535 B.R. 156
6th Cir. BAP2015Background
- Debtors (Mattesons) filed Chapter 13 in 2010 and listed five Bank of America mortgages; two mortgages at issue were for Lylewood Road ($25,488.14) and Arctic Avenue ($38,569.35).
- Confirmed Chapter 13 plan treated those mortgages as long-term claims under 11 U.S.C. §1322(b)(5) and required a creditor to file a proof of claim to receive trustee disbursements.
- Bank of America did not file proofs of claim for the two mortgages; the trustee therefore made no disbursements to the Bank and the plan completed in 2013 with a discharge entered.
- Debtors brought an adversary proceeding seeking to avoid the two liens based on the Bank’s failure to file proofs of claim; bankruptcy court denied lien avoidance but reduced each mortgage balance by the amounts the Bank would have received through the plan.
- Bank appealed the reduction; the Panel affirmed that the liens survived and the debts were nondischargeable under §1328(a), but reversed the bankruptcy court’s reduction of the mortgage balances and remanded for entry of judgment consistent with that ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a secured creditor’s failure to file a proof of claim permits reducing the principal balance of a §1322(b)(5) mortgage after plan completion | Debtors: Bank waived plan payments by not filing claims; therefore the debt should be reduced by the amounts the Bank would have received through the plan | Bank: No legal basis to reduce the secured debt; liens pass through bankruptcy and secured creditor need not file claim to preserve lien or debt balance | Reversed: Court erred in reducing debt. Secured liens survive and debts remained nondischargeable; failure to file a proof of claim does not reduce principal balance. |
| Whether the bankruptcy court could equitably apply doctrines (Espinosa/judicial estoppel) to reduce the debt | Debtors: Equitable considerations support binding creditor to plan outcome | Bank: No bad faith or misrepresentation; no plan term reduced debt absent payment | Rejected: No bad-faith showing; Espinosa inapplicable because plan did not expressly reduce debt without payment. |
| Whether the Bank lost the right to collect via its lien because it received no plan payments | Debtors: By refusing to file claims, Bank effectively waived payment rights under the plan | Bank: Bank retained lien and post-bankruptcy remedies; permitted strategic choice not to file proof of claim | Held: Bank retained lien and post-bankruptcy remedies; it did not forfeit right to pursue collateral. |
| Whether Debtor/Trustee could have protected plan operation by filing proof of claim on Bank’s behalf | Debtors: N/A (Debtors sought reduction) | Bank: Trustee or Debtor could have filed under §501(c)/Rule 3004 to preserve right to receive payments; debt not reduced by Bank’s inaction | Held: Debtor/Trustee could have filed on Bank’s behalf; absence of such action negates equitable basis to reduce debt. |
Key Cases Cited
- Dewsnup v. Timm, 502 U.S. 410 (1992) (liens generally pass through bankruptcy unaffected)
- FDIC v. Union Entities (In re Be-Mac Transp. Co., Inc.), 83 F.3d 1020 (8th Cir. 1996) (secured creditor may ignore bankruptcy and look to lien for satisfaction)
- Hamlett v. Amsouth Bank (In re Hamlett), 322 F.3d 342 (4th Cir. 2003) (secured creditor’s lien not voided merely because proof of claim not filed)
- PCFS Fin. v. Spragin (In re Nowak), 586 F.3d 450 (6th Cir. 2009) (secured creditor generally not required to file proof of claim to maintain interest in collateral)
- Universal Am. Mortg. Co. v. Bateman (In re Bateman), 331 F.3d 821 (11th Cir. 2003) (secured creditors not required to file proofs of claim to maintain interests)
- Tarnow v. United States (In re Tarnow), 749 F.2d 464 (7th Cir. 1984) (discussing consequences of failing to file claims under chapter 13)