Matter of Willey, Bankruptcy No. 81-00210

• Decision Date: 29 October 1982
• Docket Number: Bankruptcy No. 81-00210,Adv. No. 81-0339.
• Citation: 24 BR 369
• Parties: In the Matter of Jerry Dean WILLEY, Debtor. CITICORP HOMEOWNERS, INC., a Michigan Corporation f/k/a Advance Mortgage Corporation, Plaintiff, v. Jerry Dean WILLEY, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

24 B.R. 369 (1982)

In the Matter of Jerry Dean WILLEY, Debtor CITICORP HOMEOWNERS, INC., a Michigan Corporation f/k/a Advance Mortgage Corporation, Plaintiff, v. Jerry Dean WILLEY, Defendant.

Bankruptcy No. 81-00210, Adv. No. 81-0339.

United States Bankruptcy Court, E.D. Michigan, S.D.

October 29, 1982.

Darryl J. Chimko, Shermeta, Chimko, Hocking, Kovac & Tardie, Rochester, Mich., for plaintiff.

George R. Darrah, Flint, Mich., for defendant.

MEMORANDUM OPINION

HAROLD H. BOBIER, Bankruptcy Judge.

Statement of Facts

The debtor/wage earner, hereinafter debtor, filed his petition, plan and schedules under 11 U.S.C. Chapter 13 on February 25, 1981. Following due notice to all creditors and parties in interest the meeting of creditors was held on April 3, 1981, pursuant to 11 U.S.C. § 341. Debtor's schedule of secured debts listed creditor/plaintiff in the present adversary proceeding, Citicorp Homeowners, Inc., hereinafter creditor, and noted that the creditor held a purchase money security interest in a mobile home owned by the debtor.

However, creditor failed to file proof of its secured claim before the conclusion of the meeting of creditors as required by Rule of Bankruptcy Procedure 13-302(e)(1).

Creditor filed a petition for leave to file late proof of claim and to be included in the plan as a secured creditor on August 6, 1981. At the first hearing on creditor's motion this Court adjourned the matter to August 26, 1981, the date of the confirmation hearing, in order to allow taking of testimony from a witness to be presented by the creditor.

At the confirmation hearing the creditor's petition was denied and the plan was confirmed providing for payment of creditor's claim as unsecured debt in the amount of $66,578.44. The plan provided for a 100% payment on all allowed unsecured claims over the 60 month life of the plan. The order confirming the plan was entered on September 4, 1981.

Creditor then filed a complaint to lift the 11 U.S.C. § 362 Automatic Stay on November 24, 1981, in order to allow it to pursue available remedies for lien enforcement under the laws of the State of Michigan. The complaint alleged inter alia a lack of adequate protection, that the debtor had no equity in the mobile home and that the mobile home was unnecessary to effectuate the reorganization of the debtor.

Debtor filed his answer on December 9, 1981, admitting his lack of equity in the collateral and creditor's lack of adequate protection, but denying that the mobile home was unnecessary to his successful reorganization.

The plaintiff in the present action does not contest that it was properly denied secured status when it failed to file a proof of claim by the close of the meeting of creditors. Rule of Bankruptcy Procedure 13-302(e)(1). The amount of the claim, $66,578.44, is likewise not subject to dispute.

Briefs were submitted by both parties and a trial was had on April 13, 1982.

Conclusions of Law and Discussion

I

The initial issue raised by the creditor is whether the lien of a secured party, who fails to file a proper and timely proof of claim as required by Rule 13-302(e)(1), but whose claim is provided for as unsecured in the debtor's plan, survives confirmation of the plan and the subsequent discharge of the debtor.

The substantive in rem rights of a secured creditor are not affected by Rule 13-302(e)(1) because the rule is intended to be purely procedural in nature. Since the parties do not raise the much discussed issue of the continued applicability of the time limits prescribed by Rule 13-302(e)(1) under the Code, it will suffice to indicate that this court, along with a majority of other courts ruling on the question, has supported the continued applicability of the rule under the Bankruptcy Code of 1978. Matter of Louie, 10 B.R. 928, 7 B.C.D. 678 (Bkrtcy.E.D.Mich.1981). See further In re Hines, 20 B.R. 44, Bankr.L.Rep. (CCH) ¶ 68,760 (Bkrtcy.S.D.Ohio 1982) for a comprehensive list of decisions on this issue.

The reasoning behind the conclusion that disallowance of the secured creditor's claim by virtue of Rule 13-302(e)(1) does not operate to extinguish the lien held by the creditor is seen in the well-reasoned opinion of Judge Anderson in In re Hines, id at 48 and 49:

To be specific, Bankruptcy Rule 13-302(e)(1) should not be interpreted to invalidate liens, but merely as it establishes the procedure for the efficient administration of the proceedings by permitting the treatment of secured creditors who do not file or who file late as unsecured only for purposes of distribution under an 11 U.S.C. Chapter 13 plan.

