to make adjustments in the treatment of secured claim holders at the meeting of creditors or at the hearing on confirmation—sometimes the value of collateral, interest rate or monthly payment proposed in the original plan will change. Though the secured claim holder is entitled to notice of any material changes and an opportunity to object,15 § 1323(c) of the Code provides that the holder of a secured claim that has accepted or rejected the original plan “is deemed to have accepted or rejected . . . the plan as modified, unless the modification provides for a change in the rights of such holder . . . and such holder changes such holder’s previous acceptance or rejection.”16 Thus, when a secured claim holder and the debtor have negotiated a treatment through the plan and the creditor has accepted that treatment, if the debtor modifies the plan before confirmation, after notice, the secured claim holder must change its previous acceptance, else it will be deemed to have accepted the modified plan even if not to its liking. It is sometimes less expensive and more efficient for the creditor to participate at the meeting of creditors or at the hearing on confirmation to protect what it is willing to accept through the plan.17


1  Under § 652 of the former Bankruptcy Act, 11 U.S.C. § 1052 (repealed), to accomplish confirmation a Chapter XIII plan had to be accepted in writing “by a majority in number . . . which number shall represent a majority in amount” of proved and allowed unsecured claims, and “by the secured creditors whose claims are dealt with by the plan.” The voting process in a former Chapter XIII case was especially tricky with respect to secured claim holders because the debtor had to get acceptances from all secured claim holders dealt with by the plan. This requirement for confirmation gave rise to the practice of paying secured claim holders “outside” the Chapter XIII plan when the secured claim holder refused to accept the plan. See §§ 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, 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA and 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee.


2  11 U.S.C. § 1325(a)(5)(A).


3  See §§ 98.1 [ Plan Must Provide Full Payment ] § 73.1  Plan Must Provide Full Payment and 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA.


4  Pub. L. No. 109-8, 119 Stat. 23 (2005).


5  See § 445.1 [ Acceptance of Plan ] § 74.4  Acceptance of Plan after BAPCPA.


6  See § 214.1 [ Effect of Preconfirmation Modification on Prior Acceptance or Rejection of the Plan ] § 114.6  Effect of Preconfirmation Modification on Prior Acceptance or Rejection of the Plan.


7  See §§ 272.1 [ Official Bankruptcy Form 10 and Variations ] § 131.1  Official Bankruptcy Form 410 and Variations and 507.1 [ New Official Form 10 ] § 131.2  Official Form 410 after BAPCPA.


