Opinion
Case No. 96-15386-SSM
October 27, 1997
Brian K. Madden, Esquire, Ammerman Goldberg, Woodbridge, VA, of Counsel for the debtor
Augustus S. Hydrick, Jr., Esquire, Richmond, VA, of Counsel for American Investment Bank, N.A.
MEMORANDUM OPINION
This matter is before the court on the belated "objection" of American Investment Bank, N.A. ("American"), a creditor in this case, to confirmation of the debtor's chapter 13 plan. A hearing was held on October 14, 1997, at which counsel for the debtor, counsel for American, and the chapter 13 trustee were present.
As discussed below, the debtor's plan was confirmed more than seven months ago, and the time for attacking the order of confirmation has long since expired. However, the court advised the parties that it would treat the objection as a motion to modify the confirmed plan under § 1329, Bankruptcy Code.
The issue before the court is whether a creditor — which filed a proof of claim asserting it was fully secured by the debtor's automobile and did not object to confirmation of a plan expressly providing that it would receive no payment through the plan but would have to look to a co-debtor for payment — may now, after being granted relief from the automatic stay to repossess the automobile, compel the debtor to modify the confirmed plan to include the creditor's unsecured deficiency claim. For the reasons stated in this opinion, the court concludes that the order confirming the plan was res judicata as to the creditor's rights, and that no basis exists upon which the debtor can now be compelled to provide for payment of the claim through the plan.
Facts
The debtor, Mattie M. Fowler, filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code in this court on October 2, 1996. The debtor's schedules reflected that she owned a 1995 Isuzu Rodeo automobile, which she valued at $14,125.00. This car is shown as "jointly owned" with her boyfriend, Bryant Boykins. Schedule D ("Creditors Holding Secured Claims") reflects that American holds a $6,740.00 secured claim against the automobile. American, however, filed a timely proof of claim asserting that it was fully-secured in the amount of $15,412.99. That claim has never been objected to. The amended plan dated January 14, 1997, that was eventually confirmed by this court provides that the " [a]utomobile note with American Investment Bank will be paid outside plan by co-signor." The plan further provides for monthly payments by the debtor to the trustee of $426.00 per month over 48 months, for a total of $20,448.00 being contributed to the plan. Unsecured creditors are to be paid 100% of their claims under the plan. As noted above, this plan was confirmed by order entered on February 27, 1997. American did not object to its treatment under the plan.
The certificate of title to the automobile, attached as an exhibit to the motion for relief from the automatic stay, reflects that the debtor and the co-signor own the car as joint tenants with right of survivorship.
On June 2, 1997, American filed a motion for relief from the automatic stay, asserting that it had not been paid either by the debtor or by the co-signor since February 1997, and that the debtor had no equity in the automobile. On August 1, 1997, the court entered a consent order granting the following relief:
American Investment Bank, N.A. is granted relief from the automatic stay . . . and is authorized to repossess the 1995 Isuzu motor vehicle . . . which is in the possession of the debtor; to sell or otherwise dispose of said vehicle; and for American Investment Bank, N.A. to retain all monies realized upon the sale or other disposition of the aforesaid motor vehicle.
It is FURTHER ORDERED that Debtor/Defendant Mattie Martha Fowler shall pay $500.00 to American Investment Bank, N.A. for its attorney's fees incurred herein.
There is no provision in the order for the treatment of any deficiency arising from the sale of the automobile. The order was endorsed by counsel for American, counsel for the debtor, and the chapter 13 trustee.
American filed the pleading before the court on September 22, 1997, alleging that it had sold the car, but that the proceeds from the sale did not satisfy the debt owed it, leaving a deficiency of $8,170.21. On September 23, 1997, it filed an amended proof of claim asserting an $8,745.03 general unsecured claim against the debtor. American asserts that it "continues to be harmed by the debtor's failure to include" the amount in a modified plan. Neither the debtor nor the chapter 13 trustee filed a written response to the motion.
An earlier amended proof of claim had been filed on September 11, 1997, in the amount of $7,182.99. No explanation was provided for the discrepancy between the deficiency amount asserted in the motion as compared with that shown in the most recent amended proof of claim. Additionally, no explanation was provided for why such a large deficiency was generated when American's own exhibit in support of its motion for relief from stay reflected that the trade-in value of the automobile was $11,425.00.
