§ 122.3 — Loss, Destruction or Surrender of Property after Confirmation

Revised: July 23, 2004

[1]

The effect of § 1327 when collateral is lost, destroyed, repossessed or surrendered after confirmation has produced some confusion. Three fact patterns are typical: (1) personal property that is collateral for an allowed secured claim is stolen or destroyed after confirmation, and the debtor desires to keep or use part of the insurance proceeds; (2) the debtor desires to surrender collateral to an allowed secured claim holder and treat any deficiency as an unsecured claim; (3) a creditor is granted relief from the stay after confirmation, liquidates its collateral and then asserts that some or all of its deficiency is still an allowed secured claim. Section 1327 is implicated because the provisions of the confirmed plan collide with the rights of lienholders, the property interests of the debtor and the contractual obligations of insurance companies. The issue sometimes presents in the form of the debtor’s motion to modify the plan after confirmation to change the treatment of the creditor secured by the collateral or by the insurance proceeds.1 Problems of interpretation of § 1329 then obscure the effects of confirmation under § 1327.

[2]

Many reported decisions hold that § 1327 fixes the rights of secured claim holders at confirmation and that postconfirmation destruction of the collateral cannot change the amount to which the lienholder is entitled. For example, if a creditor holds a claim secured by a car that is destroyed after confirmation, when the insurance company pays according to its contract, the creditor receives only that portion of the proceeds necessary to pay its allowed secured claim in full.2 The excess of insurance proceeds over the balance of the allowed secured claim is payable to the trustee for the benefit of creditors3 or to the debtor,4 depending on the provisions of the confirmed plan. In some of these cases, the debtor is permitted to use the insurance proceeds to acquire a replacement car, and the prepetition lienholder is granted a substitute lien, but only to the extent of the balance of the allowed secured claim.5 In one reported decision, because the confirmed plan did not limit lien retention to the allowed amount of the secured claim,6 confirmation did not limit the lienholder’s recovery to the allowed amount of its secured claim when the collateral was destroyed and an insurance carrier tendered proceeds.7

[3]

The kind of insurance and the wording of the lienholder’s interest may influence the effects of confirmation. For example, in First Fidelity Bank v. McAteer (In re McAteer),8 at confirmation the bank’s secured claim was crammed down from $13,722 to the value of its collateral, $7,525. The debtor died after confirmation and a credit life insurance company tendered $11,356—the balance due on the bank’s entire debt plus two months’ arrearage. The U.S. Court of Appeals for the Third Circuit held that the debtor owned the insurance policy, but the debtor did not own the proceeds, and confirmation could not alter the bank’s contract rights against the insurance company:

While it is true that the bankruptcy court’s confirmation of the plan binds the debtor and all creditors . . . it does not follow that a discharge in bankruptcy alters the right of a creditor to collect from third parties. Section 524(e) specifically limits the effect of a discharge. . . . [The bank’s] interest in the proceeds of the life insurance policy is not the property of the debtor’s estate and thus cannot be altered by the confirmation of the Chapter 13 plan. Under the life insurance policy, . . . the insurance company was required to pay the amount remaining under the schedule of indebtedness. . . . The confirmation . . . did not work to erase or alter [the bank’s] right, as a third party beneficiary, to collect from the insurance company.9
[4]

McAteer is best understood as a case in which the confirmed plan did not modify the bank’s rights in the credit life proceeds. Unlike casualty insurance which substitutes for the value of the collateral, credit life insurance creates contract rights that are not limited by the lienholder’s interest in collateral. McAteer is correct that the confirmed plan did not modify the contract rights of the bank against the third-party insurance company. This won’t always be true. Sometimes when credit life or credit disability insurance is part of the contract between the debtor and a lender, the lender has no relationship to the insurance policy except as beneficiary. Also, the contract between the debtor and the lender may be subject to modification at confirmation under § 1322(b)(2).10 It is not uncommon for confirmation orders to cancel credit life and credit disability contracts that were part of the original loan transaction but that are not required to accomplish confirmation of a plan.11 If the confirmed plan changes or limits the lienholder’s rights in a credit life insurance policy, the confirmed plan will control entitlements upon the death of the insured. Nothing in McAteer suggests to the contrary.

[5]

Related questions arise when the debtor voluntarily or involuntarily surrenders collateral after confirmation. The authorities are divided whether a secured claim holder is bound to accept the surrender of collateral in full satisfaction of its (remaining) allowed secured claim.

[6]

It has been held that § 1327 binds the debtor to the confirmed plan even though the stay is lifted after confirmation and a creditor liquidates its collateral.12 On this theory, the lienholder’s secured claim will be reduced by whatever it realizes from the collateral after surrender, but the balance of the secured claim must be paid according to the original plan as if it were still an allowed secured claim.

