§ 113.12 — Miscellaneous Objections to Confirmation
Revised: June 7, 2004
Creditors have tried and failed to assert § 727 as an obstacle to confirmation of a plan1—§ 727 is not applicable in Chapter 13 cases.2 The exceptions to discharge in 11 U.S.C. § 523(a) do not form the basis for an objection to confirmation of a Chapter 13 plan,3 unless the plan purports to expand the discharge beyond the boundaries fixed by § 1328. For example, after decisions in the Ninth4 and Tenth5 Circuits holding that student loans could be discharged if the confirmed Chapter 13 plan contained a finding of “undue hardship” for § 523(a)(8) purposes and the student loan creditor did not object,6 debtors’ attorneys rushed to include such provisions in all Chapter 13 plans for debtors with student loans. Very quickly, the bankruptcy courts reacted by sustaining objections to plans that attempted to expand the Chapter 13 discharge to student loans without the full substantive and procedural protections of §§ 523(a)(8) and 1328(a)(2).7
It is not enough that the plan just doesn’t seem fair. It rarely does the objecting creditor any good to scream amorphously for equity or fair dealing. Inequity must signal the failure of a condition in § 1322 or § 1325. Otherwise, it fails as an objection to confirmation.8
“Procedural” objections to confirmation of plans sometimes work. The process of confirming a Chapter 13 plan often overlaps other procedures described in the Bankruptcy Code or Rules. For example, confirmation of a plan can include the valuation of collateral that is also available on separate motion under Bankruptcy Rule 3012.9 Many of the student loan cases discussed immediately above deny confirmation of plans that purport to determine undue hardship for § 523(a)(8) purposes without the filing of an adversary proceeding. On occasion, in other contexts, the bankruptcy courts have reported decisions addressing and sometimes sustaining objections to confirmation of plans that adversely affect the procedural rights of a creditor.10
That creditors have declined to participate altogether—when no creditor has an allowed claim and no creditor will be paid through the plan—is not an obstacle to confirmation; it is simply a license for the debtor to steal.11
It has been held that sovereign immunity does not preclude confirmation of a Chapter 13 plan that will discharge claims held by a state;12 but it has to be admitted that the interaction of Eleventh Amendment immunity, confirmation and discharge in Chapter 13 cases is a developing area of Chapter 13 practice sure to produce interesting problems in the future.13
1 See, e.g., Cornett v. Galt (In re Galt), 70 B.R. 57 (Bankr. S.D. Ohio 1987) (It is not an obstacle to confirmation of composition Chapter 13 plan that debtor received a discharge within six years in a Chapter 7 case.).
2 See 11 U.S.C. § 103(b).
3 In re Schyma, 68 B.R. 52 (Bankr. D. Minn. 1985) (Section 523(a) does not provide independent ground for objection to confirmation. That a claim might be nondischargeable in a Chapter 7 case may bear on the debtor’s good faith.).
4 Great Lakes Higher Educ. Corp. v. Pardee (In re Pardee), 218 B.R. 916 (B.A.P. 9th Cir. 1998), aff’d, 193 F.3d 1083 (9th Cir. 1999).
5 Andersen v. Higher Educ. Assistance Found. (In re Andersen), 215 B.R. 792 (B.A.P. 10th Cir. 1998), aff’d, 179 F.3d 1253 (10th Cir. 1999).
6 See §§ 153.1 [ Student Loans ] § 88.6 Student Loans, 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 346.1 [ Student Loans ] § 158.2 Student Loans.
7 See, e.g., In re Cushman, 263 B.R. 293, 294 (Bankr. W.D. Mo. 2001) (“[T]he Court will not confirm the Debtors’ Plan because the provision in the Plan that purports to bind the student loan lender (Sallie Mae) to a determination of undue hardship and to the discharge of the Debtors’ student loan liability is contrary to the Bankruptcy Code’s requirement that such determinations be made through an adversary proceeding . . . . [W]e will not knowingly confirm a plan that attempts to circumvent the appropriate procedures for a determination of dischargeability under 11 U.S.C. § 523(a)(8).”); In re Delgado, No. 99-13234, 2000 WL 34220148 (Bankr. D. Kan. July 14, 2000) (unpublished) (Citing Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964), bankruptcy court denies confirmation of plan that proposes to discharge postpetition interest and collection charges on a nondischargeable student loan.); In re Webber, 251 B.R. 554, 556–58 (Bankr. D. Ariz. 2000) (On student loan creditor’s objection to confirmation, it is not appropriate to include in plan that “[u]pon successful completion of the chapter 13, the student loans will not be excepted from discharge.” Distinguishing Great Lakes Higher Education Corp. v. Pardee (In re Pardee), 193 F.3d 1083 (9th Cir. 1999), and Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th Cir. 1999), “if the plan were confirmed as drafted, the discharge of the student loans could not be challenged in a collateral proceeding, because the confirmation order would have res judicata effect, even if the offending provision violated the Bankruptcy Code or Rules. . . . To avoid that result the governmental student loan agencies must monitor and affirmatively object to chapter 13 plans that contain such provisions . . . . Because such objections were duly filed here, this is not a collateral attack on a confirmation order, but rather a timely and proper direct objection. Therefore, the holdings of Pardee and Andersen have no