In Re Benjamin Pierce Simmons, Bankrupt. Benjamin Pierce Simmons v. J.T. SavellIn Re Benjamin Pierce Simmons, Bankrupt. Benjamin Pierce Simmons v. J.T. Savell
In this аppeal, we are asked to determine the effect of a bankruptcy court’s confirmation of a “wage earner plan,” under Chapter 13 of the Bankruptcy Code, on a creditor's statutory lien. The debtor instituted the instant adversary action in bankruptcy court, seeking cancellation of the lien notice filed of record by the creditor. The bankruptcy court refused to cancel the lien, holding in part that the lien continued to be valid after confirmation of the plan. The district court affirmed this holding. Because we hold that confirmation of the debtor’s Chapter 13 plan did not have the effect of lifting the creditor’s statutory lien, we affirm.
Facts and Proceedings Below
Benjamin P. Simmons contracted to have J.T. Saveli, a plumber, perform certain work on Simmons’ homestead. The work, which included the purchase and installation of plumbing fixtures, was begun оn December 26, 1978, and completed on June 8, 1979, with the cost totalling $3,537.75.
On May 1, 1980, Saveli filed a notice of construction lien with the Chancery Clerk of the First Judicial District of Hinds County, Mississippi, for the labor and materials furnished on the plumbing contract. Thereafter, on May 14, 1980, Saveli filed in state court a Declaration to Enforce Lien on Real Property (“declaration to enforce lien”) against Simmons, the Independent Life and Accident Insurance Company (ILA), and the Administrator of the Small Business Administration (SBA), 1 claiming a construction lien in the amount of $3,537.75, together with interest and attorney’s fees. The ILA filed an answer in the proceeding, but no further action has been taken in the suit.
On June 9, 1980, Simmons filed a petition for relief in the United States Bankruptcy Court for the Southern District of Mississippi under Chapter 7 of the United States Bankruptcy Code (Code), 11 U.S.C. ch. 7. On July 30, 1980, Saveli filed a proоf of claim identifying his claim as secured by a construction lien. Saveli appended exhibits to the proof of claim, including copies of the original invoice, the lien notice, and the declaration to enforce lien pending in state court. Simmons then petitioned for conversion of his case to one under Chapter 13 of the Code, 11 U.S.C. ch. 13. The bankruptcy court ordered such conversion on September 3, 1980. On September 29, 1980, Simmons filed a petition and plan under Chapter 13. The plan listed the debt to Saveli as unsecured but disputed, making reference to the state court action to enforce the lien. The plan proposed a deferred 10% cash payout to unsecured creditors. On November 18, 1980, Saveli again filed a proof of claim, which indicated that his claim was secured by a statutory lien and which agаin incorporated as exhibits copies of the invoice, the lien notice, and the declaration to enforce lien. Again the claim made specific reference to the state court action to enforce the lien. Paragraph 11 of the proof-of-claim form called for Saveli as claimant to indicate whether he accepted or rejected the plan. 2 Saveli placed an “X” in the box marked “Claimant accepts” but added the following typewritten statement: “Creditor objects to his claim being scheduled as unsecured.”
The bankruptcy court, on May 26, 1981, entered an order confirming Simmons’ plan. The order recites that no objections to confirmation of the plan were considered and that no one other than the trustee and Simmons’ attorney appeared at the confirmation hearing. On July 28,1981, the trustee filed a motion to allow claims, which listed Saveli’s claim as unsecured and which provided that the listed claims would be deemed allowed for the purpose of distribution unless objection was made by a party in interest within thirty days. Saveli filed no objection to this motion. Saveli has received payments under the plan since confirmation, but Saveli insists that the checks have not been cashed.
On August 2, 1982, Simmons filed the instant adversary action in bankruptcy court, seeking an order that Saveli cancel the lien notice and an award of attorney’s fees for Saveli’s wilful failure to cancel the lien. Saveli answered and counterclaimed, seeking a judgment that his claim was secured, relief from the automatic stay to enforce his lien, and an award of attorney’s fees.
