In re Levine, 79B40892

• Decision Date: 20 December 1984
• Docket Number: No. 79B40892,84C9510.,79B40892
• Citation: 45 BR 333
• Parties: In re Ernest L. LEVINE, Debtor. NORTH COMMUNITY STATE BANK, Appellee, v. Ernest L. LEVINE, Appellant.
• Court: U.S. District Court — Northern District of Illinois

45 B.R. 333 (1984)

In re Ernest L. LEVINE, Debtor.

NORTH COMMUNITY STATE BANK, Appellee, v. Ernest L. LEVINE, Appellant.

Nos. 79B40892, 84C9510.

United States District Court, N.D. Illinois, E.D.

December 20, 1984.

Ernest L. Levine, pro se.

Michael S. Holzman, Martin & Karcazes, Chicago, Ill., for appellee.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Ernest L. Levine ("Levine") appeals from the September 20, 1984 order of Bankruptcy Judge Robert L. Eisen (the "Order") turning over to North Community Bank ("Bank") the proceeds realized on the sale of an automobile securing Levine's indebtedness to Bank. Levine argues the Order was improper because Bank had not filed proof of its claim within the required time and therefore was not entitled to the proceeds. For the reasons stated in this memorandum opinion and order, Judge Eisen's Order is affirmed.

Facts

On November 20, 1979 Levine, then engaged in business as a sole proprietor, filed a petition under Chapter 13 of the Bankruptcy Reform Act of 1978 (the "Code"¹), 11 U.S.C. §§ 1301-1330, claiming his income was sufficiently stable to make payments under a Chapter 13 plan. On January 11, 1980 a first meeting of the creditors was held pursuant to Code § 341, and the case proceeded in Chapter 13 until April 29, 1980, when Judge Eisen ordered that it be converted to a proceeding under Code Chapter 11, 11 U.S.C. §§ 1101-1174. Levine appealed Judge Eisen's conversion order to this Court.²

Several events during the pendency of that appeal are relevant to the current proceeding:

1. On September 19, 1980 Bank filed a proof of claim stating Levine\'s principal indebtedness to it as $4,330.34, secured by a lien on Levine\'s 1978 Pontiac Grand Prix.

2. On October 2, 1980 Bank sought relief from the automatic stay imposed by Code § 361, asserting the automobile\'s market value was then equal to the secured indebtedness but was subject to significant depreciation if not promptly realized. On November 14 Judge Eisen ordered Levine either (a) to commence monthly payments on the outstanding indebtedness or alternatively (b) to deliver the automobile to Bank. Levine chose the latter course, and on January 9, 1981 Judge Eisen authorized Bank to sell the automobile for not less than $4,300 (the amount of Bank\'s claim). Bank in turn sold the car, but for reasons not clear in the record on the present appeal Judge Eisen required the sale proceeds to be held in an escrow account pending further order of the Bankruptcy Court.

3. On November 19, 1980 Judge Eisen issued an order setting a time for the first meeting of creditors following the conversion of the case to Chapter 11.

On December 27, 1980 this Court vacated the conversion to Chapter 11 (see Glenview State Bank, 8 B.R. at 284), but it was not until February 5, 1981 that Judge Eisen filed an order reclassifying the case to Chapter 13 and scheduling yet another first meeting of creditors for February 19. On March 17 Judge Eisen confirmed a Chapter 13 plan (the "Plan") providing secured creditors with 100% and unsecured creditors with 10% of their duly proved and allowed claims. Levine's debt to Bank was listed in the Plan as a secured claim bearing the following notation:

To be disbursed from funds held in escrow by North Community Bank by Order of Court.

Because of the Plan's payment schedule³ the Plan remained in effect for three years, until Levine filed a motion for discharge under Code § 1328 in early 1984. That motion gave rise to cross petitions by Bank and Levine for an order turning over the funds in the escrow account.

Levine's argument for his position is at best muddled so far as the law goes,⁴ but it resolves essentially to this: Only allowed claims were to be paid under the Plan. For its claim to be allowed, Bank was required to file the claim within six months after the first creditors' meeting following the original Chapter 13 filing—a meeting held January 11, 1980. Because Bank did not file its proof of claim until September 19, 1980, over eight months after that creditors' meeting, it did not have an allowed claim. Of course the conversion to Chapter 11 occurred within six months of the January 11 creditors' meeting, but Levine contends whatever consequence that might have had as to the allowability of Bank's claim was nullified by the later reconversion to Chapter 13. On that theory the Plan "provided for" Bank's claim and confirmation of the plan was binding upon Bank under Code § 1327,⁵ but because Bank's claim was not duly proved and allowed it was not eligible to be paid.

