In re Brooks, Bankruptcy No. 03-20888.

• Decision Date: 10 April 2006
• Docket Number: Bankruptcy No. 03-20888.,Adversary No. 05-2001.
• Citation: 340 B.R. 648
• Parties: In re Richard BROOKS and Jacqueline Brooks, Debtors. Richard and Jacqueline Brooks, Plaintiffs, v. General Motors Acceptance Corporation, Defendant.
• Court: U.S. Bankruptcy Court — District of Maine

340 B.R. 648

In re Richard BROOKS and Jacqueline Brooks, Debtors.

Richard and Jacqueline Brooks, Plaintiffs, v. General Motors Acceptance Corporation, Defendant.

Bankruptcy No. 03-20888.

Adversary No. 05-2001.

United States Bankruptcy Court, D. Maine.

April 10, 2006.

COPYRIGHT MATERIAL OMITTED

James Molleur, Esq., Saco, ME, for Plaintiff.

F. Bruce Sleeper, Esq., Portland, ME, for Defendant.

MEMORANDUM OF DECISION

JAMES B. HAINES, JR., Bankruptcy Judge.

The debtors' complaint against General Motors Acceptance Corporation (GMAC) is before me for decision on a stipulated record. The complaint asserts that GMAC violated the automatic stay of 11 U.S.C. § 362(a)¹ and the co-debtor stay of § 1301(a) by refusing to release its lien on a 1994 Plymouth Voyager automobile co-owned by Jacqueline Brooks and her father, Stephen Lantz. Because neither the Bankruptcy Code nor the debtors' confirmed Chapter 13 plan requires GMAC to release its lien, judgment will enter in its favor.

Background²

Jacqueline and Lantz purchased a 1994 Plymouth Voyager in October 1998. They executed a Retail Installment Sales Contract (Contract) with the dealer, which then assigned all of its rights, including a purchase money security interest, to GMAC. GMAC properly perfected its lien in accordance with state law.

The debtors filed their Chapter 13 petition in June 2003, scheduling the Voyager with a $2,000 value. They listed GMAC as a secured creditor to the extent of the car's value and as an unsecured creditor for the remaining contract balance. GMAC received notice of the bankruptcy but did not file a proof of claim. Pursuant to § 501(c), the debtors filed a proof of claim on GMAC's behalf.

On August 20, 2003, the debtors' Chapter 13 plan was confirmed. It bifurcated GMAC's claim into a secured claim of $2,000 and an unsecured claim of $1,606.69. It provides general unsecured creditors a 5% dividend, but separately classifies GMAC's unsecured claim to receive a 100% dividend. Confirmation was followed by the debtors' motion to allow and disallow claims, which was granted in accordance with local procedures.³ Despite several post-confirmation plan modifications, GMAC's treatment remains unchanged.

About a year after confirmation, the debtors moved for an order authorizing them to sell the Voyager free and clear of "liens, claims, encumbrances and other interests," and served a notice of sale on GMAC at a post office box address in Manchester, N.H. GMAC did not object. Consequently, on November 1, 2004, I entered an order approving the sale. There is no evidence that the sale occurred, but the parties agree that GMAC's secured claim was fully paid by the Chapter 13 trustee as of October 6, 2004.

On December 15, 2004, GMAC sent Jacqueline and Lantz each a "Notice of Intent to Report Negative Credit." The notices stated, in full, "We have told credit bureaus about a late payment, missed payment, or other default on your account. This information may be reflected in your credit reports. This is not a collection notice."

Despite requests by the debtors' attorney, GMAC refuses to release its lien on the Voyager until its contract claim is fully paid. The debtors continue paying under their confirmed plan. They have not yet received their discharge.

Discussion

The parties agree that the debtors' plan properly bifurcated GMAC's claim into its secured and unsecured components under § 506(a) and § 1322(b)(2). It pays the secured claim in full, with interest, and separately classifies the unsecured claim so that it will be paid a 100% dividend — no doubt as a function of Lantz's independent liability on the GMAC debt. See 11 U.S.C. § 1322(b)(1) (permitting separate classification and treatment of an unsecured claim when an individual co-obligor is also liable).

1. The Allowed Secured Claim.

At what point during the prosecution and execution of the debtors' Chapter 13 plan is Jacqueline entitled to reap the benefit (viz. release of GMAC's lien) of permissible lien stripping under § 506(a) and § 1322(b)(2)?⁴

Jacqueline urges me to follow a line of cases holding that a Chapter 13 plan may require an undersecured creditor to release its lien upon full payment of the allowed secured portion of its claim prior to plan completion and discharge. See In re Rheaume, 296 B.R. 313 (Bankr.D.Vt. 2003) (discussed below); In re Castro, 285 B.R. 703 (Bankr.D.Ariz.2002) (confirming Chapter 13 plan over creditor's objection to provision requiring creditor to release its lien on vehicle upon payment of allowed secured claim); In re Gray, 285 B.R. 379, 385-88 (Bankr.N.D.Tex.2002) (finding nothing in Code that prevents Chapter 13 plans from containing "early" lien release provisions, court overruled creditor's objection to plan confirmation); In re Townsend, 256 B.R. 881 (Bankr.N.D.Ill.2001) (finding support in purpose of Code in allowing confirmation of plan that contained "early" lien release provision); In re Shorter, 237 B.R. 443 (Bankr.N.D.Ill. 1999); In re Johnson, 213 B.R. 552 (Bankr.N.D.Ill.1997); In re Nicewonger, 192 B.R. 886 (Bankr.N.D.Ohio 1996); In re Cooke, 169 B.R. 662 (Bankr.W.D.Mo.1994).