[7]

These decisions fail to acknowledge that claims allowance and valuation can occur after confirmation in a Chapter 13 case. After surrender or repossession of collateral, the allowable secured claim would be reduced by § 506(a) on a motion for valuation under Bankruptcy Rule 301213 or a motion to reconsider the amount of the remaining unsecured claim under § 502(j).14

[8]

Also these decisions fail to adequately consider that the binding effect of confirmation in § 1327(a)15 is always subject to a Chapter 13 debtor’s power to modify a plan after confirmation under § 1329.16 Other courts have concluded that the debtor can use modification under § 1329 to account for the acceleration of payment that results when collateral is repossessed or surrendered after confirmation.17 These courts view modification under § 1329 as a statutory exception to the effects of confirmation in § 1327—the confirmed plan binds all creditors and the debtor unless it is modified under § 1329. Because the debtor could surrender collateral in full satisfaction of an allowed secured claim at the original confirmation, a similar outcome is permissible at modification after confirmation.18 There are contrary cases holding that modification under § 1329 is not available to change the effects of confirmation on a secured claim holder notwithstanding repossession, loss or surrender of the collateral.19

[9]

When all of the collateral for a claim is liquidated after confirmation and a deficiency remains, the creditor and the debtor are bound by whatever treatment the confirmed plan affords unsecured claim holders. One reported opinion finds an exception to this rule when a car lender, granted relief from the stay after confirmation, disposed of its collateral without giving a 10-day notice of its intent to recover the deficiency required by state law.20

[10]

Substitution of collateral after confirmation—for example, trading an old car for a newer car—is a common test of the effects of confirmation. The debtor who desires to substitute for collateral that is provided for by the confirmed plan must move to modify the plan under § 1329.21 The secured claim holder should insist that all the entitlements of the original plan are preserved in the modified plan—including that the remaining allowed secured claim is fully secured by whatever substitute collateral is acquired by the debtor. In many jurisdictions, this is routinely accomplished by agreement that the balance of the allowed secured claim will be secured with a lien on the substitute collateral.


 

1  See § 264.1 [ To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim ] § 127.7  To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim.

 

