In re Gregory

Decision Date09 May 1983
Citation705 F.2d 1118
CourtU.S. Court of Appeals — Ninth Circuit

Michael Terry Hertz, Esq., FULLERTON, LANG, RICHERT & PATCH, Fresno, California for Appellant/Petitioner.

M. Nelson Enmark, Esq., Fresno, California for Appellee/Respondent.

Fairchild, Choy, and Sneed, Circuit Judges.

The Honorable Thomas E. Fairchild, Senior Circuit Judge for the U.S. Court of Appeals, Seventh Circuit, sitting by designation.

CHOY, Circuit Judge

This is an appeal from a judgment of the bankruptcy court, affirmed by the bankruptcy appellate panel, 19 Bankr. 668, in an action to determine the dischargeability of a debt.

The bankruptcy court held that a state court money judgment, won by Lawrence Tractor Co. (Lawrence) in an action against former employee Joseph Gregory for embezzlement, was dischargeable in Gregory's Chapter 13 bankruptcy proceeding although Gregory's confirmed plan provided for zero payment on the claim.

We conclude that (1) Lawrence's failure to object to confirmation of the plan or to appeal from the confirmation order precludes it from challenging the plan on the ground of good faith in proceedings to determine the dischargeability of its claim; (2) by including a provision for zero payment on unsecured claims, Gregory's plan "provided for" those claims as required by 11 U.S.C. § 1328(a), and therefore those claims were dischargeable; and (3) the notice received by Lawrence of the confirmation hearing was sufficient to put it on inquiry that its claim might be affected and therefore did not fail to satisfy due process requirements. Therefore, we affirm.

I. FACTS

Gregory filed his Chapter 13 bankruptcy petition on November 8, 1979. At that time he owed appellant Lawrence $16,540.58 as the result of the state court judgment against him for embezzlement.

On November 9, 1979, the bankruptcy court sent to all creditors, including Lawrence, an "Order for Meeting of Creditors." This order gave notice that the creditors' meeting required by 11 U.S.C. § 341(a) was scheduled for December 17, 1979, at 1:00 p.m. and that the confirmation hearing in bankruptcy court would follow at 2:00 p.m.

The order stated that Gregory's "plan of arrangement" divided creditors into seven groups. Group six was "general unsecured creditors." Beneath the list of groups the order stated: "The debtors' plan does not propose payment of unsecured creditors." The order also stated: "The plan proposes payment to the Trustee of $147.71 monthly." Lawrence did not receive a copy of Gregory's plan with the order.

The creditors' meeting and the confirmation hearing were held as scheduled on December 17. Lawrence was not represented at either. On January 2, 1980, the bankruptcy court issued its order confirming the plan. Lawrence did not appeal.

Gregory's plan actually proposed only six monthly payments of $147.71, to be applied to the claim of a single secured creditor to whom Gregory owed approximately $2,500 on an automobile loan. At the end of six months, Gregory was to pay the Trustee a sufficient amount to "complete the plan," i.e., to satisfy the secured debt in full. The plan stated: "5. General Unsecured Creditors. This plan provides for -0- payment to unsecured creditors requesting that said debts be discharged."

In March 1980, two months after the plan was confirmed, Lawrence filed its "Complaint to Determine Dischargeability of Debt," alleging that its claim was nondischargeable because: (1) it was derived from embezzlement; (2) only debts "provided for" in a plan are dischargeable under section 1328(a), and a debt for which zero payment is proposed is not so provided for; and (3) it did not receive reasonable notice within which to file an objection to the confirmation of the plan, and the plan should not have been confirmed because it was not proposed in good faith.

Gregory made only two of the six monthly payments. Before the end of the six months, however, he refinanced his car and received a check for $2,220.74, which he assigned to the Trustee. A surplus of $110.16 remained after the Trustee paid off the secured claim, and Gregory consented to the Trustee's distribution of this surplus on a pro rata basis to his unsecured creditors, including Lawrence.

In September 1980 a hearing was held on Lawrence's complaint. On February 5, 1981, the court filed its memorandum opinion, stating in part:

The Court grants the Motion of the Debtor [Gregory] to amend his plan nunc pro tunc to reflect the payments actually made by the Trustee to unsecured creditors on a pro-rata basis, including Plaintiff in this case [Lawrence].

In view of the foregoing amendment it cannot be said that Plaintiff's debt was not provided for by the plan. The Court therefore must find that the debt of the Defendant to Plaintiff was dischargeable under 1328a [sic] of the Code.

It should be noted that in this case Debtor's total net income was $624.48 per month, so that it can hardly be said that the plan was not Debtor's best effort.

Lawrence appealed to the bankruptcy appellate panel, arguing again that a Chapter 13 plan that proposes zero payment on an unsecured claim does not "provide for" the claim. Lawrence also argued that the bankruptcy court lacked authority to amend the plan "nunc pro tunc," thereby attempting belatedly to "provide for" Lawrence's claim.

The panel affirmed, holding that a plan that expressly proposes to pay nothing on unsecured claims "provides for" those claims, which then become dischargeable after all payments under the plan are completed. Since it concluded that the original plan "provided for" Lawrence's claim, it did not consider whether the bankruptcy court's "nunc pro tunc" amendment was proper.

