MEMORANDUM OPINION
This case is before me on appeal from the Bankruptcy Court. Piedmont Trust Bank (“Piedmont”) has appealed the Bankruptcy Court’s denial of its motions to revoke the order confirming the debtor’s plan, to convert the case to Chapter 7, and to lift the stay. Piedmont contends that because of inadequate notice and procedural irregularities its claims have been improperly reduced. Both the trustee and the debtor have filed briefs in opposition.
I. STANDARD OF REVIEW
The district court, when reviewing a bankruptcy court’s decision, “may affirm, modify, or reverse a bankruptcy judge’s judgment, order, or decree or remand with instructions for further proceedings.” Fed.R.Bankr.P. 8013. The court reviews findings of facts subject to a clearly erroneous standards of review,
id.,
but a
de novo
standard applies to conclusions of law,
Matter of Newman,
II. STATEMENT OF FACTS
Alvie Stanley Linkous (“Linkous”) filed for Chapter 13 bankruptcy on April 26, 1990. Linkous had two loans outstanding from Piedmont. The Chapter 13 plan stated that there was an $18,000 loan secured by a mobile home and provided for the payment of $6,000 as a secured debt because the value of the mobile home was $6,000 with the remaining $12,000 unsecured. The second loan was for $4,000 and was secured by an automobile. The plan provided for similar treatment with $1,000 treated as secured and $3,000 as unsecured. The plan further provided for creditors to retain their liens only to the extent that the debt was secured and for a 10% dividend on unsecured claims.
In accordance with Federal Rule of Bankruptcy Procedure (hereinafter “Rule”) 3015, Piedmont received a completed copy of Local Form 16.1, which is intended to serve as a summary of the plan, along with a notice that set the bar date for filing claims as September 4, 1990, provided for a meeting of creditors on June 6, 1990, and a confirmation hearing on June 20, 1990.
III. DISCUSSION
The myriad issues raised by the parties can best be stated as three questions: (1) Did Piedmont receive adequate notice in this case?; (2) Can a bankruptcy court bifurcate a claim under § 506(a) when the relevant proof of claim has not yet been filed and the creditor is without notice of the bifurcation hearing because no party in interest has filed a motion seeking bifurcation under 506(a)?; and (3) Is a confirmed plan that contains such bifurcated claims res judicata regarding the treatment of such claims when a party timely files its proofs of claim after confirmation and after the expiration of the period for appealing the confirmation order? After considering the relevant statutes and cases, I have decided that Piedmont lacked appropriate notice of these proceedings and that the Bankruptcy Court exceeded the scope of the confirmation hearing by making a secured status determination pursuant to § 506(a) under these circumstances. Therefore, I will reverse in part the Bankruptcy Court’s denial of Piedmont’s motion to revoke 1 the confirmation order, with the effect of vacating the confirmation order insofar as it affects Piedmont’s claims. I will also remand the case for further proceedings before the Bankruptcy Court. Because the case is being remanded for further consideration, I will not rule on Piedmont’s motions to convert to Chapter 7 and to lift the stay. I leave these issues for further consideration by the Bankruptcy Court.
A. Notice
Regarding the issue of notice, the only documents that Piedmont received concerning the bankruptcy — the summary of the plan and the confirmation notice — contain several flaws. First, the summary provided to Piedmont differs to such a degree from the plan itself that, as a matter of law, it cannot constitute a “summary” as provided for in Rule 3015. The document that accompanied the notice was deficient in several respects: 1) it inaccurately stated the amount Piedmont would receive under the plan; 2) it inaccurately stated the amount of monthly payments to the trustee; 3) it inaccurately stated that the duration of the plan was three years instead of five years; 4) it stated that the schedules listed secured debts in the amount of $24,-000 but made no mention that the plan proposed to treat only $7,000 of those debts as secured; and 5) it made no mention that the valuation of property was an issue in the case.
Second, the confirmation notice did not fix the time for filing objections to confirmation. This notice is mandated by the Rules. See Fed.R.Bankr.P. 2002(b).
Third, the confirmation notice — the only notice to Piedmont — did not mention that valuation issues under § 506 for the purpose of reducing Piedmont’s claims and liens would be addressed in conjunction with the confirmation hearing. This third flaw is, in itself, fatal. As the D.C. Circuit observed: “[T]he content of the notice must reasonably inform the recipient of the nature of the upcoming proceeding. Fail
Of course, values are considered at every Chapter 13 confirmation hearing when the plan is evaluated under § 1325. But the nature of that proceeding is different from a proceeding that bifurcates a creditor’s claim or strips a creditor’s lien after a valuation, which are considered contested matters.
See
Fed.R.Bankr.P. 9014;
see also
9 Collier on Bankruptcy 117001.-05[1] (15th ed. 1991) (discussing this issue). First, the confirmation hearing, in itself, is not an adversary proceeding or even a contested matter.
See Matter of Beard,
Piedmont contends that it was entitled to specific notice under Rule 3012 that § 506 valuation issues would be addressed at the confirmation hearing. Piedmont primarily relies on
In re Calvert,
The court may determine the value of a claim secured by a lien on property in which the estate has an interest on motion of any party in interest and after a hearing on notice to the holder of the secured claim and any other entity as the court may direct.
The permissive aspect of Rule 3012 lies in the discretion of the court to deny a motion for valuation.