8  See Shaw v. Aurgroup Fin. Credit Union (In re Shaw), 552 F.3d 447 (6th Cir. Jan. 9, 2009) (Boggs, Merritt, Griffin) (Creditor with adequate notice that fails to object to confirmation has accepted plan.); TVA Employees Credit Union v. Wallace (In re Wallace), 46 Fed. Appx. 819, 820 (6th Cir. Sept. 13, 2002) (unpublished) (Siler, Daughtrey, Gilman) (Car lender that failed to object to confirmation is bound by plan that provided for payment by the debtors’ daughter “outside” the plan; confirmation effected a release of the debtors’ liability. “[T]he Credit Union acquiesced in the Chapter 13 plan releasing the debtors’ liability on the note. The Credit Union agreed to look to a third party for payment.”); Andrews v. Loheit (In re Andrews), 49 F.3d 1404, 1409 (9th Cir. Feb. 15, 1995) (Tang, O’Scannlain, Merhige) (“Here, § 1325(a)(5) is fulfilled because subsection (A) was satisfied when the holders of the secured claims failed to object. In most instances, failure to object translates into acceptance of the plan by the secured creditor.”); In re Szostek, 886 F.2d 1405 (3d Cir. Oct. 12, 1989) (Mansmann, Nygaard, Aldisert) (Acceptance of plan is inferred from the absence of a timely objection.); Great Lakes Higher Educ. Corp. v. Pardee (In re Pardee), 218 B.R. 916, 926 (B.A.P. 9th Cir. Mar. 31, 1998) (Ryan, Klein, Jones) (“Additionally, a creditor’s failure to object to the chapter 13 plan at the plan confirmation hearing constitutes an implied acceptance of the plan.”); In re Davis, 411 B.R. 225, 229 (Bankr. D. Md. Nov. 12, 2008) (Keir) (When notice of plan “openly and notoriously inform[s] the creditor of the proposed treatment of their claim and that the court will determine . . . issue at the confirmation hearing[,]” creditor’s failure to object is acceptance, even when plan does not provide for interest to secured creditor required by § 1325.); In re Westenberg, 365 B.R. 895 (Bankr. E.D. Wis. Mar. 30, 2007) (McGarity) (Plan clearly provided for payment of secured claims over time extending beyond plan term; filing of claims and participation in plan process indicated acceptance. All parties are bound by confirmation.); In re Mizell, 260 B.R. 586, 588 (Bankr. S.D. Ga. Oct. 13, 2000) (Walker) (Lienholder that did not object to confirmation of plan that valued its collateral at $10,000 is deemed to have accepted $10,000 as amount of its secured claim. “Some courts . . . deem secured creditors to accept the treatment afforded them pursuant to Section 1325(a)(5)(A) if they raise no objection to the Chapter 13 debtor’s plan, and in some districts such is mandated by the local rules.”); In re James, 260 B.R. 498, 503 (Bankr. D. Idaho Mar. 6, 2001) (Pappas) (“The case law makes clear that if the holder of an allowed secured claim provided for by a plan fails to object to confirmation of the plan, Section 1325(a)(5)(A) is satisfied. . . . [N]o objection has been received from the holders of any allowed secured claims, and therefore Section 1325(a)(5)(A) has been satisfied.”); In re McKissick, 197 B.R. 206 (Bankr. M.D. Pa. Apr. 18, 1996) (Thomas) (Citing In re Szostek, 886 F.2d 1405 (3d Cir. Oct. 12, 1989) (Mansmann, Nygaard, Aldisert), failure of taxing authority to object to plan that made no provision for its secured claim constitutes an acceptance of the plan.); In re Fitak, 92 B.R. 243 (Bankr. S.D. Ohio June 29, 1988) (Cole) (Failure to object to confirmation is deemed an acceptance of the plan.); In re Hebert, 61 B.R. 44 (Bankr. W.D. La. Feb. 21, 1986) (Bernard) (IRS was not entitled to interest when plan proposed to pay priority claim in full without interest and IRS failed to object to confirmation. Failure to object constitutes “agreement” to be paid without interest under § 1322(a)(2). IRS lien was limited to allowed secured claim as provided in plan. Upon completion of all payments under the plan, IRS lien will be discharged.). But see Universal Am. Mortgage Co. v. Bateman (In re Bateman), 331 F.3d 821, 829 (11th Cir. May 22, 2003) (Birch, Dubina, Kravitch) (Mortgage holder’s failure to object to confirmation of plan that stated different arrearage amount than preconfirmation proof of claim did not constitute an acceptance of the plan. “Universal did not accept the Plan, however; rather, after receiving the first plan, it filed a proof of claim with a different, higher amount. Because there was no objection to the proof of claim, Universal did not need to act further and the claim was ‘deemed allowed.’ We will not permit Universal’s reliance on the terms of the bankruptcy code, and Universal’s subsequent silence on the matter, to act as an acceptance under § 1325(a).”); In re Grabow, 323 B.R. 236 (Bankr. W.D. Wis. Apr. 4, 2005) (Kelley) (Tax lienholder’s failure to object to confirmation of a plan that treated its claim as a priority claim for payment in full without interest when the claim was actually oversecured and entitled to postpetition interest was not an acceptance of the plan when an objection to confirmation was filed by a junior lienholder whose position would be eroded by accumulating interest.). See also § 445.1 [ Acceptance of Plan ] § 74.4  Acceptance of Plan after BAPCPA.


9  Fed. R. Bankr. P. 2002(b). See §§ 216.1 [ Timing of Hearing on Confirmation ] § 115.1  Timing of Hearing on Confirmation before BAPCPA and 220.1 [ Time for Filing Objections ] § 116.2  Time for Filing Objections.


10  11 U.S.C. § 1327(a) (emphasis added) provides, in part, “a confirmed plan bind[s] . . . each creditor, . . . whether or not such creditor has objected to, has accepted, or has rejected the plan.” 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.


11  See, e.g., In re Sanders, 243 B.R. 326, 327 (Bankr. N.D. Ohio Jan. 19, 2000) (Baxter) (Noting “The debtor’s Plan is REJECTED” on the face of a proof of claim is not effective as an objection to confirmation under Bankruptcy Rule 3015(f).).


12  260 B.R. 586 (Bankr. S.D. Ga. Oct. 13, 2000) (Walker).


13  Fed. R. Bankr. P. 3006 states, in part: “Unless the court orders otherwise, an authorized withdrawal of a claim shall constitute withdrawal of any related acceptance or rejection of a plan.”


14  See § 209.1 [ Timing, Procedure and Form ] § 114.1  Timing, Procedure and Form.


15  See § 215.1 [ Opposing a Preconfirmation Modification of the Plan ] § 114.7  Opposing a Preconfirmation Modification of the Plan.


16  11 U.S.C. § 1323(c) (emphasis added). See § 214.1 [ Effect of Preconfirmation Modification on Prior Acceptance or Rejection of the Plan ] § 114.6  Effect of Preconfirmation Modification on Prior Acceptance or Rejection of the Plan.


17  See § 66.3 [ Attending Meeting of Creditors ] § 56.3  Attending Meeting of Creditors. See, e.g., In re Idlett, No. 09-60169, 2009 WL 4756260 (Bankr. S.D. Tex. Dec. 8, 2009) (Steen) (Court declined to enter preconfirmation order approving agreement between debtors and mortgage creditor; debtors may amend proposed plan prior to confirmation, and creditor may attend confirmation hearing to ensure that latest amendment incorporated agreement.).