2  See Stevens v. Baxter (In re Stevens), 187 B.R. 48, 50–52 (Bankr. S.D. Ga. 1995) (Upon postconfirmation destruction of truck, lienholder is limited to that portion of the insurance proceeds that in combination with payments under the plan equals the allowed amount of the lender’s secured claim. Confirmed plan called for payment of Ford’s $18,587.72 claim as fully secured with interest at 12%. The truck securing the claim was destroyed, and the insurer tendered to Ford $14,967.42, calculated by Ford as the payoff using the 13.5% annual interest rate in the original contract. Principal payments through the plan totaled $5,472.13, producing an “overpayment” of $1,852.83. “Ford is bound to the terms of the confirmed plan, is entitled to be paid only 12% per annum interest on its claim, and payments in excess of Ford’s secured claim plus appropriate interest to the extent paid from bankruptcy estate assets are recoverable by the trustee for administration under the confirmed plan. . . . [Section] 1327(a) binds the parties to the plan and §§ 1327(b) and (c) revest the truck subject to Ford’s lien in the debtors. Ford is limited in its recovery under the plan to the amount of its secured claim as confirmed by the plan.” The court allowed the trustee to recover the overpayment by withholding payments to Ford in unrelated Chapter 13 cases.), aff’d in part, rev’d in part, 130 F.3d 1027, 1030 (11th Cir. 1997) (At postconfirmation destruction of truck, lender is limited by confirmation to the balance of allowed secured claim and cannot recover from insurance proceeds the amount due under the original contract. “In the context of the insurance policy on the truck, therefore, the proceeds act as a substitute for the insured collateral. See Bradt v. Woodlawn Auto Workers (In re Bradt), 757 F.2d 512, 515 (2d Cir.1985) . . . . Ford’s interest in the insurance proceeds flowing from the destruction of the secured collateral is only as great as its interest in the collateral itself. . . . That interest was defined at the time of the confirmation of the Chapter 13 plan as the remaining principal owed on the truck, with interest at a rate of 12%. . . . Ford is bound by the terms of its allowed claim and is therefore limited to recovering from the insurance proceeds the amount of its debt as determined under the Chapter 13 plan.” Chapter 13 trustee cannot recover overpayments to Ford from payments due Ford in other Chapter 13 cases.); In re Hoffmeister, 191 B.R. 875 (D. Kan. 1996) (An insurance check for postconfirmation hail damage is distributed first to pay the balance of the car lender’s allowed secured claim.); In re Witherspoon, 281 B.R. 321, 322–23 (Bankr. S.D. Ala. 2001) (At destruction of debtor’s car after confirmation, secured claim holder is entitled to be paid from the insurance proceeds the balance of its allowed secured claim plus the 1% that unsecured claim holders will be paid under the confirmed plan. “[Ford Motor Credit Co. v. Stevens (In re Stevens), 130 F.3d 1027 (11th Cir. 1997),] held that the proceeds of an auto insurance policy were property of the debtor’s estate . . . . NMAC as loss payee is to be paid, according to the State Farm policy, ‘as its interest may appear.’ . . . The policy appears to contemplate a joint payment arrangement . . . . [T]he value of the vehicle before the accident is the value of the security interest. [NMAC] cannot claim a greater interest in the insurance proceeds than it had in the collateral when its interest is as a lienholder. . . . [T]hat sum is the remainder of the secured claim and 1% of the unsecured claim. . . . The remainder of the proceeds, if any, shall be paid to the debtor.”); In re Gibson, 218 B.R. 900, 903–04 (Bankr. E.D. Ark. 1997) (At postconfirmation destruction of the debtor’s truck, insurance proceeds remained property of the estate, and the lender is limited by the order of confirmation to the allowed amount of its secured claim. Insurance policy provided proceeds are to be paid “as interest may appear.” Insurance company tendered $28,750 for destruction of debtor’s truck after confirmation. Balance of allowed secured claim was $19,840.47. Debtor proposed to modify plan to pay lender remaining balance of its allowed secured claim, with the rest of the insurance proceeds payable to the Chapter 13 trustee. Debtor also indicated intention to seek a refund for all or some of the remaining balance of the insurance proceeds to be used to repair another vehicle owned by the debtor. The court found that insurance proceeds were property of the estate, and loss payee “has a superior right in the insurance proceeds only to the extent of its interest in the insured property. . . . [U]pon post-petition destruction of collateral, an undersecured creditor’s interest in casualty insurance proceeds is limited by the confirmed Chapter 13 plan to the unpaid balance of its allowed secured claim. . . . This conclusion is based on the res judicata effect of plan confirmation on the determination of the value of secured claims. . . . The order confirming the plan fixing the value of a creditor’s secured claim is res judicata on that issue. . . . [The lender] has no insurable interest beyond the value of the collateral, which is the amount of [its] secured claim as established by the plan, less subsequent payments made to [the lender] and properly credited.”); In re Coker, 216 B.R. 843 (Bankr. N.D. Ala. 1997) (Distinguishing In re Suter, 181 B.R. 116 (Bankr. N.D. Ala. 1994), at postconfirmation destruction of car, lienholder has security interest in insurance proceeds consistent with its prepetition contractual rights, and debtor can use proceeds to buy a replacement car conditioned that the debtor provide adequate protection in the form of continuing monthly payments consistent with the confirmed plan and a replacement lien in the substitute car.); Ford Motor Credit Co. v. Feher (In re Feher), 202 B.R. 966, 970–72 (Bankr. S.D. Ill. 1996) (At postconfirmation destruction of car, secured claim holder’s interest in insurance proceeds is limited to cramdown value of $100. “[T]he policy at issue provides that collision loss benefits are payable jointly to Mr. Feher and to Ford, ‘as its interest may appear.’ Under the express terms of the contract of insurance, Ford is neither the primary nor the sole beneficiary of the proceeds. . . . Instead, the policy provisions give a shared interest in any proceeds to Mr. Feher and to Ford. . . . Ford’s interest in the car is defined by the confirmed plan and by the ‘cram down’ agreement . . . . Both documents provide that Ford’s interest in the car amounts to $100.00 and, under 11 U.S.C. §§ 506(a) and (d), Ford’s lien is void to the extent it purports to secure an amount in excess of this value. . . . Since property insurance serves as a substitute for the insuranced collateral, Ford’s insurable interest in the car (and its interest in the proceeds) cannot exceed this amount, so long as the debtors perform under the plan. . . . The trustee has already paid Ford in full for its $100.00 ‘crammed down’ claim through payments under the plan. Therefore, Ford has no interest remaining in the car (or in the insurance proceeds) to be satisfied under the plan. . . . [P]ursuant to §§ 1327(b) and (c) and the terms of the plan, the Ford Escort vested in the debtors upon confirmation, subject only to Ford’s ‘crammed down’ lien. That lien has been paid in full through payments under the plan. The unsecured creditors, on the other hand, have no interest in the car whatsoever. They are entitled to no more than the payments set forth in the plan and have no claim to the insurance proceeds. . . . This finding, however, is premised on the debtors’ successful completion of their chapter 13 plan payments. If the debtors’ chapter 13 case is dismissed prior to completion, all liens voided under § 506(d), including that of Ford, would be reinstated. . . . [T]herefore, . . . Ford has an inchoate lien in the insurance proceeds pending the debtors’ successful completion of their plan and discharge, in which case the inchoate lien would be extinguished. Because of the eventuality that Ford’s lien might be reinstated upon the dismissal of the case prior to completion of the plan, the trustee is directed to hold the insurance proceeds [$4,424.63] which are subject to Ford’s inchoate lien until the plan is completed. The trustee may, however, allow the debtors to use the proceeds for the purchase of another vehicle, provided that the debtors protect Ford’s inchoate lien by giving it a consensual replacement lien subordinate to a new purchase money lien, if any. Any such replacement lien shall be extinguished upon the debtors’ successful completion of their plan and discharge.”); Collier v. Valley Fed. Sav. Bank (In re Collier), 198 B.R. 816 (Bankr. N.D. Ala. 1996) (Upon postconfirmation destruction of rental property, insurance proceeds are first used to pay the balance of the mortgage secured by the property, then the excess is dealt with by the court by modification of the plan.); In re Habtemichael, 190 B.R. 871, 873–74 (Bankr. W.D. Mo. 1996) (Upon postconfirmation destruction of car, car lender was entitled only to balance of its allowed secured claim. “[T]he provisions of a confirmed Chapter 13 plan bind the debtor and each creditor to its terms . . . .  [B]y recovering the insurance proceeds to the extent of the remaining balance of its secured claim and by receiving payment on its unsecured claim in accordance with the terms of the plan, Toyota will receive the payment on its claim, both the secured and unsecured portion, that the debtor provided for in the plan and that Toyota was entitled to receive at the time the plan was confirmed. Toyota’s rights in this case will be totally extinguished upon payment of the sums called for in the order of confirmation.”); In re Moore, 181 B.R. 522, 523 (Bankr. D. Idaho 1995) (Successful objection to undersecured claim holder’s secured claim binds the creditor to the allowed amount upon destruction of the collateral. Confirmed plan fixed FMCC’s allowed secured claim at $19,000. Before confirmation, FMCC filed a proof of claim for $22,039.42. After confirmation, the debtors objected to FMCC’s proof of claim. FMCC did not respond, and an order was entered sustaining the objection. More than a year later, the car was destroyed and the insurance company “issued a check payable to the debtors and Ford in the amount of $21,667.00.” Citing Fireman’s Fund Mortgage Corp. v. Hobdy (In re Hobdy), 130 B.R. 318 (B.A.P. 9th Cir. 1991), for the proposition that “[w]here a secured creditor has filed a claim, the allowed value of the claim as set forth in the proof of claim may not be reduced by confirmation of a chapter 13 plan,” the court found that the order sustaining the objection to FMCC’s proof of claim reduced FMCC’s allowed secured claim to $19,000. Destruction of the car was a “substantial change” justifying modification of the plan under § 1329. The trustee was ordered to hold the proceeds in excess of $19,000 pending a motion to modify.); In re Suter, 181 B.R. 116, 119–20 (Bankr. N.D. Ala. 1994) (Casualty insurance proceeds payable only to the loss payee are not property of the bankruptcy estate except to the extent that the proceeds exceed the loss payee’s insurable interest as defined by the confirmed plan. Confirmed plan treated AmSouth as secured by a car in the amount of $6,425 and unsecured in the amount of $1,321. At destruction of the car, AmSouth’s secured claim had been reduced to $2,395.71 by payments through the plan. State Farm paid AmSouth $3,245.95 as loss payee. The debtor moved to substitute a replacement car for the funds paid by State Farm to AmSouth. “Because AmSouth was the loss payee of the insurance policy, the proceeds of the policy are not property of the bankruptcy estate and are payable to AmSouth, at least to the extent of AmSouth’s interest in the property insured. . . . The provisions of a confirmed Chapter 13 plan bind all creditors. 11 U.S.C. § 1327. Under the provisions of the plan confirmed in this case, AmSouth was allowed a secured claim in the amount of $6,425.00. . . . AmSouth’s lien on the insured vehicle was at that point, nullified, by operation of Section 506(d), to the extent that it might have otherwise secured an amount which exceeded $6,425.00. AmSouth’s secured claim has subsequently been reduced to the amount of $2,395.71 by payments made by the Debtor pursuant to the plan. Consequently, AmSouth’s lien on the insured vehicle has been extinguished to the extent that it secures any amount that exceeds $2,395.71. . . . A contract for property insurance is unenforceable except for the benefit of persons who have an ‘insurable interest.’ . . . Since AmSouth’s lien presently secures the sum of $2,395.71, AmSouth’s insurable interest in the Debtor’s truck cannot exceed that amount. The amount paid to AmSouth by State Farm which exceeds $2,395.71, therefore, must be paid by AmSouth to the Debtor, as owner of the insurance policy.”); Ledford v. Fidelity Fin. Servs. (In re Hill), 174 B.R. 949, 952–53 (Bankr. S.D. Ohio 1994) (Proceeds of casualty insurance on car are property of the Chapter 13 estate and payable to the trustee to the extent proceeds exceed the allowed amount of loss payee’s allowed secured claim. “[T]he issue of whether proceeds are property of a debtor’s estate is not simple, but is dependent upon the nature of the policy and the specific provisions governing the parties’ interests in the payment of policy proceeds. . . . In this proceeding, the insurance policy provides that any loss as a result of damage to the car is ‘payable as interest may appear to named insured [the debtor] and above loss payee [Fidelity].’ . . . Fidelity is neither the primary nor the sole beneficiary of the proceeds. The provisions of the insurance contract give an interest in any proceeds to both the debtor and to Fidelity. Although these respective interests would ordinarily be governed by applicable nonbankruptcy law, as a result of the debtor filing bankruptcy these respective interests are governed by the order confirming the debtor’s chapter 13 plan.” Fidelity and the debtor had entered into an agreed order that Fidelity would have an allowed claim of $19,729.07 to be paid 59% or $11,640.15. At the time the car was destroyed, Fidelity had been paid $7,070.81. The insurance company tendered $18,350. Fidelity’s “interest” was limited to $4,569.34, and the trustee was entitled to turnover of the rest.); In re Arkell, 165 B.R. 432, 434–35 (Bankr. M.D. Tenn. 1994) (Secured claim holder’s rights in insurance proceeds are defined by confirmation of the plan and § 1327(a). At confirmation, Nissan Motor Acceptance Corporation’s collateral was valued at $4,500. After confirmation, the car was destroyed and a second car substituted. The second car was also destroyed, and an insurance company tendered casualty insurance proceeds in excess of the balance of NMAC’s allowed secured claim. “NMAC’s belief that the extent of its security interest was improperly limited by the confirmation order had to be litigated before confirmation. . . . NMAC’s interest in the [car] was defined by the confirmation order. After confirmation, this debtor had no obligation to insure NMAC with respect to its unsecured claim. In [First Fidelity Bank v. McAteer (In re McAteer), 985 F.2d 114 (3d Cir. 1993)], the bank’s contract right against the life insurance company was not limited by the value of its security interest in the truck. Here, after confirmation, NMAC’s only right to payment with respect to the car was the present value of $4,500. If NMAC believed it had an interest in casualty insurance proceeds in excess of $4,500, it had to assert that right before confirmation.”); In re McDade, 148 B.R. 42 (Bankr. S.D. Ill. 1992) (After confirmation, secured claim holder is only entitled to the allowed amount of the secured portion of its claim upon destruction of its collateral and payment of insurance proceeds. At confirmation in April 1991, stipulated value of the car was $4,850. Between confirmation and destruction of the car in June 1992, the Chapter 13 trustee paid the secured claim holder $1,017.67. Insurance company paid $4,365 to cover the loss. Secured claim holder is entitled to $3,832.33; balance is payable to unsecured claim holders. Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), does not change this result. Section 1322(b)(2) permits a Chapter 13 plan to modify the rights of an automobile-secured claim holder. At confirmation, this automobile-secured claim holder’s rights were fixed at the value of the collateral. The secured claim holder’s argument that its lien against the collateral secures its entire claim, including the unsecured portion of its claim, is not supported by Dewsnup. Dewsnup’s interpretation of § 506 in a Chapter 7 liquidation does not apply in Chapter 13 cases.); In re Pourtless, 93 B.R. 23 (Bankr. W.D.N.Y. 1988) (Section 1327 fixed secured claim holder’s rights at confirmation, and upon postconfirmation destruction of the secured claim holder’s collateral, claim holder is entitled to that portion of insurance proceeds that pays the secured portion of its claim in full as fixed by the order of confirmation. Debtor is entitled to any additional sums paid by the insurance company.); In re Tucker, 35 B.R. 35 (Bankr. M.D. Tenn. 1983) (When debtor’s car is destroyed in a flood after confirmation and insurance pays the value of the vehicle, § 1327(a) limits creditor secured by the automobile to receiving only the balance of its secured claim, not the entire proceeds.). See also Bradt v. Woodlawn Auto Workers, F.C.U. (In re Bradt), 757 F.2d 512 (2d Cir. 1985) (Insurance proceeds for repair of debtor’s car are property of the Chapter 13 estate. Creditor with security interest in car is not entitled to proceeds. Creditor is entitled to adequate protection but is not entitled to either possession of the car or the insurance proceeds. Debtor can provide adequate protection by a substitute for possession during the Chapter 13 case.); Woods v. John Fox Oldsmobile, Inc. (In re Woods), 97 B.R. 850 (Bankr. W.D. Va. 1989) (Debtor has exclusive right to insurance proceeds from destruction of car. Secured claim holder is only entitled to adequate protection. Debtor may use insurance proceeds to purchase substitute vehicle, and secured claim holder will be given a lien on the substitute collateral.).