See In re Thurston,
The only case that I am aware of that supports the trustee’s position is
In re Pourtless,
B. Procedure for a Secured Status Determination
At the outset, I should note that neither the parties nor myself have been able to glean much guidance from case law or commentary on the treatment of pre-petition claims that are timely filed after confirmation and are altered by the confirmation order. Such a question is essentially one of first impression. The issue was considered in the line of cases involving
In re Lewis,
Any analysis should begin with the language of the relevant statute. Section 506(a), which concerns dividing a claim into secured and unsecured portions, reads:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property ... and is an unsecured claim to the extent that the value of such creditor’s interest ... 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.
11 U.S.C. § 506(a) (emphasis added). The procedure detailed in § 506(a) concerns an “allowed claim.” Despite the protestations of the trustee, I am not at liberty to strike the word “allowed” from the statute. It is a basic premise of statutory interpretation that, whenever reasonably possible, the court must give effect to every word of a statute.
United States v. James,
The Bankruptcy Court in this case recognized this procedure, but dismissed it as a technicality.
See In re Linkous,
Case No. 90-00608 (Bankr.W.D.Va. March 11, 1991) at 7 (“The court first notes that when the confirmation hearing was held [Piedmont] had not yet filed its proofs of claim, and therefore its claims were technically not yet allowed claims as provided in ... 11 U.S.C. § 502.”). Many courts and commentators have recognized the necessity of filing a proof of claim as a prerequisite to allowance under the Code.
See In re Richards,
The trustee argues that in a Chapter 13 case claims do not have to be filed before they are allowed because a Chapter 13 plan can set the value of a secured claim pursuant to 11 U.S.C. § 1322(b)(2) and § 1322(b)(10). Although Chapter 9 and Chapter 11 have provisions that obviate the need for filing,
see
11 U.S.C. §§ 925 and 1111, Chapter 13 does not have a comparable provision.
See In re Francis, supra,
The cases cited for support by the trustee are unpersuasive on this point.
In re Bellamy,
In re Gadson,
Finally, the trustee cites
In re Yoder,
I concur with the court in
In re Dembo,
Of more import in the immediate case, the record does not reveal that Linkous ever filed a petition for valuation under § 506(a), rendering this line of argument by the trustee irrelevant. The foregoing discussion is relevant to address the possibility that one might (wrongly) construe a plan that contains bifurcated claims to constitute a petition for valuation under § 506. Generally, the appropriate mechanism for such an effort is a motion as provided in Rule 3012.
Therefore, it is clear that the plan itself did.not set the amount of the allowed claim and also that Piedmont did not have any allowed claims before the Bankruptcy Court when the § 506 valuation was performed at the confirmation hearing. Indeed, Piedmont did not even file proofs of claim until almost two months after the confirmation hearing. There is no question here, however, that Piedmont timely filed its claim. Piedmont was justified in not having presented its proofs of claim prior to the confirmation hearing. Rule 3002(c) provides for a ninety-day period following the meeting of creditors for a creditor to file a proof of claim and Piedmont filed within this period. This is one of the few time periods that a court does not have the discretion to reduce.
See
Fed.R.Bankr.P. 9006(c)(2). A debtor, therefore, cannot compel a creditor to file a proof of claim early, even by scheduling the confirmation hearing within the ninety-day period.
Cf. In re Lewis,
A proof of claim that is timely filed and has not been objected to by a party in interest is deemed allowed. 11 U.S.C. § 502(a). Such a proof of claim constitutes prima facie evidence of the validity
and amount
of the claim. Fed. R.Bankr.P. 3001(f). Therefore, the value stated in the debtor’s plan regarding such a claim is irrelevant once a proof of claim is timely filed. Given the effect accorded a valid proof of claim by the Bankruptcy Code and Rules, the burden properly falls on the debtor or trustee to challenge the claim through appropriate procedures. The argument that the confirmation of a plan can satisfy this burden has failed in analogous circumstances because it is inappropriate to force the creditor to object to the plan
2
when it is the debtor or trustee who must overcome the prima facie effect of the proof of claim.
See In re Golden Plan of California, Inc.,
C. Res Judicata Effect of a Confirmed Plan
The debtor and trustee urge that the confirmed plan is final as the ten-day appeal period has expired and § 1327(a) provides that the plan is binding on both debtors and creditors. Generally, § 1327(a) does provide a res judicata effect to the terms of a confirmed plan.
See, e.g., In re Szostek,
Irregularities such as those present in this case can override the valid and appropriately strong concern for the finality of a bankruptcy confirmation order. For example, in
In re White,
Regarding the treatment accorded Piedmont’s liens, to the extent that the confirmation order altered them, it is erroneous and will be vacated through the reversal of the Bankruptcy Court’s decision on the mo
Based on the foregoing analysis, I will reverse in part the Bankruptcy Court’s denial of Piedmont’s motion to revoke the confirmation order, with the effect of vacating the confirmation order insofar as it affects Piedmont’s claims. In addition, I will remand the case for further proceedings before the Bankruptcy Court consistent with this opinion.
Notes
. As “revoke" is a term peculiar to § 1330, which concerns vacating a confirmed plan on the grounds of fraud, it would be preferable for counsel who are asserting due process grounds to invalidate a confirmation order to use the more general terms "vacate” or "set aside” when stating their case. In any event, the appropriate relief should not turn on such a lapse when the grounds alleged for vacating the order are clear.
. In the immediate case, the debtor and trustee have made much of the failure of the creditor to object to the plan. In the opinion of a leading commentator, however, Piedmont could not object to confirmation because it did not yet hold an allowed claim and, therefore, lacked standing to object.
See
5
Collier on Bankruptcy
¶ 1324.01 [3] (citing
In re Stewart,