In re Algee
| Decision Date | 23 July 1992 |
| Docket Number | Bankruptcy No. 86-00934. |
| Citation | 142 BR 576 |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
| Parties | In re John A. ALGEE, Debtor. |
Ronald F. Mitchell, William J. Kenney, Washington, D.C., for debtor.
Byron Huffman, Landover, Md., for Washington Federal, Landover, Md.
Cynthia A. Niklas, Washington, D.C., trustee.
DECISION RE MOTION TO BIFURCATE BVC AND PCC LIEN CLAIMS
This case presents the issue whether, in the fifth year of his Chapter 13 plan, the debtor may bifurcate the claims of undersecured lien creditors in order to treat the bulk of their claims as unsecured. The debtor asserts that upon such bifurcation the unsecured claims will be subject to discharge. The plan implicitly treated the lien claims as secured without regard to their undersecured status and made no provision for the lien claims as unsecured claims. Accordingly, the court will deny the debtor's efforts at bifurcation as an attempted plan modification barred by the doctrine of res judicata.
The debtor, John A. Algee, M.D., filed his chapter 13 petition on December 17, 1986. He had filed a prior chapter 7 bankruptcy case, Case No. 82-00722, in 1982 and had received a discharge in 1983. The chapter 13 statement listed the debtor's residence at 1518 5th Street, N.W., Washington, D.C. but failed to value it. The chapter 13 statement listed the property as subject to three mortgages:
Washington Federal Savings & Loan (successor to Jefferson
Federal Savings & Loan) ("Washington Federal") $ 64,000.00
BVC Financial Enterprises, Inc. ("BVC") $ 25,847.52
Professional Capital Corp. ("PCC") $ 69,000.00
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TOTAL $158,847.52
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The trustee's objection to confirmation noted that the debtor estimated the residence as worth $75,000. If the debtor's valuation of his residence was correct and had he invoked 11 U.S.C. § 506(a) at the outset of his case, Washington Federal would have had a fully secured claim, BVC would have had a claim secured by the $11,000 remainder of value in the residence (disregarding costs of realizing that value) and otherwise would have had a claim secured by none of the value, and PCC would have had a fully unsecured claim.
The debtor filed a plan calling for payments of an unspecified duration to the chapter 13 trustee of $2,000 per month. Paragraph 2 of the plan provided:
The trustee objected that the amount of the debtor's pre-petition and post-petition arrears on the secured debts would warrant amending the plan to provide for the regular monthly mortgage payments inside the plan with plan payments increased accordingly.
A confirmation hearing was held on April 29, 1987, the Honorable George F. Bason, Jr., presiding. No transcript has been prepared.1 The order of confirmation, entered on June 1, 1987, required payment of $2,000 per month to the chapter 13 trustee as had been originally provided in the plan and also provided that:
The proposed Extension Plan, as orally amended to provide for payment inside the plan of all pre-confirmation arrears and regular mortgage payments to BVC Financial Enterprises, Inc. and Professional Capital Corp. be and the same is hereby confirmed.
The plan did not address the residue that would be owed to BVC and PCC upon conclusion of the plan: implicitly those amounts were to remain owing and secured by the creditors' liens. The bar date for filing proofs of unsecured claims expired on May 5, 1987, and neither BVC nor PCC filed a proof of claim, not having been mentioned as holders of unsecured claims in the plan.
On December 13, 1991, in the fifth year of the debtor's plan, the debtor filed a motion styled "Motion to Reopen, Modify and Amend Debtors Plan to Declare Defendants are Unsecured Creditors to the Extent Their Claims Exceeded the Fair Market Value of Their Claimed Security on the Date of the Filing of the Plan, to Cram Down Said Claims, Motion to Avoid all Liens Arising from Defendants Claims in Excess of Said Fair Value, and, Motion to Declare Said Debts Discharged." The debtor alleges that the $75,000 value of the house at the outset of the case results in a "fair value" under 11 U.S.C. § 502 (probably he means 11 U.S.C. § 506) of $65,000 "when real estate brokerage fees and the trustee's administrative fees and expenses are considered." Thus he asserts that only $1,000 of BVC's and PCC's claims were secured. The debtor alleges that he was entitled to have the BVC and PCC liens "limited to the true secured value of their security interests, to wit: $1,000.00, and to have the balance of said claims declared to be an unsecured debt and to have that balance . . . treated equally with all other unsecured debts." The debtor urges that he early on attempted to object to these liens as discharged by virtue of his prior chapter 7 discharge and thus gave "timely notice" of the intent "to provide for the discharge of these claims to the fullest extent permissible under the law."2 It appears the debtor's motion seeks the following relief:
The motion sought other relief of no relevance to this discussion.
The SBA has become receiver for PCC. Grover-Walker Associates has become assignee and transferee of the BVC claim. Only the SBA and the chapter 13 trustee responded to the motion. The SBA notes that the tax assessment value of the residence is $100,679 as of July 1, 1991. The SBA objects to the debtor's motion, contending that (1) the doctrine of res judicata bars the motion, (2) 11 U.S.C. § 1322(b)(2) prevents lien stripping, (3) lien stripping is barred by Dewsnup v. Timm, ___ U.S. ___, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), (4) modification under 11 U.S.C. § 1329 must be limited to the three categories of modification authorized by 11 U.S.C. § 1329(a),3 (5) modification ought not be granted retroactively, and (6) the motion is untimely under the standards of F.R.Civ.P. 60. The chapter 13 trustee joins in some of these objections. I need only reach the first objection, that of res judicata.
The court assumes, without deciding, that when the debtor filed this case the debtor could have voided PCC's lien in full and bifurcated BVC's lien into a small secured claim and a large unsecured claim and proposed a plan providing for payment of the allowed secured claim arrearages in full and payment of the unsecured claims of BVC and PCC pro rata with other unsecured creditors. See In re Bellamy, 962 F.2d 176 (2d Cir.1992).4 The debtor, however, must first overcome the doctrine of res judicata before modifying his plan. The issue must be addressed in two separate regards. First, can the plan be modified to delete the provision for payment of all arrearages and regular monthly mortgage payments expressly required by the plan as orally amended? Second, can the residue of the BVC and PCC claims (that is, amounts beyond the arrearages and regular monthly payments expressly provided for) be classified as unsecured claims such that they are discharged with other unsecured claims?
Modification of a plan to alter the treatment accorded a particular claim under the plan based on an issue that could have been litigated prior to confirmation is barred by the doctrine of res judicata. In re Bereolos, 126 B.R. 313 (Bankr.N.D.Ind. 1990). See generally, Comment, Postconfirmation Modification of Chapter 13 Plans: a Sheep in Wolf's Clothing, 9 Bankr.Dev.J. 153 (1992) ("Comment"). Without the doctrine of res judicata as a brake on § 1329, 11 U.S.C. § 1327(a)5 would be rendered meaningless, with any confirmation issue subject to being revisited at whim. Thus, despite the seemingly unqualified language of 11 U.S.C. § 1329, courts have held that modification is not warranted unless there has been an unanticipated substantial change in circumstances, a test applied on an objective basis. In re Arnold, 869 F.2d 240, 243 (4th Cir.1989).
The res judicata doctrine has been applied against creditors: it bars a creditor from relitigating, by way of a motion for relief from the automatic stay, any questions, including lack of adequate protection, that could have been raised and decided at the confirmation hearing. In re Evans, 30 B.R. 530 (B.A.P. 9th Cir.1983); In re Lewis, 8 B.R. 132 (Bankr.Idaho 1981). The rule has also been held to preclude the IRS from obtaining modification of a...
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