 

3  See Stevens v. Baxter (In re Stevens), 187 B.R. 48 (Bankr. S.D. Ga. 1995) (Upon postconfirmation destruction of a car, payments by the insurance company in excess of the secured claim holder’s allowed secured claim “are recoverable by the trustee for administration under the confirmed plan.”), aff’d in part, rev’d in part, 130 F.3d 1027 (11th Cir. 1997) (Although Ford is limited by confirmation to the balance of its allowed secured claim, Chapter 13 trustee cannot recover overpayments to Ford from payments due Ford in other Chapter 13 cases.); In re Hoffmeister, 191 B.R. 875, 878 (D. Kan. 1996) (An insurance check for postconfirmation hail damage is distributed first to pay the balance of the car lender’s allowed secured claim, then to creditors under the plan. “The order that confirms the Hoffmeisters’ plan specifically provides that estate property does not revest in the debtors until an event subsequent to confirmation . . . . [T]he Hoffmeisters’ 1988 Beretta became property of their chapter 13 estate and it will not revest in them until the bankruptcy court approves the trustee’s final report and account. . . . [T]he insurance proceeds here are part of the bankruptcy for either of two reasons. First, the Hoffmeisters’ insurance policies are property of the estate, and because the debtors have an apparent shared interest in the proceeds payable on the automobile insurance, the proceeds are also part of the estate. . . . [I]f the debtor’s property was part of the Chapter 13 estate, then the casualty or hazard insurance proceeds paid for damage to the same property are proceeds from that property and, thus, are also part of the estate.”); In re Gibson, 218 B.R. 900 (Bankr. E.D. Ark. 1997) (At postconfirmation destruction of the debtor’s truck, debtor proposed to modify plan to pay lender remaining balance of its allowed secured claim consistent with the confirmed plan, with the balance of the insurance proceeds payable to the Chapter 13 trustee. Debtor reserved the right to seek a refund of some or all of the remaining balance of the insurance proceeds to be used to repair another vehicle owned by the debtor.); In re Moore, 181 B.R. 522 (Bankr. D. Idaho 1995) (Chapter 13 trustee was ordered to hold insurance proceeds in excess of the allowed amount of a secured claim holder’s claim where insurance company tendered proceeds in excess of allowed amount of secured claim holder’s claim upon postconfirmation destruction of the collateral.); Ledford v. Fidelity Fin. Servs. (In re Hill), 174 B.R. 949 (Bankr. S.D. Ohio 1994) (Trustee was entitled to turnover of proceeds of casualty insurance on car to the extent proceeds exceed the allowed amount of the loss payee’s allowed secured claim.); In re McDade, 148 B.R. 42 (Bankr. S.D. Ill. 1992). See also Collier v. Valley Fed. Sav. Bank (In re Collier), 198 B.R. 816, 817 (Bankr. N.D. Ala. 1996) (The court modifies Chapter 13 plan to pay creditors the excess insurance proceeds from postconfirmation destruction of rental property. Confirmed plan called for direct payment of mortgage secured by rental property. Fire destroyed rental property, and insurance company tendered $25,600 in excess of the balance of the mortgage. “The confirmation order in the instant case is silent on the issue of when property of the estate vests in the debtors . . . . [T]he debtors argue that the insurance proceeds vested in them upon confirmation of their Chapter 13 plan pursuant to 11 U.S.C. § 1327(b) . . . . Although this issue is debatable, . . . the Court finds that the insurance proceeds constitute an unexpected and extraordinary change in the debtors’ financial circumstances necessitating the modification of the debtors’ confirmed Chapter 13 plan to conform with the debtors’ increased disposable income. . . . [W]here ‘substantial unanticipated changes’ occur, post-confirmation modification of plan payments is appropriate. . . . Accordingly, the Court hereby modifies the debtors’ Chapter 13 plan to increase the dividend to the unsecured claim holders to reflect the debtors’ increased disposable income. The Court believes that this option is . . . in keeping with the best interest test under 11 U.S.C. § 1325(a)(4) of the Bankruptcy Code.”).