The debtor has not filed a modified plan, and none is currently before the court. Only one of the scheduled unsecured creditors has filed a proof of claim (in the amount of $288). After payment of the two mortgage arrearage claims, the trustee's commission, and the priority administrative claim for the fees of debtor's counsel, the plan contains approximately $4,727 with which to pay unsecured claims, easily allowing such claims to be paid at 100 cents on the dollar, as provided for in the plan. If American's deficiency claim is added to the pot, however, the payout on unsecured claims will be reduced to approximately 52% unless the plan were extended to 60 months.
Conclusions of Law A.
This court has jurisdiction of this controversy under 28 U.S.C. § 1334 and 157(a) and the general order of reference entered by the United States District Court for the Eastern District of Virginia on August 15, 1984. Under 28 U.S.C. § 157(b)(2)(B) and (L), this is a core proceeding in which final orders and judgments may be entered by a bankruptcy judge, subject to the right of appeal under 28 U.S.C. § 158.
B.
As a threshold matter, some brief discussion is appropriate as to why American's pleading, to the extent that it attempts to "object" to confirmation of the debtor's plan, is untimely. The modified plan in this case was filed on January 27, 1997, and was confirmed by order entered on February 24, 1997. There is no suggestion that American was not served with a copy of the plan. The "objection" presently before the court was filed on September 22, 1997, approximately 7 months after the order of confirmation was entered. Once an order or judgment is entered on the docket in a bankruptcy case, a party in interest has several remedies to modify or seek relief from the order. Under Fed.R.Civ.P. 59, made applicable to bankruptcy proceedings by F.R.Bankr.P. 9023, a motion for a new trial, or to alter or amend an order of this court, must be filed within 10 days after the order was entered. After the ten day period has passed, relief may be had, if at all, only under F.R.Bankr.P. 9024, which incorporates, with certain limitations, Fed.R.Civ.P. 60(b). Rule 60(b) provides, in relevant part:
On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b);
(3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or
(6) any other reason justifying relief from the operation of the judgment.
The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken.
However, F.R.Bankr.P. 9024(3) expressly provides that a complaint to revoke an order confirming a plan in a chapter 13 case may be filed only within the time allowed by § 1330, Bankruptcy Code. Section 1330(a) in turn provides, "On request of a party in interest at any time within 180 days after the date of the entry of an order of confirmation under section 1325 of this title, and after notice and a hearing, the court may revoke such order if such order was procured by fraud." (Emphasis added). Putting aside the issue of whether American could show that the order of confirmation was procured by fraud, an issue the court need not reach, American's objection to confirmation was filed more than 180 days after the order confirming the plan was entered. Accordingly, the court concludes that the objection to confirmation — whether viewed as a motion to alter or amend the confirmation order under F.R.Bankr.P. 9023 or as a request for revocation of the order of confirmation under F.R.Bankr.P. 9024 and § 1330(a), Bankruptcy Code — is untimely.
Under F.R.Bankr.P. 7001, revocation of an order confirming a plan requires the filing of an adversary proceeding. Hence, even if the present objection were not untimely, it would be procedurally deficient.
C.
This holding, however, does not end the inquiry. Under § 1329, Bankruptcy Code, certain parties in interest may seek a modification of the confirmed plan "at any time" before completion of the plan. Section 1329, provides in relevant part:
(a) At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to —
(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;
(2) extend or reduce the time for such payments; or
(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan.
See Arnold v. Weast (In re Arnold), 869 F.2d 240 (4th Cir. 1989) (bankruptcy court did not err in requiring increased monthly payment and extending plan period on creditor's motion after unanticipated substantial increase in debtor's income). Courts have divided as to whether a threshold showing of a change in financial circumstances is required before a modification of a plan is allowed under § 1329(a). See In re Klus, 173 B.R. 51, 57-58 (Bankr. D. Conn. 1994) (noting that some courts require no showing of a change in financial circumstances before modification is permitted while others reason that the doctrine of res judicata limits the permissible grounds for modification). A leading commentator notes:
[Section 1329(a)] is intended to carry the ability-to-pay standard forward to any modifications of the plan, allowing upward or downward adjustment of plan payments in response to changes in the debtor's circumstances that substantially affect the ability to make future payments. Consequently, a secured creditor has no right to move for modification of a plan. . . .
