596 B.R. 864
Bankr. W.D. Mich.2019Background
- Debtor (Haggerty) previously received a Chapter 7 discharge that eliminated personal liability on two mortgages, but did not extinguish creditors' in rem rights in the property at 11195 W. Herbison Road, Eagle, MI.
- Bosco Credit II Trust (Bosco Credit) holds a junior mortgage and filed a secured claim for $154,619.57 in Debtor's subsequent Chapter 13 case; it opposed confirmation based on in rem rights.
- The parties settled the confirmation dispute and the court entered an April 2017 Order treating Bosco Credit's claim as an allowed nonpriority general unsecured claim to be paid under Debtor's confirmed 100% Chapter 13 Plan.
- The confirmed Plan required a $350/month payment for 60 months (about $21,000), insufficient to pay Bosco Credit's full allowed claim; nonetheless the Trustee began making partial payments to Bosco Credit.
- Debtor filed (i) an objection to Bosco Credit's claim and (ii) a motion to reconsider the April 2017 Order (invoking Rule 60(b) and § 502(j)), arguing the Order improperly required payment of a discharged debt and was entered by mutual mistake/boilerplate language.
- The court held the April 2017 Order was not void or otherwise subject to relief under Rules 60(b)(4)-(6) or § 502(j) based on the equities, denied reconsideration, overruled Debtor's objection, and allowed Bosco Credit to retain payments received.
Issues
| Issue | Haggerty's Argument | Bosco Credit / Trustee's Argument | Held |
|---|---|---|---|
| Whether the April 2017 Order is void under Rule 60(b)(4) because it conflicts with the Chapter 7 discharge | Order imposes personal liability or requires payment of a discharged claim; thus void | Order reflects voluntary Chapter 13 treatment of an in rem claim; does not revive personal liability | Court: Not void; jurisdiction and due process were proper and the Order can be read as voluntary Chapter 13 treatment, not revival of in personam liability |
| Whether relief under Rule 60(b)(1),(5),(6) is warranted for mistake, satisfaction, or extraordinary circumstances | Parties were mutually mistaken; discharge satisfied the obligation; boilerplate mistake justifies relief | No extraordinary circumstances; mistake is counsel error/strategic and not a basis for Rule 60(b)(6); timing and mutual mistake not proven | Court: Denied relief—no timely or extraordinary basis; mutual mistake not shown and boilerplate errors insufficient |
| Whether § 502(j) permits reconsideration of the claim allowance in light of equities | Reconsideration should disallow or limit Bosco Credit's claim because of prior discharge and equities | Settlement/order should be enforced; equities favor finality and creditor selection | Court: Even assuming § 502(j) applies, equities do not warrant relief; will not disturb settlement/order |
| Whether Trustee must pay Bosco Credit under the confirmed Plan and April 2017 Order | Debtor: payments on discharged claim improper; Plan cannot feasibly pay Bosco if claim participates | Trustee/Bosco: Settlement and confirmation require treating claim as allowed unsecured; Trustee may pay | Court: Trustee's payments were permitted under the Plan/Order; Bosco may retain payments and claim remains allowed |
Key Cases Cited
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (discharge eliminates personal liability but does not extinguish creditor's in rem rights in property)
- In re Bennett, 590 B.R. 156 (Bankr. E.D. Mich. 2018) (§ 502(j) reconsideration analyzed via Rule 60(b) rubric and courts retain broad discretion)
- In re Packer, 558 B.R. 842 (Bankr. W.D. Mich. 2016) (use of Rule 60 standards for claim reconsideration)
- McCurry v. Adventist Health Sys./Sunbelt, Inc., 298 F.3d 586 (6th Cir. 2002) (Rule 60(b)(6) relief available only for extraordinary circumstances)
- Harris v. Viegelahn, 135 S. Ct. 1829 (2015) (conversion or dismissal can render a Chapter 13 plan a "dead letter")
- Travelers Cas. & Sur. Co. v. Pacific Gas & Elec. Co., 549 U.S. 443 (2007) (estate may assert debtor's prepetition defenses against claims)
- In re Rosa, 521 B.R. 337 (Bankr. N.D. Cal. 2014) (discussion of payment rights for discharged, stripped-off claims under "chapter 20" plans)
- In re Sweitzer, 476 B.R. 468 (Bankr. D. Md. 2012) (same)