 

4  See Ford Motor Credit Co. v. Feher (In re Feher), 202 B.R. 966, 970–72 (Bankr. S.D. Ill. 1996) (At postconfirmation destruction of car because secured claim holder’s crammed down secured claim has been paid in full and unsecured claim holders have no interest in the car or the insurance proceeds, debtor is entitled to the excess of insurance proceeds; however, because of the possibility that the debtor will dismiss before completion of payments under the plan, car lender has an inchoate lien on the excess insurance proceeds until the debtor completes payments under the plan. “The trustee has already paid Ford in full for its $100.00 ‘crammed down’ claim through payments under the plan. Therefore, Ford has no interest remaining in the car (or in the insurance proceeds) to be satisfied under the plan. . . . [P]ursuant to §§ 1327(b) and (c) and the terms of the plan, the Ford Escort vested in the debtors upon confirmation, subject only to Ford’s ‘crammed down’ lien. That lien has been paid in full through payments under the plan. The unsecured creditors, on the other hand, have no interest in the car whatsoever. They are entitled to no more than the payments set forth in the plan and have no claim to the insurance proceeds. . . . This finding, however, is premised on the debtors’ successful completion of their chapter 13 plan payments. If the debtors’ chapter 13 case is dismissed prior to completion, all liens voided under § 506(d), including that of Ford, would be reinstated. . . . [T]herefore, . . . Ford has an inchoate lien in the insurance proceeds pending the debtors’ successful completion of their plan and discharge, in which case the inchoate lien would be extinguished.”); In re Habtemichael, 190 B.R. 871, 873–74 (Bankr. W.D. Mo. 1996) (Upon postconfirmation destruction of car, car lender was entitled to balance of its allowed secured claim, and the rest of the insurance proceeds were payable to the debtor. “[W]hen estate property has revested in the debtor and if the vehicle which is the subject of a bifurcated claim is destroyed, the creditor/lienholder is entitled to be paid the insurance proceeds to the extent of its secured claim; the debtor is entitled to receive the remaining balance of the proceeds; and the creditor/lienholder is entitled to be paid on its unsecured claim in accordance with the terms of the confirmed plan. . . . [T]he provisions of a confirmed Chapter 13 plan bind the debtor and each creditor to its terms . . . .  [B]y recovering the insurance proceeds to the extent of the remaining balance of its secured claim and by receiving payment on its unsecured claim in accordance with the terms of the plan, Toyota will receive the payment on its claim, both the secured and unsecured portion, that the debtor provided for in the plan and that Toyota was entitled to receive at the time the plan was confirmed. Toyota’s rights in this case will be totally extinguished upon payment of the sums called for in the order of confirmation.”); In re Suter, 181 B.R. 116, 119–20 (Bankr. N.D. Ala. 1994) (Casualty insurance proceeds in excess of the allowed amount of the secured claim holder’s claim are payable to the debtor “as the owner of the insurance policy.”); In re Pourtless, 93 B.R. 23 (Bankr. W.D.N.Y. 1988) (Debtor gets insurance proceeds in excess of balance of allowed secured claim.).

 

5  See, e.g., In re Coker, 216 B.R. 843 (Bankr. N.D. Ala. 1997) (At postconfirmation destruction of car, debtor can use insurance proceeds to buy a replacement car conditioned that the debtor provide adequate protection in the form of continuing monthly payments consistent with the confirmed plan and a replacement lien in the substitute car.). But see Ford Motor Credit Co. v. Feher (In re Feher), 202 B.R. 966, 970–72 (Bankr. S.D. Ill. 1996) (At postconfirmation destruction of car, secured claim holder’s interest in insurance proceeds is limited to cram down value of $100 contained in the confirmed plan; however, if the debtor desires to use the excess of insurance proceeds above that $100 value, the debtor must protect Ford’s “inchoate lien” for the balance of its undersecured claim with a replacement lien in the new collateral to protect Ford from the possibility of dismissal before completion of payments under the plan. “If the debtors’ chapter 13 case is dismissed prior to completion, all liens voided under § 506(d), including that of Ford, would be reinstated. . . . [T]herefore, . . . Ford has an inchoate lien in the insurance proceeds pending the debtors’ successful completion of their plan and discharge, in which case the inchoate lien would be extinguished. Because of the eventuality that Ford’s lien might be reinstated upon the dismissal of the case prior to completion of the plan, the trustee is directed to hold the insurance proceeds [$4,424.63] which are subject to Ford’s inchoate lien until the plan is completed. The trustee may, however, allow the debtors to use the proceeds for the purchase of another vehicle, provided that the debtors protect Ford’s inchoate lien by giving it a consensual replacement lien subordinate to a new purchase money lien, if any. Any such replacement lien shall be extinguished upon the debtors’ successful completion of their plan and discharge.”).