GMAC points me to an opposing line of cases, holding that a secured creditor cannot be compelled to release its lien until a Chapter 13 debtor fully consummates her plan and receives a discharge. E.g., In re Day, 292 B.R. 133 (Bankr.N.D.Tex.2003) (recognizing that two prior cases from Northern District of Texas reached opposite results, following Thompson in sustaining creditor's objection to confirmation of plan that proposed to require secured creditor to release its lien prior to discharge); In re Moore, 275 B.R. 390 (Bankr.D.Colo.2002) (holding that debtor must complete all payments under confirmed plan before receiving benefit of modification of secured creditor's claim); In re Thompson, 224 B.R. 360, 366 (Bankr. N.D.Tex.1998) (finding support in Bankruptcy Code and Rules for proposition that Chapter 13 plan is akin to "`new contract'" between debtors and creditors, and concomitant requirement that debtors complete their obligations before they may enjoy benefits bestowed on them by the Code); McDonough v. Plaistow Cooperative Bank (In re McDonough), 166 B.R. 9, 14 (Bankr.D.Mass.1994) (in dicta, recognizing that "lienstripping should only be accomplished through the Plan itself, which does not provide a benefit to the Debtor until the Debtor obtains a discharge ... and it is certain that the case will be neither dismissed nor converted"); Gibbons v. Opechee Distributors, Inc. (In re Gibbons), 164 B.R. 207, 208 (Bankr.D.N.H. 1993).

This is a prickly issue. See Day, 292 B.R. at 136 ("The court is convinced that a provision requiring a lien release prior to plan completion and discharge is inconsistent with the Code, admitting, however, that the precise basis for this conclusion is uncertain."). However, I need not enter the briar patch this day.⁵

Even if I agreed with Jacqueline that the debtors could, through their plan, require GMAC to release its lien upon payment in full of GMAC's allowed secured claim, the language of their plan, together with that of their claims allowance/disallowance motion,⁶ is insufficiently clear and conspicuous to have put GMAC on notice that it would be required to release its lien before its contract claim was paid in full. See In re Woods, 257 B.R. 876, 878 (Bankr.W.D.Tenn.2000) (Chapter 13 debtor may not obtain order requiring secured creditor to release its lien prior to discharge "absent mandatory release language in the confirmed plan"). I agree with Judge Brown's assessment in Rheaume, that to effectively require a lien release upon payment of the allowed secured portion of a bifurcated claim, but prior to plan completion and discharge, the operative terms of the plan must articulate the requirement "in a way that is clear, conspicuous and consistent with the Bankruptcy Code." Rheaume, 296 B.R. at 322. Rheaume held the following language lacking:

Creditors holding secured claims shall retain their liens only to the extent of their allowed secured claims. To the extent that the allowed secured claim is paid during this case or thereafter, such creditors' lien shall be reduced. Once an allowed secured claim has been paid in full, either during or after the pendency of this case, the creditor holding such claim shall promptly mark any lien securing such claim as satisfied in the appropriate public records.

Rheaume, 296 B.R. at 321-22. Judge Brown considered that the language "blur[red] the line between what part of the lien release language deals with payments made through the plan and what part deals with payments made outside the context of the chapter 13 case." Id. at 322. She stated that, if an "early lien release" term was to be effective, it must specifically identify the creditor(s) whose lien(s) are targeted and must be demonstrably set apart from standard plan boilerplate. Judge Brown ordered the confirmation hearing reopened, to allow the debtor an opportunity to reformulate his lien release language. Id.; see also In re Day, 292 B.R. at 134 (denying confirmation on grounds other than the notice provided by plan's language; but as example of lien release language: "the liens on the collateral ... shall be released when the lesser of the stated value of the collateral or the allowed amount of the claim has been paid in full.").

Here we are not concerned with confirmation. Jacqueline has a confirmed plan. She wants GMAC to answer for refusing to abide by that plan. The language Jacqueline cites as mandating that GMAC release its lien states: "Secured Claims.... Upon payment in full of the allowed amount and any applicable interest, the creditor's security interest is deemed satisfied in full." It appears at the end of a multi-sentence paragraph dealing generally with all secured claims.

Jacqueline suggests that the language in her claims allowance/disallowance motion and the resulting order "implied...