Bank's Entitlement to the Escrowed Funds

In rejecting Levine's argument, Judge Eisen identified two possible grounds for his conclusion (though without specifically indicating which of them formed the basis of his holding):

1. Upon the conversion of the case to Chapter 11, Bank\'s claim was automatically deemed to have been proved because it appeared on the schedule of liabilities filed by Levine as required by Code § 521(1).

2. Even if Bank failed to file a timely proof of claim, it nevertheless retained its lien on Levine\'s automobile, a lien that extended to the proceeds once the automobile was sold.

Though the second of those reasons is dispositive, this opinion will treat briefly with the first as well.

1. Timeliness of Bank's Filing of Its Claim

Rule of Bankruptcy Procedure ("Old Rule") 11-33(b)(2)⁶ provided that in a Chapter 11 case:

A claim, including an amendment thereof, must be filed before confirmation of the plan except as follows:

(A) if scheduled by the debtor as undisputed, not contingent, and liquidated as to amount, a claim or amendment to a claim may be filed within 30 days after the date of mailing notice of confirmation to creditors but in such event shall not be allowed for an amount in excess of that set forth in the schedule. . . .

That provision makes one thing clear enough: Had Levine originally filed in Chapter 11 Bank would have been under no obligation to file its proof of claim until 30 days after notice of confirmation was mailed—something that never happened. Because its claim was scheduled and was not disputed, contingent or unliquidated, Bank would have had considerable leeway as to when it filed a proof of claim. Judge Eisen reasoned that once Levine's case had been converted to Chapter 11 Bank was entitled to the benefit of Old Rule 1133(b)(2), because the conversion came before the expiration of the time allotted for filing a timely proof of claim under the original Chapter 13 filing.

That line of analysis seems unexceptionable in terms of the general six-month rule for filing claims in Chapter 13 proceedings. It does not however treat with the possible impact of Old Rule 13-302(e)(1) (applicable to secured claims):

A secured claim, whether or not listed in the Chapter 13 Statement, must be filed before the conclusion of the first meeting of creditors in the Chapter 13 case unless the court, on application before the expiration of that time and for cause shown, shall grant a reasonable, fixed extension of time. Any claim not properly filed by the creditor within such time shall not be treated as a secured claim for purposes of voting and distribution in the Chapter 13 case.

It will be remembered the first meeting of creditors under the original Chapter 13 filing was begun January 11, 1980, while Bank did not file its proof of claim until September 19, 1980. Though the Bankruptcy Court docket reflects the first meeting as having been adjourned to February 13, 1980, it bears no entry for the latter date and remains silent as to any continuation of the first meeting. Consequently this Court is uninformed whether the first meeting was or was not concluded before the April 20, 1980 conversion order to Chapter 11, and hence as to whether Bank had failed to conform to Old Rule 13-302(e)(1) while the case was still in Chapter 13.

Whatever the answer to that question might be, Bank theoretically also had open to it the filing of its claim as unsecured under Old Rule 13-302(e)(2):

Unsecured claims, whether or not listed in the Chapter 13 Statement, must be filed within 6 months after the first date set for the first meeting of creditors in the Chapter 13 case. . . .

That kind of filing would afford Bank an advantage only if the value of its collateral —Levine's automobile—were less than the amount of Levine's indebtedness. To the extent of such a shortfall, Bank's claim would be unsecured and Bank could recover on that unsecured claim only by filing a timely proof of claim. But that contingency could never occur, for Judge Eisen had required that Bank sell the automobile for not less than the amount of its claim.

All those possibilities, however, are really beside the mark. For the reasons stated in the next section of this opinion, this Court need not explore further the arcane interrelationships of the claim-filing rules.

2. Status of Bank's Lien

Serendipity has been at work here. For several weeks Levine (acting pro se) had done nothing to prosecute his appeal except to file it. Accordingly this Court had its decision in the works when Levine advised this Court's law clerk he was preparing a supporting memorandum for submission to this Court. This Court therefore held off its ruling to await that memorandum. During that brief waiting period our Court of Appeals has fortuitously provided current and dispositive authority for rejecting Levine's appeal on the precise ground on which this Court had already reached its own conclusion.

Just two weeks ago In re Tarnow, 749 F.2d 464 (7th Cir.1984) reversed a District Court's order that had extinguished a secured creditor's lien because of an admittedly untimely claim filing. Tarnow said (at 465, citations omitted):

A long line of cases, though none above the level of bankruptcy judges since the Bankruptcy Code was overhauled in 1978,⁷ allows a creditor with a loan secured by a lien on the assets of a debtor who becomes

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