 

6  See § 74.12  Lien Retention before BAPCPA and § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases.

 

7  In re Woods, 257 B.R. 876, 878 (Bankr. W.D. Tenn. 2000) (At destruction of car after confirmation, generic plan provision that car lender “retain lien” did not free the insurance proceeds from the car lender’s lien. Plan bifurcated Ford’s claim. After payment of secured portion but before payment of unsecured portion, car was destroyed and debtor moved for permission to use the insurance proceeds to purchase another car. “[T]his Court is persuaded to adopt the view that, absent mandatory release language in the confirmed plan, the Chapter 13 debtor may not obtain an order over the lien creditor’s objection that would require the lien creditor to release its lien prior to the debtor’s Chapter 13 discharge.” Citing Chrysler Financial Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir. 2000), “[t]he impact of Nolan on the present issue is one of realization that the Court of Appeals recognizes the effects of changing in any way the confirmed treatment of a secured claim, and the holding discourages such changes as would amount to alterations of the secured status. . . . [A]lthough the secured portion of Ford’s claim has been paid in the plan and the debtor currently remains in Chapter 13, the reality, as previously noted, is that nothing would prevent the debtor, after receipt of the title from Ford, from voluntarily dismissing her case.”).

 

8  985 F.2d 114 (3d Cir. 1993).

 

9  985 F.2d at 118–19.

 

10  See § 104.1 [ The Power to Modify ] § 74.11  The Power to Modify.

 

11  If credit life or credit disability is part of a contract with a lender that is secured only by real property that is the debtor’s principal residence, § 1322(b)(2) as interpreted by the Supreme Court in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), may prohibit modification of that insurance provision. 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.

 

12  See § 264.1 [ To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim ] § 127.7  To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim. See, e.g., In re Abercrombie, 39 B.R. 178 (Bankr. N.D. Ga. 1984); In re Johnson, 25 B.R. 178 (Bankr. N.D. Ga. 1982).

 

13  See § 76.1  Valuation, Claim Splitting and Dewsnup and § 76.7  Valuation after BAPCPA.

 

14  See § 127.7  To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim, § 127.10  To Account for Payments Other Than under the Plan, § 135.1  Timing, Procedure and Evidence Presumption and § 135.2  Allowance and Objections to Claims: Changes by BAPCPASee, e.g., Baxter v. Systems & Servs. Techs., Inc. (In re Dykes), 287 B.R. 298 (Bankr. S.D. Ga. 2002) (Granting reconsideration of claims under § 502(j), car lender is not entitled to recover a deficiency as an unsecured claim when the car lender was granted relief from the stay after confirmation and disposed of its collateral without giving notice of intent to recover a deficiency as required by Georgia law. The car lender’s failure to give the debtor notice of the deficiency claim within 10 days of repossession forfeited the lender’s right to recover a deficiency and entitled the debtor to reconsideration of the deficiency claims under § 502(j).); In re Adams, 270 B.R. 263, 269–72 (Bankr. N.D. Ill. 2001) (Distinguishing Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000), and In re Fareed, 262 B.R. 761 (Bankr. N.D. Ill. 2001), confirmed plan providing secured creditors would “be paid 100% of allowed claims” does not preclude motion to value secured claim at zero when collateral is repossessed and sold after confirmation and creditor did not file claim before confirmation. After confirmation, stay was modified, Ford repossessed and sold two cars and debtor moved to reduce Ford’s secured claims to zero. “A motion for valuation of a security can be made at any time, as there are no time limits for doing so set in § 506(a) or Rule 3012. . . . The only limitation on a post-confirmation ‘strip down’ motion under Rule 3012 or valuation under § 506(a) is that the parties are bound by any valuation included in a confirmed plan where the secured creditor filed a claim pre-confirmation and its asserted collateral value was not challenged before confirmation . . . or the confirmed plan itself specifies collateral value. . . . Here the plan was silent as to collateral value, and creditor’s claims were not filed until after the confirmation hearing. Since Ford filed no claim prior to Plan confirmation, and the Debtors therefore had no chance to seek strip down or otherwise object to the unfiled claims before confirmation, they are not precluded by collateral estoppel or otherwise from challenging those claims after confirmation. . . . Once Ford sold the repossessed vehicles, it recovered the secured value thereof from the marketplace. By seeking as it now does to have the deficiencies on the rest of its filed secured claims paid 100% through the Plan as secured debt, it attempts to recover the secured values a second time . . . . [I]f its argument were accepted, then it and other creditors could block any debtor from ever exercising rights under § 506(a) to strip down the secured claim by the simple expedient of not filing a claim prior to confirmation. . . . Debtors’ Motion to disallow Ford’s secured claims . . . is . . . treated under 11 U.S.C. § 506(a) as a Motion to value the secured claims at zero . . . . The Motion is allowed . . . . [T]he amounts of Ford’s remaining unsecured claims can now be reconsidered and determined under § 502(j).”); In re Zieder, 263 B.R. 114 (Bankr. D. Ariz. 2001) (When Chapter 13 debtor surrendered truck to Ford a year after confirmation, § 502(j) permits reconsideration of secured claim and § 506(a) reduces allowed secured claim to zero.).

 

15  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.

 

16  See discussion beginning at § 126.1  Standing, Timing and Procedure and § 127.1  To Suspend Payments. 

 