After a hearing, on December 8, 1982, the bankruptcy court refused to cancel Sa-veli’s lien and further held that the lien, which was perfected before Simmons filed his original petition in bankruptcy, was valid and enforceable, could not be avoided, and entitled to full satisfaction. In an opinion filed on February 22, 1983, the bankruptcy court reasoned that statutory liens are recognized as secured clаims against a debtor in bankruptcy so long as the lien is not subject to avoidance under
In a memorandum opinion and order dated October 9, 1984, the district court affirmed the bankruptcy court’s holding that Saveli’s construction lien remained valid after confirmation of the Chapter 13 plan. The district court, holding that a perfected construction lien is not enforceable under Mississippi law until judgment is entered pursuant to
Simmons appeals the decision of the district court regarding the validity of Saveli’s lien after the confirmation of Simmons’ Chapter 13 plan. The district court’s decision to remand the issue of enforceability to the bankruptcy court is not appealed by either party.
On appeal, the parties continue to propound the same arguments that have carried them to this pass. Simmons contends that Saveli has waived his right to the lien recorded against Simmons’ homestead. Simmons emphasizes the central place of the wage earner plan in facilitating Congress’ purpose for Chapter 13 — viz., encouraging individual debtors to reorganize rather than liquidate by using future income to satisfy at least a portion of their outstanding obligations to creditors. Once Simmons’ plan was confirmed, Simmons continues, Saveli was bound by the terms of the plan, which listed Saveli’s claim as unsecured. After all, Saveli raised no objection to confirmation and had in fact “accepted” the plan although noting an objection to the classification of his claim as unsecured. Under
Saveli responds with three arguments. First, Saveli maintains that the Code, particularly
Discussion
An understanding of the codal structure for the allowance or disallowance of creditors’ claims is critical to a proper understanding and analysis of this case. Section 501(a) of the Code permits a creditor to file a proof of claim. Although the filing of a proof of claim may be a prerequisite to the allowance of certain claims, no creditor is required to file a proof of claim. H.R.Rep. No. 595, 95th Cong., 1st Sess. 351 (1977),
reprinted in
1978 U.S.Code Cong. & Ad.News 5963, 6307 [hereinafter cited as House Report]; S.Rep. No. 989, 95th Cong., 2d Sess. 61,
reprinted in
1978 U.S.Code Cong. & Ad.News 5787, 5847 [hereinafter cited as Senate Report]. A proof of claim should be filed only when some purpose would be served. 3 Collier on Bankruptcy ¶ 501.01, at 501-3 (15th ed. 1985). For example, “filing may prove necessary when the claim incorrectly appears in the debt- or’s schedules or when the schedules list the claim as disputed, contingent or unliqui-dated.”
Id.
The filing of a proof of claim might also be required by a request for a determination of the secured status of a claim under
The Code provides that “[a] claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest ... objects.”
3
The procedure for objecting to a claim is established in part by Bankruptcy Rule 3007, which provides:
An objection to the allowance of a claim shall be in writing and filed with the court. A copy of the objection with notice of the hearing thereon shall be mailed or otherwise delivered to the claimant, the debtor or debtor in possession and the trustee at least 30 days prior to the hearing. If an objection to a claim is joined with a demand for reliеf of the kind specified in Rule 7001, it becomes an adversary proceeding.
The objection to a claim initiates a contested matter unless the objection is joined with a counterclaim asking for the kind of relief specified in Bankruptcy Rule 7001.
5
In addition to the requirements of Rule 9014, which governs contested matters, Rule 9004 specifies that the objection contain a proper caption designating it an objection to a proof of claim.
6
It has been said that the filing of a proof of claim is tantamount to the filing of a complaint in a civil action,
see Nortex Trading Corp. v. Newfield,
In the case sub judice, neither the trustee nor Simmons filed an objection to Saveli’s proof of secured claim before confirmation. Simmons’ Chapter 13 plan, which listed Saveli’s claim as unsecured but disputed, cannot be deemed to constitute such an objection. The purpose of filing an objection is to join issue in a contested matter, thereby placing the parties on notice that litigation is required to resolve an actual dispute between the parties. See Bankr.R. 9014 advisory committee note. An objection to a proof of claim filed in accordance with Rules 3007, 9004, and 9014 clearly places in issue the allowance or disallowance of that claim as filed. The parties are put on notice that the objection will have to be resolved before a final determination is made as to the allowance or disallowance of the claim. In contrast, the filing of a Chapter 13 plan does not initiate a contested matter. When a plan is filed with the petition, as permitted under Rule 3015, it is unlikely at that time that creditors have even contemplated filing proofs of claims. When the creditor files a proof of claim subsequent to the filing of the plan, the Code and the Rules clearly impose the burden of placing the claim in dispute on any party in interest desiring to do so by means of filing an objection.
