Opinion
No. 85-2670.
August 19, 1986.
Individual Repayment Plan — Confirmation — Disputed Claim Amounts. — A Chapter 13 plan may be confirmed before resolution of all disputes over claim amounts. Since the creditor's proposed debt figures were used in confirming the plan, the creditor could not complain about confirmation.
See Sec. 1327(a) at ¶ 13,221.
Individual Repayment Plan — Conversion or Dismissal — Mootness. — The signing of a confirmation order while a motion to dismiss was pending rendered the dismissal motion moot.
See Sec. 1307(c) at ¶ 13,020.
Individual Repayment Plan — Confirmation Order — Modification of Plan — Waiver. — A confirmation order could require a creditor to seek through modification of a Chapter 13 plan before exercising other rights.
See Sec. 1307(c) at ¶ 13,020.
Individual Repayment Plan — Interest Rate. — The proper rate of interest on pre-petition arrears is the contract rate if the market rate exceeds contract rate.
See Sec. 1325(a)(5) at ¶ 13,216.
This matter is before the Court on the appeal by Manhattan Life Insurance Company ("Manhattan") of the United States Bankruptcy Court's confirmation of debtor Lillie Bell Minick's Chapter 13 Plan. After consideration of the briefs submitted by the parties, the Court shall affirm the Bankruptcy Court's confirmation decision.
Procedural History
On January 22, 1985, Minick filed a petition in bankruptcy for debt adjustment under Chapter 13 in the United States Bankruptcy Court for the District of Columbia. The petition was prompted by Minick's failure to make monthly house payments for a disputed number of months. Manhattan forwarded Minick's account to Manhattan's counsel for the institution of foreclosure proceedings. Manhattan is the holder of a note secured by a deed of trust, which is a valid first lien against Minick's principal residence.
Manhattan filed a rejection of and objection to Minick's Chapter 13 Plan, but failed to appear at the Confirmation Hearing on May 29, 1985. At that Hearing the Bankruptcy Court announced that it would confirm the Plan. The Court found also that on April 24 and May 13, 1985, Minick's counsel had submitted checks to Manhattan's counsel as house payments for the three months following the filing of Minick's Chapter 13 petition. Manhattan's counsel refused to accept Minick's tendered payments. [Confirmation Hearing Transcript at 4-5.]
Although it appears that Manhattan did not receive adequate notice of that Hearing, the record fails to show any request for a rehearing. In addition, every counsel has a continuing duty to apprise himself of all developments in a case pending in court. This duty includes the duty to review the court file on a regular basis. Failure to do so in this case precludes Manhattan from raising the issue of lack of notice. The record shows that the date for the confirmation hearing was set more than two months in advance, allowing ample time for Manhattan to learn of the hearing through a review of the court file.
On June 27, 1985, Manhattan moved to convert this case to Chapter 7, requiring liquidation of Minick's assets, or to Dismiss, to initiate foreclosure proceedings against Minick's residence. On July 22, Judge Bason, the bankruptcy judge, signed an Order of Confirmation approving Minick's Chapter 13 Plan; and on August 4, Manhattan noted this appeal.
DISCUSSION
I. Standard of Review
Bankruptcy Rule 8013 provides that "on an appeal . . . [f]indings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." A district court "is not bound, however, by the Bankruptcy Court's conclusions of law." Matter of Patch, 24 B.R. 563, 565 (D. Maryland 1982).
II. Matters Not Resolved Below
Initially, Manhattan complains that the Bankruptcy Court failed to resolve Minick's arrearage (both pre-and post-petition) and Manhattan's Motion to Convert to Chapter 7 or to Dismiss.
A. FactualDisputes 1. Pre-Petition Arrears
Upon the filing of Minick's Chapter 13 petition, the Bankruptcy Court determined that it was more important to begin to cure promptly whatever arrears might have accrued before said filing, rather than to delay while determining the precise arrearage amount. To that end, the Bankruptcy Court confirmed the Debtor's Plan on the basis of a "worst-case" scenario: in short, Judge Bason utilized Manhattan's proposed debt figures in confirming Minick's Chapter 13 plan. Therefore, Manhattan has no cause to complain about the Plan, and will have an opportunity in future proceedings before the Bankruptcy Court to settle the disputes concerning pre-petition arrears.