17  See §§ 264.1 [ To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim ] § 127.7  To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim and 268.1 [ To Extend or Reduce the Time for Payments ] § 127.11  To Extend or Reduce the Time for Payments. See, e.g., In re Knappen, 281 B.R. 714, 718 (Bankr. D.N.M. 2002) (When debtor defaults under confirmed plan and creditor repossesses and disposes of car, neither res judicata nor § 1327 precludes modification to reduce secured claim to zero and increase unsecured claim to reflect deficiency. “[Section] 1329 . . . clearly contemplates changes to a confirmed plan. The language of § 1327(a), that the ‘provisions of a confirmed plan bind the debtor and each creditor . . .’ cannot mean that the plan cannot be altered; § 1329 says just the opposite. . . . [T]he concept of res judicata . . . has limited application in the context of chapter 13 plans that can be amended. . . . [C]hapter 13 . . . contemplates the possibility that a debtor’s circumstances will change after the plan is confirmed, necessitating changes in the plan through § 1329. . . . ‘Section 1327(a) is not a limit on permitted modification of a confirmed Chapter 13 plan; rather, it is a statutory description of the effect of a confirmed plan or of a confirmed modified plan.’”); In re Waller, 224 B.R. 876 (Bankr. W.D. Tenn. 1998) (After postconfirmation grant of relief from the stay and repossession of the debtor’s car, plan can be modified to treat car lender as an unsecured claim holder with respect to the deficiency; but payments due under the plan before the grant of relief from the stay remain secured claims that must be paid consistent with the original confirmed plan.), probably overruled by Chrysler Fin. Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir. 2000); In re White, 169 B.R. 526 (Bankr. W.D.N.Y. 1994) (Analyzed as an effect of relief from the stay under § 362(d) rather than as a postconfirmation amendment under § 1329, when secured claim holder takes possession of a mobile home after confirmation and sells the collateral for less than the balance of its allowed secured claim, the balance remaining is an unsecured claim.); In re Anderson, 153 B.R. 527, 528 (Bankr. M.D. Tenn. 1993) (“[T]he Debtors may modify their plan to reflect the satisfaction of the Bank’s secured claim by its repossession of the Debtors’ automobile.”), probably overruled by Chrysler Fin. Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir. 2000); In re Rimmer, 143 B.R. 871 (Bankr. W.D. Tenn. 1992), probably overruled by Chrysler Fin. Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir. 2000); In re Rincon, 133 B.R. 594 (Bankr. N.D. Tex. 1991); In re Manderson, 121 B.R. 617 (Bankr. N.D. Ala. 1990); In re Jock, 95 B.R. 75 (Bankr. M.D. Tenn. 1989), probably overruled by Chrysler Fin. Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir. 2000); In re Stone, 91 B.R. 423 (Bankr. N.D. Ohio 1988), probably overruled by Chrysler Fin. Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir. 2000).

 

18  See § 74.5  Surrender or Sale of Collateral before BAPCPA, § 74.6  Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA, § 127.7  To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim, § 127.10  To Account for Payments Other Than under the Plan and § 127.11  To Extend or Reduce the Time for Payments.

 

19  See § 264.1 [ To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim ] § 127.7  To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim. See, e.g., Chrysler Fin. Corp. v. Nolan, 234 B.R. 390 (M.D. Tenn. 1999) (Rejecting In re Anderson, 153 B.R. 527 (Bankr. M.D. Tenn. 1993), and In re Jock, 95 B.R. 75 (Bankr. M.D. Tenn. 1989), and approving of Sharpe v. Ford Motor Credit Co. (In re Sharpe), 122 B.R. 708 (E.D. Tenn. 1991), § 1329(a)(1) does not permit a Chapter 13 debtor to surrender a car after confirmation and treat the deficiency as an unsecured claim.), aff’d, 232 F.3d 528 (6th Cir. 2000); Sharpe v. Ford Motor Credit Co. (In re Sharpe), 122 B.R. 708 (E.D. Tenn. 1991); In re Boothe, 167 B.R. 943 (Bankr. D. Colo. 1994) (Postconfirmation modification is refused where postconfirmation destruction of debtors’ car left $1,852 of excess insurance proceeds not needed to pay the balance of the car lender’s secured claim and modified plan did not propose to pay the excess insurance proceeds to unsecured claim holders.); In re Cooper, 167 B.R. 889 (Bankr. E.D. Ark. 1994) (Citing In re Banks, 161 B.R. 375 (Bankr. S.D. Miss. 1993), court denies confirmation of modified plan that would surrender a car in full satisfaction of a credit union’s secured claim where the car was wrecked approximately four years after confirmation in an accident that was the debtor’s fault and the debtor had allowed insurance to lapse.); In re Banks, 161 B.R. 375 (Bankr. S.D. Miss. 1993) (Chapter 13 debtor cannot modify plan after confirmation to surrender a car with a blown engine and treat any deficiency as an unsecured claim to be paid 10% under the plan.); In re McNulty, 142 B.R. 106 (Bankr. D.N.J. 1992); In re Holt, 136 B.R. 260 (Bankr. D. Idaho 1992).

 

20  Baxter v. Systems & Servs. Techs., Inc. (In re Dykes), 287 B.R. 298, 303–04 (Bankr. S.D. Ga. 2002) (“The granting of relief from the automatic stay to repossess and sell the collateral is sufficient ‘cause’ to grant reconsideration of both SST’s and AFS’s claims under § 502(j). . . . Under Georgia law, when a secured creditor repossesses a motor vehicle following default in payments, the secured creditor is not entitled to recover against the buyer any deficiency claim unless within ten (10) days of the repossession, the creditor forwards by registered or certified mail written notice of the creditor’s intent to pursue a deficiency claim against the buyer, notice of the buyer’s rights of redemption, and notice of the buyer’s right to demand a public sale of the motor vehicle. O.C.G.A. § 10-1-36. . . . SST sought relief to proceed in rem, against the motor vehicle, its collateral, and got that relief. SST could have sought relief to comply with O.C.G.A.§ 10-1-36 and establish a deficiency but it failed to do so and is now barred by the 10-day limitation under Georgia Code provision.”).

 

21  See § 262.1 [ To Incur New Debt ] § 127.5  To Incur New Debt.