In the case at bar, Saveli’s proof of claim, although filed after Simmons peti
Rule 3007 establishes no time limit for objecting to the allowance of a claim. Nevertheless,
This issue was presented to the court in
In re Hartford,
In particular, the court reasoned that “[sjection 506(a), made applicable to Chapter 13 cases by section 103(a), requires, as to each allowed secured claim, a valuation of the creditor’s security in conjunction with a hearing on confirmation of the Chapter 13 plan.” 7 Id. at 916 (emphasis in original). Further, section 1325(a)(5) requires as one of the six prerequisites to confirmation of a Chapter 13 plan that:
with respect to each allowed secured claim provided for by the plan—
(A) the holder of such claim has accepted the plan;
(B) (i) the plan provides that the holder of such claim retain the lien securing such claim; and
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; or
(C) the debtor surrenders the property securing such claims to such holder....
Hence, because no objection was filed before confirmаtion of Simmons’ Chapter 13 plan, Saveli’s claim should have been deemed an allowed secured claim for purposes of !confirmation.
A bankruptcy court is required to confirm a proposed wage earner plan if the plan satisfies the six requirements set out in
At the outset, it is probably true that confirmation of Simmons’ Chapter 13 plan was improper because it did not provide for Saveli’s claim as an allowed secured claim, but instead listed it as unsecured. Regardless, in the case at bar, none of the three circumstances described in
Therefore, because the requisites of
(a) The 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 ornot such creditor has objected to, has accepted, or has rejected the plan.
(b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.
(c) Except as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.
Simmons contends that under
In facing this precise contention in
In re Honaker,
By Section 541(a)(1) the estate was vested with the same interest in the collateral that the debtor had, that is, an interest subject to a valid security interest. There has been no action in this case to void or set aside the lien securing the Bank’s claim. Then, by operation ofSection 1327(b) , that same interest is shifted again, this time from the estate back to the debtor. The question arises whether, by virtue ofSection 1327(c) , the debtor receives a greater interest than the estate had, in that the property is no longer subject to any liens. The language ofSection 1327(c) is “free and clear of any claim or interest" “Claim” is defined in the Code at Section 101(4). A “claim” is distinct from a “lien,” which is defined in Section 101(28). The term “interest” is nowhere defined in the Code, but it would be odd if Congress had chosen that undefined term to mean “lien,” when they could have used the defined term “lien” аnd avoided uncertainty.
Such a result would fare no better under the particular facts of the case at bar. It would be anomalous indeed were
Only recently has, the Seventh Circuit through Judge Posner recalled the long line of cases allowing “a creditor with a loan secured by a lien on the assets of a debtor who becomes bankrupt before the loan is repaid to ignore the bankruptcy proceeding and look to the lien for satisfaction of the debt.”
In re Tarnow,
It is clear under the Code that any statutory lien that is valid under state law remains valid through bankruptcy unless invalidated by some provision of the Code.
Simmons asserts that Saveli’s lien is void under
To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless—
(1) a party in interest has not requested that the court determine and allow or disallow such claim undersection 502 of this title; or
(2) such claim was disallowed only undersection 502(e) of this title.
Simmons contends, however, that, under
As to the debtors[’] contention that [the third mortgagee’s] lien is avoided because the confirmed plan provided that said lien was to be avoided, we find it dispositive that [the third mortgagee’s] lien is expressly wwavoidable by virtue ofsection 506(d)(1) .Section 1322(b)(10) provides that a plan under chapter 13 may “include any other appropriate provision not inconsistent with this title.” ... In the case sub judice, the provision in the debtors’ plan proposing to avoid [the third mortgagee’s] lien is plainly inconsistent withsection 506(d)(1) of the Code. Therefore, we conclude that [the third mortgagee’s] lien passes through the debtors’ bankruptcy proceeding unaffected.
The Seventh Circuit’s discussion of
the Senate version ofsection 506(d) had provided “that to the extent a secured claim is not allowed, its lien is void unless the holder had neither actual notice nor knowledge of the ease. . . .” S.Rep. No. 598, supra, at 68. This could have been read to mean that the lien would be extinguished whatever the basis for disallowing the claim. But Congress enacted the House version, see 124 Cong.Rec. 33997 (1978), which is less hospitable to such a reading.
