In re Wells, No. 88 B 2337 E.
| Decision Date | 28 March 1991 |
| Docket Number | No. 88 B 2337 E. |
| Citation | 125 BR 297 |
| Parties | In re Leroy Snyder WELLS and Carliss Marie Wells, Debtors. |
| Court | U.S. Bankruptcy Court — District of Colorado |
Marilyn T. Meadoff, Denver, Colo., for debtors.
Jan O. Westman, Denver, Colo., for Mfrs. Hanover Consumer Services, Inc., nka American General Finance, Inc.
Sally J. Zeman, Denver, Colo., Standing Chapter 13 Trustee.
This matter is before the Court on the Motion for Allowance of Late Filed Claim ("Motion") and Notice Pursuant to Local Rule 23 thereof filed in the above-captioned case by American General Finance, Inc., fka Manufacturers Hanover Consumer Services, Inc. ("Creditor"). No party has objected to the Motion.
The record reflects that on February 29, 1988, Debtors filed a voluntary petition pursuant to Chapter 13. In their Chapter 13 Statement, Debtors listed, as a secured creditor, Manufacturers Hanover in care of counsel who filed this Motion. The section 341 meeting of creditors was first set for March 29, 1988, and the notice of that meeting contained the admonishment to creditors that, in order to have a claim allowed, creditors must file a claim within ninety days after the first date set for the meeting for creditors. In addition, the Debtors' Chapter 13 plan listed Creditor as a Class 2A creditor whose claim was secured only by an interest in real property that is the Debtors' principal residence, for which defaults would be cured and regular payments would be continued "outside the plan." The Motion to Confirm again makes reference to the Creditor and that motion was also served on the Creditor in care of counsel who filed this Motion.
The real estate which is the focus of this matter was acquired by the Debtors prepetition by way of inheritance. At the time of the inheritance the property was encumbered by the mortgage held by Creditor. However, the Debtors never assumed or agreed to pay the debt to Creditor. Creditor, therefore, has no "right to payment" from the Debtors.
Creditor took the position, apparently even prior to the filing of this Chapter 13, that, due to a defect in the estate proceeding out of which the Debtors obtained their interest in the property, the Debtors did not own an interest in the property. Accordingly, even though the Chapter 13 case was filed, Creditor proceeded with a foreclosure proceeding against the property. The Debtors then filed an adversary proceeding in this Court seeking to void the foreclosure sale because of the Creditor's violation of 11 U.S.C. § 362. That adversary proceeding led to a determination that the Debtors did in fact own an interest in the real estate.
Creditor now seeks the entry of an order allowing it to file a claim in this proceeding even though the time for the filing of claims has expired. Creditor argues that it did not previously file a claim because it did not believe that the Debtors owned an interest in the property. That issue was not resolved until the adversary proceeding was adjudicated. Judgment in the adversary was entered on December 13, 1988. No reason is offered by the Creditor as to why it has delayed for more than two years in seeking to have a claim allowed in this estate.
The threshold question is whether Creditor is a creditor within the meaning of 11 U.S.C. § 101(9). The Bankruptcy Code defines "creditor" as an "entity that has a claim against the debtor that arose at the time of or before the order for relief." 11 U.S.C. § 101(9). "Claim" is defined in section 101(4) as being a "right to payment. . . ." 11 U.S.C. § 101(4). These provisions must be read in conjunction with 11 U.S.C. § 102(2). That section provides that a "claim against the debtor" includes "a claim against property of the debtor."
By the express language of the Code, Creditor in this case has a "claim" against the Debtors by reason of the mortgage it holds against the Debtors' inherited property. That apparently clear conclusion has been thrown into doubt by reason of the recent Tenth Circuit decision of In re Johnson, 904 F.2d 563 (10th Cir.1990). In Johnson the court tacitly concluded that, based on the legislative history of section 102(2), unless the claim against the property of the debtor was one established by an explicit agreement for a nonrecourse loan, section 102(2) did not apply. This Court is not bound by this dicta in Johnson and is compelled to differ with the rationale of the Tenth Circuit and confine the holding of the case to its facts.
The Johnson case involved the classic "Chapter 20" case. The debtor had filed a Chapter 7, received a discharge of all his debts — including his personal obligation on a loan secured by his residence — and thereafter filed a Chapter 13 seeking to cure the arrearage on the secured debt. The bankruptcy court confirmed the debtor's plan, but the district court reversed. In re Johnson, 96 B.R. 326 (D.Kan.1989). The rationale of the district court was that the debtor's obligation on the underlying debt had been discharged in the Chapter 7 case. Thus, the creditor no longer had a "right to payment" and did not have a "claim" against the estate. The court stated:
The court is convinced that where, as here, a mortgage obligation has been discharged under Chapter 7, the mortgagee no longer holds a "claim" against the debtor, but rather, holds only a lien against the debtor\'s real estate. Thus, the mortgagee is not a "creditor" of the debtor and holds no claim which can be scheduled in debtor\'s Chapter 13 plan. Ibid, 96 B.R. at 329-30 (emphasis added).
The conclusion of the district court was reached without any consideration of 11 U.S.C. § 102(2).
The court of appeals affirmed the opinion of the district court. However, the circuit court expressly considered the impact of 11 U.S.C. § 102(2) and found that it did not apply. The rationale of the Tenth Circuit was that the legislative history underlying 11 U.S.C. § 102(2) indicated that the statute was intended to cover "nonrecourse loan agreements", and no such agreement existed between the debtor and the creditor. In re Johnson, 904 F.2d at 566.
There is ample authority supporting the view of both the circuit court and the district court that the debtor's "Chapter 20" plan could not be confirmed. Those supporting cases, which are liberally cited in both Johnson opinions, decline to confirm such plans either on the ground of bad faith (In re Reyes, 59 B.R. 301 (Bankr.S.D. Cal.1986),) or, without considering the impact of 11 U.S.C. § 102(2), on the ground that the secured lender was not the holder of a "claim" (In re McKinstry, 56 B.R. 191 (Bankr.D.Vt.1986); In re Binford, 53 B.R. 307 (Bankr.W.D.Ky.1985); In re Brown, 52 B.R. 6 (Bankr.S.D.Ohio 1985).) None reach the conclusion reached in Johnson, supra, 904 F.2d 563, that the creditor whose debt has been discharged in the Chapter 7 case does not have a "claim" in the ensuing Chapter 13 because the provisions of 11 U.S.C. § 102(2) should be limited to express nonrecourse loan agreements.
This Court does not quarrel with the conclusion reached in Johnson that the Chapter 13 plan could not be confirmed. However, the rationale utilized by the Tenth Circuit in its opinion fails to consider the fact that there are many types of transactions that result in nonrecourse types of obligations in the absence of express agreement. Property taxes are notably such. Similarly, it is not uncommon, particularly in personal property types of transactions, for property to be sold or otherwise conveyed "subject to" a lien, but without an assumption of the underlying indebtedness. Property which is encumbered and thereafter transferred by way of a gift also results in a non-recourse type obligation in the hands of the transferee. And, notably, property which is inherited, as was the property in the instant case, may come encumbered by a mortgage but with no personal liability to repay.
This Court is loathe to ignore the clear language of the statute. Indeed, both the Supreme Court and the Tenth Circuit have admonished that this Court should not rely on legislative history in order to depart from the express language of an unambiguous statute. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 240-41, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989); In re Roberts, 906 F.2d 1440 (10th Cir.1990). In this case Creditor has a lien against...
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