* * * * * *

The Court is also of the opinion that secured creditors who are treated as unsecured under Bankruptcy Rule 13-302(e)(1) possess the enforceable right to payment in accordance with the plan provisions for unsecured creditors. In addition, if the plan does not provide for payment to the creditor in an amount equal to the creditor\'s security, then the lien should survive the Chapter 13 discharge and is enforceable as permitted in 11 U.S.C. §§ 362(c) and (d), and 1328(c).

See also: Matter of Bell, 8 B.R. 549, 7 B.C.D. 219, 4 C.B.C.2d 285 (Bkrtcy.E.D. Mich.1981); In re Weathers, 15 B.R. 945, 8 B.C.D. 524, 5 C.B.C.2d 935 (Bkrtcy.Kan. 1981); In re Sillani, 9 B.R. 188, 3 C.B.C.2d 883 (Bkrtcy.Fla.1981); In re Williams, 7 B.R. 234, 3 C.B.C.2d 409 (Bkrtcy.M.D.Ga. 1980); Matter of Beckerle, 7 B.R. 272, 5 B.C.D. 1232 (S.D.N.Y.1979); In re Grimes, 6 B.R. 943, 7 B.C.D. 576, 3 C.B.C.2d 332 (Bkrtcy.Kan.1980); In re Sam's, 16 B.R. 47 (Bkrtcy.N.D.Ohio 1981); In re Honaker, 4 B.R. 415, 6 B.C.D. 474, 2 C.B.C.2d 208 (Bkrtcy.E.D.Mich.1980).

The creditor in this matter contends that the lien should survive bankruptcy, but cites authority dealing only with the validity of a lien during the life of the plan. This court is in full agreement with the proposition that during the course of the plan a secured creditor retains a lien against its collateral even where its claim is treated as unsecured.

It does not follow from the foregoing conclusion, however, that the lien would survive the discharge of the debtor where the creditor's claim has been satisifed to the extent of 100% through payments and distributions under the plan. Where a debt qualifies to be discharged under the provisions of Chapter 13, and such a discharge is granted, there no longer exists any debt to support the existence of the lien.

In the present case, the confirmed Chapter 13 plan provides for treatment of the debt owed to Citicorp as unsecured, and calls for a 100% payment of the allowed claim.¹ This amount is clearly in excess of the value of the creditors security. If, at the end of the 60 month life of the plan, the debtor has made all payments as provided for in the plan, debtor is entitled to receive a full-compliance discharge as provided for in § 1328(a). Certainly where a debt is discharged its underlying lien must also be terminated.

The immediate state of affairs should not be confused with one in which the debtor's plan has a special provision for curing the default on a long-term debt and maintaining payments under the plan on a claim on which the last contract payment becomes due after the final payment required under the plan. In this hypothetical case it would be inequitable to provide for the payment of long-term debts extending beyond the life of the plan and still grant a discharge and extinguish the lien upon completion of payments under the plan; the lien should remain in place until the long-term obligation is satisfied. 11 U.S.C. § 1328(a)(1) specifically excepts such debts from a full compliance discharge.

However, these are not the facts presented to the court, and no authority can be found to support the notion of post-discharge lien survivability where the claim has been paid in full according to the Chapter 13 plan.

Since payments under the plan have not yet been completed, this court holds that the lien of the secured creditor remains in place, pending successful completion of the plan and subject to the further limitations set forth in the remainder of this opinion.

Although the creditor's claim was initially allowed and provided for in the plan as unsecured debt in the amount of $66,578.44, we now determine that it was error to allow the claim in this amount, and hereby reduce the amount of the allowed unsecured claim to $34,071.71. This amount represents the principal amount contained in creditor's proof of claim, but does not include interest included in the claim which represents prepaid interest, or interest accrued based upon acceleration of the debt due to default. The amount allowed of $34,071.71 will, of course, be further amended if the creditor is able to show that it fails to take into consideration interest which may have accrued prior to the date debtor's petition was filed.

Because Citicorp's claim is deemed unsecured for purposes of distribution, there shall also be no interest awarded on the principal amount owing at the time of filing. The creditor's failure to comply with the filing requirements of rule 13-302(e)(1) deprives the creditor of interest remaining on the principal balance of the debt; this is a penalty for failure to comply just as the law extinguishes contract interest on usurious contracts.

Reconsideration of this claim is authorized by 11 U.S.C. § 502(j), and the elementary power of a court to reconsider its own orders, as it was clearly error to allow creditor's unsecured claim in the amount of $66,578.44. Castaner v. Mora, 234 F.2d 710 (1st Cir.1956); In re Pottasch Bros. Co., Inc., 79 F.2d 613 (2nd Cir.1935); In re De Ran, 260 F. 732 (6th Cir.1919); Matter of Minskoff-Dorman Co., 444 F.2d 516 (9th Cir.1971).

III

The final issue presented is whether plaintiff is entitled to relief from the 11 U.S.C. § 362 stay in order to enforce its lien against property of the estate.

It must be initially noted that the automatic stay imposed upon the...