In view of this congressional purpose, the right of the trustee or the holder of an unsecured claim should be limited to situations in which there has been an unanticipated substantial change in the debtor's income or expenses that was not anticipated at the time of the confirmation hearing. As to other matters, the confirmation order should be considered res judicata insofar as the matters do not relate to a change in the debtor's ability to pay[.]
8 Collier on Bankruptcy ¶ 1329.03, at 1329-5 to 6 (Lawrence P. King, Ed., 15th ed. rev. 1997) (footnotes omitted) (emphasis added). Here, there has been no showing of a change in financial circumstances of the debtor. Rather, the debtor voluntarily relinquished the collateral to American, with the result being that an unsecured deficiency claim has been generated. However, as noted below, because the confirmed plan is res judicata as to the issue before the court, the court need not reach the issue of whether a change in financial circumstances is required in order for a modification to be permitted.
Courts have also split regarding the issue of whether a secured creditor's claim may, due to some change in circumstances, be modified post-confirmation under § 1329. One view holds that § 1329 does not permit a party to reclassify a previously allowed secured claim as unsecured once the plan has been confirmed because to do so would violate the principles of res judicata. See, e.g., In re Banks, 161 B.R. 375, 378-79 (Bankr. S.D. Miss. 1993); In re Sharpe, 122 B.R. 708, 710 (E.D. Tenn. 1991); In re Abercrombie, 39 B.R. 178, 179-80 (Bankr. N.D. Ga. 1984). Other courts, however, hold that a debtor may surrender the underlying collateral to the secured creditor, and modify the plan accordingly by reducing the amount of the allowed secured claim by the value of the surrendered collateral while correspondingly increasing the unsecured deficiency claim to that creditor. See, e.g., In re White, 169 B.R. 526, 530-31 (Bankr. W.D.N.Y. 1994); In re Rimmer, 143 B.R. 871, 874-75 (Bankr. W.D. Tenn. 1992); In re Williams, 108 B.R. 119, 121-22 (Bankr. N.D. Miss. 1989); In re Jock, 95 B.R. 75, 77 (Bankr. M.D. Tenn. 1989); In re Stone, 91 B.R. 423, 425 (Bankr. N.D. Ohio 1988); cf. Grundy Nat'l Bk. v. Rife, 102 B.R. 57, 59-60 (W.D. Va. 1987) (suggesting that a secured creditor would be entitled to filed an amended proof of claim asserting an unsecured deficiency were the debtor to modify a confirmed plan by surrendering the collateral), rev'd on other grounds, 876 F.2d 361 (4th Cir. 1989); In re Cromer, 185 B.R. 1, 3-4 (Bankr. N.D.N.Y. 1994) (holding that a creditor holding a second mortgage and believing it was the holder of an allowed secured claim before confirmation of the debtors' plan, may file an amended proof of claim post-confirmation asserting an unsecured claim once the first mortgage holder foreclosed its interest and no equity remained for the second mortgage holder). These courts reason that the res judicata effect of a confirmed plan under § 1327(a), Bankruptcy Code, has been explicitly tempered by the creditor's right under § 1329 to seek modification of a confirmed plan. See Jock, 95 B.R. at 77; Stone, 91 B.R. at 424-25.
Under the particular circumstances of this case, however, the court need not resolve whether a deficiency claim arising post-confirmation from the surrender of collateral is a proper basis under § 1329 for a plan modification, since the plan in this case expressly relieved the debtor from any liability for the claim. As a general proposition, there is little question that confirmation of a chapter 13 plan is res judicata as to the rights and liabilities of the parties to the plan. Piedmont Trust Bk. v. Linkous (In re Linkous), 990 F.2d 160, 162 (4th Cir. 1993). Section 1327(a), Bankruptcy Code, states that "[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan." As Collier explains:
In this Circuit, an important exception to the res judicata effect of plan confirmation is that a provision in a chapter 13 plan for the avoidance of a creditor's lien will be ineffective to extinguish the lien unless a separate adversary proceeding or other proper motion is brought for that purpose. See, Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995) (confirmation of chapter 13 plan that failed to treat creditor's claim as secured did not avoid creditor's lien); Piedmont Trust Bank v. Linlwus (In re Linlwus), 990 F.2d 160 (4th Cir. 1993) (bifurcation of secured creditor's claim under § 506, Bankruptcy Code, requires more than disclosure in the plan; the creditor must be notified that a hearing is going to be held and that the interest of the creditor may be affected). Nothing in the confirmed plan in this case, however, purports to modify or affect American's lien, and thus the due process concerns implicated by Cen-Pen and Linkous are not an issue.