Bankruptcy courts nationwide routinely confirm Chapter 13 plans without waiting for judicial resolution of all claims. Thus, in most Chapter 13 cases, the time for creditors to file their claims under Bankruptcy Rule 3002(c) does not expire until some two months after the date normally set for the confirmation hearing. Requiring complete and final judicial resolution of all disputes over claim amounts before confirmation of a plan is contrary to well-established custom and practice, is unsupported by anything in the pertinent statutes or case law, and would inordinately delay plan confirmation to no good purpose — and indeed to the detriment of all parties in interest, including creditors.
2. Post-Petition Arrears
In seeking foreclosure or liquidation, Manhattan argues that the Bankruptcy Code prohibits payment of post-petition arrears within Chapter 13 plan. The record shows that the three months of arrears, which arose after Minick filed her Chapter 13 petition, resulted because Manhattan's counsel refused to accept her tendered payments. [Manhattan's Brief at 7; Confirmation Hearing Transcript at 4-5.] Therefore, Manhattan is precluded from complaining about the post-petition arrears, and the Bankruptcy Court was correct in so holding.
In addition, "Section 1323 of the [Bankruptcy] Code expressly and affirmatively permits a debtor to modify his Plan `. . .at any time before confirmation. . ." and [his] Plan as modified becomes `the Plan.' Clearly, this provision gave the debtors the right to modify the Plan . . . to include the post-petition arrearages." Matter of Canipe, 20 B.R. 81, 83 (Bankr. S.D. Ala. 1982).
B. Motion to Convert to Chapter 7 or to Dismiss
The motion to dismiss was before the Bankruptcy Court at the time Judge Bason signed the Confirmation Order. Judge Bason is presumed to have considered the issue raised therein, even though the formal motion was not filed until after the confirmation hearing, and was still pending at the time the Confirmation Order was signed. The fact that Judge Bason signed the Confirmation Order with knowledge that the motion to dismiss was pending renders that motion moot.
III. Waiver
Manhattan's argument that Paragraph 3 of the Confirmation Order constitutes a waiver of its "right to monthly post-confirmation payments in accordance with the note and deed of trust" [Manhattan's Brief at 8] is not supported by this Court's reading of the Bankruptcy Court's Order as clarified by that Court's subsequent Opinion. Paragraph 3 of the Confirmation Order provides in pertinent part as follows:
If the Debtor becomes more than one month in default on regular monthly payments which are hereafter to be made by the Debtor directly to any secured creditor, that secured creditor shall promptly file a notice of such defaults in this Court, and send copies of such notice to the Debtor, the Debtor's attorney, and the Chapter 13 Trustee . . . . If the secured creditor fails to promptly file and serve a notice of the Debtor's post-confirmation defaults, the Court may treat the secured creditor's inaction as a waiver of its right.
(Emphasis added.) As used in Paragraph 3, "waiver" refers only to the creditor's right to move (under 11 U.S.C. § 362(d)) for relief from the automatic stay imposed by 11 U.S.C. § 362(a), and the creditor's right to move for dismissal or conversion to Chapter 7, pursuant to 11 U.S.C. § 1307(c). The Order requires simply that, before filing either of said motions as a prelude to foreclosure, the creditor must first seek payment by means of a modification of the Chapter 13 Plan as set out in Paragraph 3. "The waiver referred to in the Order is not intended to encompass a waiver of the right to payment." Id. In re Minick, Bankruptcy No. 85-00038, slip op. at 4 (Bankr. D.D.C. July 24, 1986) (emphasis added). It is well within the discretion of the Bankruptcy Court to craft a Confirmation Order for the benefit of all of the parties, without any disruption of the essential security protections due the creditor.
IV. Interest Rate
Finally, Manhattan argues that it is entitled to interest on the pre-petition arrears equal to the market rate of interest, rather than the 51/4 percent contract rate allowed by the Bankruptcy Court. The Bankruptcy Court based its decision on In Re: Colegrove, No. 84-3557, slip op. (6th Cir. Aug. 22, 1985). Colegrove concerned a Chapter 13 Plan, which did not originally provide for interest to be paid on arrearages. The Court remanded the case for interest on arrearages to be included in the Confirmation Order, concluding that
the most equitable rate to establish in this type of situation is the prevailing market rate of interest on similar types of secured loans at the time of allowance of the creditors claim and the confirmation of the plan in bankruptcy with a maximum limitation on such rate to be the underlying contract rate of interest.Id. at 8 (emphasis added). In the present case, the underlying contract rate of interest — 5 1/4 percent — was applied to the pre-petition arrearages, because the market rate exceeded this contract rate. The Court concludes that this was correct as a matter of law.
CONCLUSION
In summary, finding no error, the Court shall AFFIRM the Bankruptcy Court's Confirmation Order.