In re Kitchen, Bankruptcy No. 481-00435
| Decision Date | 08 September 1986 |
| Docket Number | Adv. No. 485/0033.,Bankruptcy No. 481-00435 |
| Citation | 64 BR 452 |
| Parties | In re William D. KITCHEN, Nellie M. Kitchen, Debtors. William David KITCHEN, Nellie Marie Kitchen, Plaintiffs, v. MALMSTROM FEDERAL CREDIT UNION a/k/a First Liberty Federal Credit Union, Defendant. |
| Court | U.S. Bankruptcy Court — District of Montana |
Patrick F. Flaherty, Great Falls, Mont., for debtors.
John H. Grant, Helena, Mont., for defendant.
John P. Paul, Great Falls, Mont., Trustee.
In this adversary proceeding, the Plaintiff Debtors seek a determination of the debt, if any, owed to the Defendant Malmstrom Federal Credit Union (Malmstrom). Hearing on said complaint and answer was held July 15, 1986, and the parties have now filed proposed Findings of Fact, Conclusions of Law and briefs in support of their respective position.
The Debtors filed their Chapter 13 Petition and Plan on September 21, 1981, amended on November 17, 1981. The Amended Plan listed Malmstrom as a secured creditor in the sum of $20,812.61, and proposed to sell a portion of its collateral consisting of a computer for $15,000.00 and pay the balance of the claim at $100.00 per month for 60 months. The Order Confirming the Plan, after objections filed by Malmstrom, provided that Malmstrom, as a secured creditor, would be paid $200.00 per month on the following conditions:
The order further stated that Malmstrom consented to the Plan on the conditions set forth above. Post confirmation, on April 9, 1982, Malmstrom filed a motion to review the Plan, convert the case to Chapter 7, or order release of its collateral. Thereafter on May 11, 1982, the Debtors and Trustee consented to release of the automatic stay in the above described DEC Data System Computer. Such consent stated that Malmstrom would apply the proceeds of sale to the balance owed it. Malmstrom delayed until September 14, 1982, to take possession of the computer and has held it since such date without sale of the collateral. Further, on May 11, 1982, the Plan was modified by order of this Court to provide that the amount due Malmstrom under the Plan would be paid at $300.00 per month, effective July 10, 1982, "for the duration of the Plan", namely, October, 1986, (the original Plan being for 5 years in duration). Payments under the Plan to Malmstrom presently total $14,300.00, through January, 1986. By agreement of the parties, the Trustee has withheld payment to Malmstrom because of the present controversy. After the petition was filed, Malmstrom filed a Proof of Claim stating the total debt due Malmstrom as of October, 1981, was $20,812.61. There was no valuation made at the time of the confirmation hearing as to the value of Malmstrom's security interest.
The pre-petition debt of Malmstrom is based on a promissory note dated February 12, 1980, (due March 20, 1985) in the principal sum of $27,070.00, with interest at 12% per annum, secured by a first lien on a 1978 Chevrolet Suburban and the computer and a third lien on the Debtors' family residence. That sum was borrowed to finance the purchase of the computer. The additional security was taken to fully collateralize the loan.
The position of the Debtors in this proceeding is that Malmstrom was undersecured, and thus have now been overpaid under the Plan. Further the Debtors complain that Malmstrom, upon taking possession of the computer, has never credited the Debtors' account with any sum for its value. The latter fact is true, and Malmstrom now claims a balance owing of $18,673.11, despite having been paid $14,300.00 under the Plan and securing the right to possession of the computer in May, 1982. Most payments under the Plan have been charged to interest. Malmstrom contends it was fully secured as a creditor, and that its account should be paid in full irrespective of the Plan provisions. Both parties introduced evidence at the hearing concerning valuation of the collateral, which varied considerably. It is to be noted that the confirmed Plan not only provided for payments to Malmstrom of over $15,000.00, but also proceeds from the sale of the computer. Further, with respect to secured claims, each holder of such claim retained its lien securing the claim, and the value, as of the effective date of the Plan, of property distributed under the Plan, or property distributed under the Plan, was not less than the amount of such claim.
From reading the briefs of the parties, it is obvious both sides have failed to appreciate the effect of an order confirming a Chapter 13 Plan. Section 1327 (11 U.S.C. 1327) of the Code provides:
The legislative history of Section 1327, together with case law dealing with its subject matter, makes clear that Subsection (a) binds the Debtor and each creditor to the provisions of the confirmed Plan, especially where the creditor has consented to the Plan, although such consent is not necessary. The matter has been addressed and settled in Anaheim Savings and Loan Association v. Evans (In re Evans), 30 B.R. 530, 531-32, 9 C.B.C.2d 123 (BAP 9th Cir. 1983), which holds:
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