Upon becoming final, the order confirming a chapter 13 plan represents a binding determination of the rights and liabilities of the parties as ordained in the plan. Absent timely appeal, the confirmed plan is res judicata and its terms are not subject to collateral attack. The res judicata effect of confirmation may be eliminated only if confirmation is revoked, or if the case is later dismissed or converted to another chapter.
8 Collier on Bankruptcy ¶ 1327.02[1], at 1327-3 (Lawrence P. King, ed., 15th ed. rev. 1997); see also United States v. Richman (In re Talbot), — F.3d —, 1997 WL 525204 at *5 (10th Cir. 1997) (citing Collier). The burden is on a creditor to object to a plan that contains objectionable or ambiguous terms; otherwise, parties assume the risk that they will be bound by undesirable terms if they fail to object to such a plan. See In re Haynes, 107 B.R. 83, 86 (Bankr. E.D. Va. 1989) (Bostetter, C.J.); Barry v. BA Properties, Inc. (In re Barry), 201 B.R. 820, 823 (C.D. Cal. 1996); In re Ferrante, 195 B.R. 990, 993 (Bankr. N.D.N.Y. 1996); In re Rincon, 133 B.R. 594, 598 (Bankr. N.D. Tex. 1991); 8 Collier on Bankruptcy ¶ 1327.02[1][a], at 1327-4. Once a plan is confirmed, a creditor is limited to those rights that are provided for by the confirmed plan. Talbot, — F.3d —, 1997 WL 525204 at *5; Anaheim Sav. and Loan Assoc. v. Evans (In re Evans), 30 B.R. 530, 531 (9th BAP 1983); 8 Collier on Bankruptcy ¶ 1327.02[1] [b], at 1327-4. Furthermore, the doctrine of res judicata also prevents a creditor from raising, on a motion to modify a confirmed plan under § 1329, issues that could have been raised at the time the plan was originally confirmed. See In re Klus, 173 B.R. 51, 54 (Bankr. D. Conn. 1994); In re Algee, 142 B.R. 576, 580 (Bankr. D. D.C. 1992) (Teel, J.); 8 Collier on Bankruptcy ¶ 1327.02[1][c], at 1327-6.
Turning to the present case, the court observes that this is not a situation in which payment of a secured creditor's claim was being made, in whole or in part, through the plan, or by the debtor outside the plan, and in which the issue is merely one of adjusting the claim to take account of a post-confirmation change of circumstances. Rather, the plan not only provided for no payments to American through the plan, the plan did not even obligate the debtor to make direct payments outside the plan. Instead, the plan expressly stated that the creditor would have to look to a third party for payment. That such treatment might have been successfully objected to is beside the point. The plain fact is that American did not object to the plan's treatment of its claim. At this point, this court need not decide whether the provision was objectionable, because the creditor's objection has been brought long after the order confirming the plan has become final. See Klus, 173 B.R. at 56 (noting that a final order cannot be disturbed even if the confirmation order was in conflict with then existing law). By failing to object to confirmation of the plan, American waived any objections it may have been able to raise to the treatment of its claim. Because the plan required American to look to the co-owner of the car for payment, American cannot now look to the debtor for payment of its deficiency claim but must seek recovery, if at all, from the co-debtor.
American, moreover, filed at the outset of the case a proof of claim asserting that it was a fully-secured creditor, thereby staking out the position that its claim could not be bifurcated under § 506(a), Bankruptcy Code into secured and unsecured components. Thus, the chapter 13 trustee and the court, in determining whether performance of the plan was feasible, as required by § 1325(a)(6), Bankruptcy Code, did not have to take account of the possible payment of an unsecured claim, since the creditor itself asserted that there was none. The plan provides for 100 percent payment of unsecured claims, a mathematical impossibility if the unsecured deficiency claim now asserted must be paid through the plan. Thus modification of the plan cannot be accomplished without prejudice to other parties. Since it is American's own assertion of fully-secured status and its failure to object to confirmation that created the present dilemma, no equitable basis exists for compelling plan modification to now take account of the unsecured claim. Accordingly, treating the objection to confirmation as a motion under § 1329, Bankruptcy Code, for modification of the confirmed plan, the motion will be denied.
D.
A separate order will be entered consistent with this opinion.