Howard, Matter of
| Citation | 972 F.2d 639 |
| Decision Date | 08 September 1992 |
| Docket Number | No. 91-3595,91-3595 |
| Parties | , 27 Collier Bankr.Cas.2d 1016, Bankr. L. Rep. P 74,838 In the Matter of Walter HOWARD and Verlean Howard, Debtors. SUN FINANCE COMPANY, INC., Appellant, v. Walter HOWARD and Verlean Howard, Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Stephen G. Sklamba, Metairie, La., for Sun Finance Co., Inc.
Mark Samuel Goldstein, Howard, Laudumiey & Mann, New Orleans, La., for appellees.
Appeals from the United States District Court for the Eastern District of Louisiana.
Before HIGGINBOTHAM and DUHE, Circuit Judges and HUNTER, * District Judge.
We deal in this case with the effect of a confirmed reorganization plan under Chapter 13 of the Bankruptcy Code on a secured creditor who fails to object to the plan before confirmation. We conclude that a Chapter 13 plan which purports to reduce or eliminate a creditor's secured claim is res judicata as to that creditor only if the debtor has filed an objection to the creditor's claim. If no objection is filed to a secured claim, the creditor is entitled to rely upon its lien and not participate in the bankruptcy proceedings. Accordingly, we reverse the judgment of the district court and remand for further proceedings consistent with this opinion.
The facts in this case are undisputed. Sun Finance Company, Inc. held a secured mortgage in the amount of $4,590.47 on two New Orleans properties owned by the Howards. On May 21, 1990, the Howards filed a Chapter 13 bankruptcy petition and plan. The plan described the Sun Finance claim as disputed. The Howards listed as an asset an action against Sun for unfair and deceptive trade practices. The plan provided that Sun would be paid $500 of its secured debt in full compromise of the Howards' claimed action against Sun and Sun's lien would be lifted.
Sun was listed as a secured creditor in the Howards' bankruptcy and received notice of the filing of the petition, the creditors' meeting, and the plan confirmation hearing. The notice of the creditors' meeting and the confirmation hearing contained the following summary of the plan: "The plan proposes payments of $64.00 monthly to the Trustee with unsecured claims to be paid 100.00% over approximately 36 months." At no time did Sun receive a copy of the plan itself or actual notice that its claim had been compromised to $500. Sun filed a proof of claim before the confirmation hearing. The Howards did not file an objection to Sun's proof of claim. Sun did not participate in the confirmation proceedings beyond filing its proof of claim. No objection was made to the plan's confirmation and the bankruptcy court confirmed it on July 10, 1990.
When Sun did not receive the payments which it anticipated, it filed a motion to lift the automatic stay in order to permit it to foreclose on its note and mortgage. The bankruptcy court refused to lift the stay, ruling that the confirmation of the plan was res judicata to the issues raised in Sun's motion because Sun failed to object to the plan prior to confirmation. The district court affirmed the ruling of the bankruptcy court.
The Howards assert in defense of the district court's judgment that the confirmation of a Chapter 13 plan has a res judicata effect as to all issues decided in the plan. Therefore, they argue, Sun is bound by the plan's provision that their secured claim is offset by the Howards' claims against Sun. On its face, § 1327(a) of the Bankruptcy Code gives a Chapter 13 reorganization plan a sweeping binding effect on all creditors. It provides that "the provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a). Property which passes through the plan vests in the debtor "free and clear of any claim or interest of any creditor provided for by the plan." § 1327(c).
Provisions of the bankruptcy code cannot be read in isolation but should be interpreted in light of the remainder of the statutory scheme. United Savings Assoc. v. Timbers of Inwood Forest, 484 U.S. 365, 370-72, 108 S.Ct. 626, 630, 98 L.Ed.2d 740 (1988); In re Southmark (Southmark Corp. v. Southmark Personal Storage, Inc.), 138 B.R. 831, 834 (Bankr.N.D.Tex.1992). Several provisions of the bankruptcy code provide special procedures to protect secured creditors and their liens. Section 502(a) provides that "a claim or interest, proof of which is filed under Section 501 of this title, is deemed allowed, unless a party in interest ... objects." Section 506(a) further provides that the value of a secured claim must be determined in conjunction with any plan that would affect the creditor's interest. A timely-filed proof of claim constitutes prima facie evidence of the validity and amount of the claim. B.R. 3001. To rebut a proof of claim, the debtor must file an objection under B.R. 3007. Sun asserts that because no objection was made to its timely-filed proof of claim, § 502(a) requires that it be deemed allowed under the plan. Because the proper procedure for objecting to Sun's proof was not followed, Sun asserts, the plan cannot effectively reduce the amount of their lien.
We have addressed the effect of the confirmation of a Chapter 13 plan on creditors who fail to object to the confirmation twice before. Sun finds support for its position in In re Simmons, 765 F.2d 547 (5th Cir.1985). In Simmons, a creditor who had perfected a statutory lien was incorrectly listed in the debtor's plan as an unsecured creditor. The creditor indicated that he would approve the plan, but added the proviso that he must be listed as a secured creditor. The creditor did not object to the plan at the confirmation hearing and his status under the plan was never corrected. The debtor argued that because the creditor had failed to object to the plan's confirmation he was bound by its terms and his lien was therefore invalid. We disagreed, holding that a Chapter 13 plan may not substitute for an objection to a secured creditor's proof of claim. Once the creditor has filed a proof of claim, "the Code and the Rules clearly impose the burden of placing the claim in dispute on any party in interest desiring to do so by means of filing an objection." Id. at 552. A secured creditor is therefore not bound by a plan which purports to reduce its claim where no objection has been filed.
The Howards rely on our decision in Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir.1987), to support their position that confirmation of a Chapter 13 plan is res judicata against any creditor who fails to object to its confirmation. The bankruptcy court in Shoaf included in a Chapter 13 plan a provision invalidating a guaranty by a third party in favor of one of the creditors. That creditor objected to the provision in one hearing, but failed to object to the plan at the final confirmation hearing. Although the bankruptcy court was without statutory authority to release the guaranty in the plan, we held that the plan confirmation was nonetheless res judicata on the issue of the validity of the plan provision affecting the guaranty.
The apparent tension between Simmons and Shoaf reflects no more than the difficulty in striking a workable balance between the interest in the protection of secured creditors and the interest in finality for Chapter 13 debtors. To the extent that these cases might be in conflict, we would be bound to follow Simmons as the earlier decision of this court on the subject. Broussard v. Southern Pacific Trans. Co., 665 F.2d 1387, 1389 (5th Cir.1982) (en banc). We believe, however, that when properly read, these cases are not in conflict.
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