Id.
at 466-67. Further, the Seventh Circuit found that Congress’ recent amendment of
To hоld that confirmation of Simmons’ repayment plan had the effect of dissolving Saveli’s statutory lien because the validity of his secured claim could have been decided at the confirmation hearing, had a party in interest requested the court to do so, would require us to ignore the rule of
Long v. Bullard
and to read
For the foregoing reasons, the judgment of the district court is affirmed.
AFFIRMED.
Notes
. The ILA and SBA each held a security interest in Simmons’ homestead.
. The form utilized by Saveli was entitled "Proof of Claim; Acceptance or Rejection of Plan.”
. For a discussion of who is considered to be a "party in interest” within the meaning of
. See House Report, supra, at 352; Senate Report, supra, at 62; 3 Collier on Bankruptcy ¶ 502.01, at 502-6 to -7.
. If the objection is joined with such a counterclaim, it becomes an adversary proceeding under Rule 3007 and is governed by the procedures set out in Part VII of the Bankruptcy Rules. Rule 7001 defines an “adversary proceeding" as:
[A] proceeding in a bankruptcy court (1) to recover money or property, except a proceeding under § 725 of the Code, Rule 2017, or Rule 6002, (2) to determine the validity, priority, or extent of a lien or other interest in property, other than a proceeding under Rule 4003(d), (3) to obtain approval pursuant to § 363(h) for the sale of both the interest of the estate and of a co-owner in property, (4) to object to or revoke a discharge, (5) to revoke an order of confirmation of a chapter 11 or chapter 13 plan, (6) to determine the dischargeability of a debt, (7) to obtain an injunction or other equitable relief, (8) to subordinate any allowed claim or interest, except when subordination is provided in a chapter 9, 11, or 13 plan, (9) to obtain a declaratory judgment relating to any of the foregoing, or (10) to determine a claim or cause of action removed to a bankruptcy court.
.Because Rule 9004 is merely a formal requirement, a failure to satisfy its requisites "does not ordinarily result in the loss of rights," Bankr.R. 9004 advisory committee note, unless an order to correct the error would affect substantial rights. See Bankr.R. 9005.
.
An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor's interest in the estate’s interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor’s interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.
(Emphasis added).
. Other property may be conveyed to the secured creditor, in lieu of further payments, to meet the
. We note in passing that Simmons’ insistence that it matters whether Saveli accepted or rejected the plаn reveals that, at least for purposes of voting on the Chapter 13 plan, Simmons considered Saveli to be a secured creditor because ■“only secured creditors may be requested to vote on a plan” in a Chapter 13 case. Bankr.R. 3018 advisory committee note.
. The term "lien” is now defined in the Code at § 101(31).
. Citing
Long v. Bullard,
.
See, e.g., In re Weathers,
.
The trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien—
(1) first becomes effective against the debt- or—
(A) when a case under this title concerning the debtor is commenced;
(B) when an insolvency proceeding other than under this title concerning the debtor is commenced;
(C) when a custodian is appointed or authorized to take possession;
(D) when the debtor becomes insolvent;
(E) when the debtor’s financial condition fails to meet a specified standard; or
(F) at the time of an execution against property of the debtor levied at the instаnce of an entity other than the holder of such statutory lien;
(2) is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases suchproperty at the time of the commencement of the case, whether or not such a purchaser exists;
(3) is for rent; or
(4) is a lien of distress for rent.
.
To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void unless—
(1) such claim was disallowed only undersection 502(b)(5) or 502(e) of this title; or
(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.
.
See In re Spadel,
.
See In re Graham,
. See Bankruptcy Amendments and Fеderal Judgeship Act of 1984, Pub.L. No. 98-353, § 448(b), 98 Stat. 333, 374.
. See supra note 11.
. Under former Bankruptcy Rule 13-302(e)(l)', a claim not filed timely would be treated as unsecured under the plan for purposes of voting and distribution in a Chapter XIII case (the provisions of the Bankruptcy Act of 1898 that were revised as Chapter 13 of the Bankruptcy Reform Act of 1978).
See
15 Collier on Bankruptcy ¶¶ 13-302.01, 13-302.08[1] (14th ed. 1978). The rule was intended to facilitate the orderly and timely administration of Chapter XIII estates.
See, e.g., NAACP Credit Union v. Louie,