bearing. . . . I concur that such student loan discharge provisions are not permissible in a chapter 13 plan or in an order confirming the plan. Bankruptcy Rule 7001(6) requires an adversary proceeding to establish the dischargeability of such debts, and nothing in chapter 13 permits the Bankruptcy Rules to be evaded by simple plan provisions. . . . . It is not appropriate for debtors’ counsel to submit such plans in the hope that the student lending agencies fail to object.”); In re Fox, 249 B.R. 140, 144–45 (Bankr. D.S.C. 2000) (Distinguishing Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th Cir. 1999), and Great Lakes Higher Education Corp. v. Pardee (In re Pardee), 193 F.3d 1083 (9th Cir. 1999), bankruptcy court denies confirmation of plan that would find undue hardship for purposes of § 523(a)(8). “The proposed Plan clearly fails to meet the requirements of . . . Section 1328(a)(2) . . . . Pursuant to § 523(a)(8), debtors must demonstrate ‘undue hardship’ in order to have their student loans discharged. . . . Debtors have not made the required showing . . . . ‘[A]llowing discharge of the debtors’ student loan debts through the confirmation process defeats the adversary requirements for determining dischargeability.’”); In re Mammel, 221 B.R. 238, 239 (Bankr. N.D. Iowa 1998) (Distinguishing Andersen v. Higher Education Assistance Found. (In re Andersen), 215 B.R. 792 (B.A.P. 10th Cir. 1998), aff’d, 179 F.3d 1253 (10th Cir. 1999), and Great Lakes Higher Education Corp. v. Pardee (In re Pardee), 218 B.R. 916 (B.A.P. 9th Cir. 1998), aff’d, 193 F.3d 1083 (9th Cir. 1999), plan that proposed to discharge student loans upon confirmation could not be confirmed without regard to whether a confirmed plan containing such a provision would bind student loan creditors.). Accord In re Evans, 242 B.R. 407 (Bankr. S.D. Ohio 1999); In re Featherston, 238 B.R. 377 (Bankr. S.D. Ohio 1999); In re Stevens, 236 B.R. 350 (Bankr. E.D. Va. 1999); In re Evans, 235 B.R. 133 (Bankr. S.D. Fla. 1999); In re Hinton, 231 B.R. 384 (Bankr. S.D. Fla. 1999); In re Galey, 230 B.R. 898 (Bankr. S.D. Ga. 1999).
8 See, e.g., In re Chancy, 33 B.R. 355 (Bankr. N.D. Okla. 1983) (Debtor exercised rights under Truth-in-Lending Act to rescind a mortgage. Mortgage holder was required to return all property received from the debtor and release mortgage on debtor’s property. Plan proposed to treat mortgage holder as unsecured and to pay 8% of claim. Debtor is entitled to benefits of Truth-in-Lending Act and to Chapter 13 relief notwithstanding mortgage holder’s argument that it would be inequitable to allow the debtor to compromise the debtor’s reciprocal rescission responsibilities under Truth-in-Lending Act by paying only 8%.).
9 See §§ 107.1 [ As of What Date Is Value Determined? ] § 76.3 As of What Date Is Value Determined?, 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.
10 See, e.g., In re Belyea, 253 B.R. 312, 316 (Bankr. D.N.H. 1999) (Chapter 13 debtor can partition inherited property through confirmation and need not file a separate adversary proceeding. Court finds that all interested parties were given notice, that all participated in litigating the partition question, all the facts necessary to partition were stipulated and “[d]ue process has been served . . . no practical benefit will result from requiring the Debtor to institute an adversary proceeding.”); In re Kressler, 252 B.R. 632, 635 (Bankr. E.D. Pa. 2000) (Bankruptcy court sustains secured claim holder’s objection to plan that would avoid the creditor’s lien. “[A] debtor may not cramdown and avoid a secured creditor’s lien through the plan confirmation process without first taking an ‘affirmative step’ such as filing an adversary complaint to avoid the lien or filing an objection to the secured creditor’s proof of claim, which, if the objection seeks a determination of the validity, priority or extent of the creditor’s lien, will become an adversary proceeding . . . see Cen-Pen Corp. v. Hanson, 58 F.3d 89, 92–94 (4th Cir. 1995).”); In re McMillan, 251 B.R. 484, 489 (Bankr. E.D. Mich. 2000) (Bankruptcy court sustains objections to confirmation of a plan that would invalidate a second mortgage under the Michigan Home Improvement Finance Act; invalidating the mortgage can only be accomplished through an adversary proceeding. “Because this dispute concerns the validity of HFC’s mortgage, Rule 7001(2) requires it to be resolved in the context of an adversary proceeding.”).
11 See In re Hardy, 56 B.R. 95 (Bankr. N.D. Ala. 1985).
12 See In re Burkhardt, 220 B.R. 837, 849 (Bankr. D.N.J. 1998) (Sovereign immunity does not bar confirmation and discharge through payments under a Chapter 13 plan of motor vehicle fines and surcharges resulting from the debtor’s prepetition driving infractions; sovereign immunity does bar debtor’s motion to require the state of New Jersey to reinstate his driver’s license. “[T]his Court finds that it does in fact have subject matter jurisdiction to discharge motor vehicle fines and surcharges in the context of confirmation of and payment under a Chapter 13 Plan, since such confirmation and resulting discharge of a State debt is not a ‘suit in law or equity’ against the State of New Jersey in contravention of the Eleventh Amendment.”).
13 See also discussion of sovereign immunity and violations of the automatic stay in §§ 75.1 [ Examples of Stay Violations, and Not ] § 62.1 Examples of Stay Violations, and Not and 76.1 [ What Court? ] § 62.2 What Court?.