II. ISSUES

1. After the order of the bankruptcy court confirming Gregory's "zero-payment" plan became final, was Lawrence precluded from challenging its legality in proceedings to determine the dischargeability of its claim?

2. Did the bankruptcy appellate panel err in holding that Gregory's plan, which proposed zero payments on Lawrence's claim, "provided for" that claim so that it was dischargeable under section 1328(a)?

3. Did Lawrence receive adequate notice of the hearing to confirm the plan?

III. ANALYSIS
A. "Zero-Payment" Plans

Lawrence's initial argument is that a plan proposing zero payment on unsecured claims is not confirmable under the Bankruptcy Code.

Section 1325, which sets out six conditions that a plan must satisfy before it will be confirmed, does not establish a minimum permissible payment. Section 1325(a) (3), however, requires that the plan be "proposed in good faith." In In re Goeb, 675 F.2d 1386 (9th Cir. 1982), this court held that the "good faith" condition does not require substantial repayment to unsecured creditors. Instead, according to Goeb, good faith is determined by asking whether the debtor acted "equitably" in proposing the plan. If so, then a plan proposing even nominal payments to unsecured creditors of one cent on the dollar must be confirmed.

However, noting the controversy among courts and commentators, 675 F.2d at 1388, n.3, the court declined to rule on the legality of a zero-payment Chapter 13 plan. Id. at 1388, n.5.

If the bankrupt can show good faith, it seems almost pointless to distinguish between nominal-payment and zero-payment plans. In fact, the view from the trenches appears to be that zero-payment plans are administratively preferable. At the hearing on Lawrence's complaint, the bankruptcy judge stated: "It is going to raise, I'm sure, a great can of worms if I rule that it is not discharged because it wasn't provided for in the plan because I assume that I will get a deluge of one percent plans and Mr. Jarrett will probably threaten to resign as [the local Chapter 13] trustee if I do." At oral argument, Gregory's counsel stated that the bankruptcy court in Fresno has confirmed over three hundred zero-payment plans.

However, this court need not rule on the legality of zero-payment plans in general or of Gregory's in particular. The order confirming the plan has become final. Lawrence's failure to raise this objection at the confirmation hearing or to appeal from the order of confirmation should preclude its attack on the plan or any provision therein as illegal in a subsequent proceeding.

This was the approach of the bankruptcy appellate panel, which correctly stated that it was without jurisdiction to consider Gregory's "good faith" objection to the plan. "Questions of this sort should have been raised at the time of confirmation and by appeal immediately thereafter. The time for appeal on the issue of good faith had long passed when the instant adversary proceeding was instituted."

B. The "Provided-for" Issue

Section 1328(a) reads in part:

As soon as practicable after completion by the debtor of all payments under the Plan . . . the court shall provide the debtor a discharge of all debts provided for by the Plan. . . . [Emphasis added.]

Lawrence argues that plans proposing zero payment on unsecured claims do not "provide for" those claims, which are therefore nondischargeable.

We agree with the conclusion of the bankruptcy appellate panel that the phase "provided for" in section 1328(a) simply requires that for a claim to become dischargeable the plan must "make a provision for" it, i.e., deal with it or refer to it. This construction seems reasonable, and Lawrence's efforts to support its construction of "provided for" as meaning "supplied a benefit" are not convincing.

Lawrence argues that if a plan may "provide for" a debt with a zero-payment provision then there is no practical difference between such a plan and a plan without any provision at all for unsecured debts. However, as the bankruptcy appellate panel noted, ...

To continue reading

Request your trial
253 cases
  • Helfand v. National Union Fire Ins. Co., A049442
    • United States
    • California Court of Appeals
    • 28 Octubre 1992
    ...notice of any objections ... within ten (10) days after service of this notice." National Union first calls attention to Matter of Gregory (9th Cir.1983) 705 F.2d 1118, and other cases treating the issue of adequacy of notice in bankruptcy proceedings. Gregory concerned notice of a creditor......
  • In re Doty, Bankruptcy No. 86-62139.
    • United States
    • United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana
    • 9 Febrero 1991
    ...the debtor and his creditors to the plan provisions. United States of America v. Norton, 717 F.2d 767 (3rd Cir.1983); Matter of Gregory, 705 F.2d 1118 (9th Cir.1983); In re Wickersheim, 107 B.R. 177, 181 (Bankr.E.D.Wis.1989); Matter of Grogg Farms, Inc., 91 B.R. 482, 485 (Bankr.N.D.Ind.1988......
  • In re Pardee, BAP No. AZ-97-1038-RYKJ
    • United States
    • Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit
    • 31 Marzo 1998
    ...¶ 1141.011 n. 17a (15th ed.1995)).8 Additionally, this reasoning has been applied to confirmed chapter 13 plans. In In re Gregory, 705 F.2d 1118, 1120 (9th Cir.1983), the bankruptcy court confirmed the debtor's chapter 13 plan that provided for no payment to unsecured creditors and a discha......
  • In re Mansaray-Ruffin, 05-4790.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • 24 Junio 2008
    ...We further stated that "if a creditor ignores the bankruptcy proceedings, he does so at his peril." Id. at 1410 (citing In re Gregory, 705 F.2d 1118, 1123 (9th Cir.1983)). We also noted the "general rule" that "the acceptance of the plan by a secured creditor can be inferred by the absence ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT