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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

In re: CURTIS REED JOHNSON, ) 

) 

Debtor. ) __________________ ) 

) 

HOME STATE BANK OF LEWIS, LEWIS, ) 

KANSAS, ) 

) 

Appellee and Cross-Appellant, ) 

) 

FI LED 

Uoited States Court of Appeals 

Tenth Circuit 

.JUN 7 1990 

.ROBERT L. HOECKER 

Clerk 

v. ) 

) 

Nos. 89-3029 and 

89-3031 

CURTIS REED JOHNSON, ) 

) 

Appellant and Cross-Appellee. ) 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF KANSAS 

(D.C. No. 88-1270-K) 

w. Thomas Gilman of Redmond, Redmond & Nazar, Wichita, Kansas, for 

Appellant and Cross-Appellee. 

Calvin D. Rider (Dennis E. Shay with him on the briefs) of Smith, 

Shay, Farmer & Wetta, Wichita, Kansas, for Appellee and CrossAppellant. 

Royce E. Wallace of Wallace & Zimmerman, Wichita, Kansas, for 

Amicus Curiae Royce E. Wallace, Standing Chapter 13 Trustee. 

Patricia A. Reeder of Eidson, Lewis, Porter & Haynes, Topeka, 

Kansas, for Amicus Curiae Kansas Bankers Association. 

Befor* BRORBY, Circuit Judge, BARRETT, Senior Circuit Judge, and 

WEST, District Judge. 

BRORBY, Circuit Judge. 

* The Honorable Lee R. West, United States District Judge for the 

Western District of Oklahoma, sitting by designation. 

Appellate Case: 89-3029 Document: 01019857853 Date Filed: 06/07/1990 Page: 1 
Curtis Reed Johnson, Debtor, appeals from the reversal by the 

United States District Court for the District of Kansas of the 

Bankruptcy Court's confirmation of Johnson's Chapter 13 Plan. The 

facts are thoroughly presented in the district court's opinion, In 

re Johnson, 96 Bankr. 326 (Bankr. D. Kan. 1989). Basically, the 

Johnsons defaulted on two notes with Home State Bank (the Bank), 

which were secured by mortgages on two quarter sections of land 

farmed by the Johnsons. The Bank instituted foreclosure 

proceedings, and the Johnsons filed a joint Chapter 7 petition in 

bankruptcy court. The Johnsons were subsequently discharged of 

all dischargeable debts, and the state court then granted summary 

judgment in the Bank's favor, holding the Bank was entitled to 

foreclose on its mortgage and have the property sold. While 

foreclosure proceedings were pending, and one month before the 

property was scheduled to be sold by the sheriff, Curtis Johnson 

filed his voluntary Chapter 13 petition in bankruptcy. His 

Chapter 13 plan listed the Bank as a partially secured creditor, 

and the Bank filed an objection to confirmation of the plan. The 

bankruptcy court subsequently confirmed an amended plan submitted 

by Johnson, which proposed five annual payments to the Bank and a 

final balloon payment at the conclusion of the five-year plan. 

The district court reversed, concluding that Johnson's Chapter 13 

plan could not be confirmed because it improperly scheduled a debt 

previouslJ discharged under Chapter 7. 96 Bankr. at 330. Having 

so concluded, the court did not reach other issues raised by the 

Bank, i.e., that the Debtor lacked good faith and that the plan is 

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Appellate Case: 89-3029 Document: 01019857853 Date Filed: 06/07/1990 Page: 2 
infeasible. The Bank reasserts these issues in its cross-appeal 

to this court. 

The fundamental issue presented by this case is whether a 

debtor who has been discharged from in personam liability on a 

secured debt may then reschedule that debt in a Chapter 13 

proceeding under the Bankruptcy Code. This is an issue of law 

which we review de novo. As the district court found, the 

majority of courts that have considered this issue have answered 

it in the negative. 96 Bankr. at 329. See,~, In re Reyes, 59 

Bankr. 301, 302 (Bankr. S.D. Cal. 1986); In re McKinstry, 56 

Bankr. 191, 193 (Bankr. D. Vt. 1986); In re Binford, 53 Bankr. 

307, 309 (Bankr. W.D. Ky. 1985); In re Brown, 52 Bankr. 6, 7 

(Bankr. S.D. Ohio 1985). More recently, several courts have 

reached the opposite result, concluding that a debtor may, through 

a Chapter 13 plan, cure a default on a mortgage debt previously 

discharged under Chapter 7. See,~, In re Metz, 820 F.2d 1495, 

1498 (9th Cir. 1987); In re Ligon, 97 Bankr. 398, 403 (Bankr. N.D. 

Ill. 1989); In re Hagberg, 92 Bankr. 809, 814-16 (Bankr. W.D. Wis. 

1988); In re Klapp, 80 Bankr. 540, 542 (Bankr. W.D. Okla. 1987); 

In re Lagasse, 66 Bankr. 41, 43 (Bankr. D. Conn. 1986); In re 

Lewis, 63 Bankr. 90, 90 (Bankr. E.D. Pa. 1986). Metz, the only 

circuit court to have decided this issue, holds that "a chapter 13 

petitioner may include a mortgage claim within a plan even though 

the underlying obligation of the mortgage was discharged in the 

debtors' prior bankruptcy case." 820 F.2d at 1498. 

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Appellate Case: 89-3029 Document: 01019857853 Date Filed: 06/07/1990 Page: 3 
We disagree that the Metz approach is the preferred method of 

dealing with so-called "Chapter 20" bankruptcy filings. The Metz 

panel provides little explanation of its decision. Although it 

cites the rationales of the Lagasse and Lewis courts, it does not 

analyze or expressly adopt either. The panel merely concludes: 

"We find no statutory prohibition to such a practice [i.e., 

"Chapter 20 filings"] except the good faith filing requirement of 

(11 u.s.c. § 1325(a)(3)]." 820 F.2d at 1498. 

Lagasse, which Metz cites, holds that Chapter 13 scheduling 

of a debt discharged under Chapter 7 is permissible, on the ground 

that when a debtor receives a Chapter 7 discharge of a secured 

debt, the debt relationship between the debtor and the secured 

party is converted to a nonrecourse obligation. 66 Bankr. at 43. 

Lewis reasons that, "under Chapter 13, a creditor's 'claim' 

includes not only a right to payment but also the right to an 

equitable remedy for breach of performance. Therefore, 'a claim 

may include a creditor's encumbrance against property of the 

estate although there is no in personam liability against the 

debtor."' Metz, 820 F.2d at 1498 (quoting Lewis, 63 Bankr. at 91-

92). Based on these opinions, the Metz panel concludes that the 

only test a Chapter 13 plan must meet is whether it was submitted 

in "good faith," which is judged by the ''totality of the 

circumstances." 820 F.2d at 1498. We reject this "gestalt 

approach to the good faith inquiry," In re Hagberg, 92 Bankr. at 

815, and hold that the majority approach to "Chapter 20'' filings 

is the better one. 

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Appellate Case: 89-3029 Document: 01019857853 Date Filed: 06/07/1990 Page: 4 
While it is true that the Bankruptcy Code does not expressly 

prohibit what the debtor sought to do in this case, we do not 

believe Congress intended such a result. As the district court 

held, 1 where a mortgage obligation has been discharged under 

Chapter 7, the mortgagee no longer holds a claim against the 

debtor, but only a lien against the debtor's property. 96 Bankr. 

329-30. That lien is "not accompanied by any obligation, note, 

debt, or right to payment." Accordingly, Home State Bank is not a 

"creditor" of Johnson and holds no claim that can be scheduled in 

Johnson's Chapter 13 plan. 

We acknowledge ,the Code's rule of construction, which states \ 

that "'claim against the debtor' includes claim against property 

of the debtor," 11 U.S.C. § 102(2), but rejec.t the argument that 

the Bank's lien against the Johnson property, which survived 

Johnson's Chapter 7 proceeding, is a "claim against the debtor" 

that can be scheduled in a Chapter 13 plan. In reaching this 

conclusion we rely in part on the explanation of the Senate 

Committee on the Judiciary that§ 102(2) "is intended to cover 

nonrecourse loan agreements where the creditor's only rights are 

against property of the debtor, and not against the debtor 

personally. Thus, such an agreement would give rise to a claim 

1 In the following discussion, we borrow liberally from the 

district court's thorough opinion. We also note and correct one 

minor inadvertent error in the district court's opinion. At 96 

Bankr. 328, the court states: "[T]he in rem liability of the 

property held as security remains unaffectedand unenforceable by 

the mortgagee after discharge." This sentence should read 

"unaffected and enforceable." 

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Appellate Case: 89-3029 Document: 01019857853 Date Filed: 06/07/1990 Page: 5 
that 

II 

would be treated as a claim against the debtor personally 

S. Rep. No. 989, 95th Cong., 2d Sess. 28 (1978). Here 

there clearly was no "agreement'' between Johnson and Home State 

Bank for a nonrecourse mortgage loan. For this reason, we find 

the Lagasse and Ligon courts' analogy to nonrecourse loans inapt. 

On its 

loan analogy 

face, the Ligon court's treatment of the nonrecourse 

is thorough, see 97 Bankr. at 402-03, but it 

overlooks the significance of the legislative history of§ 102(2). 

Even though the court recognized there is no agreement for a 

nonrecourse loan in these cases, id. at 402, it nevertheless 

construes§ 102(2) as providing that a mortgagee's lien is a debt 

for Bankruptcy Code purposes. Ligon faults courts adhering to the 

majority view for "ignor[ing] or gloss[ing] over the existence of 

11 U.S.C. § 102(2)." Id. at 403. This criticism is misplaced, 

however, because the Ligon court's interpretation ignores the 

statute's illuminating legislative history. 

Clearly, the Bank and Mr. Johnson did not bargain for a 

nonrecourse mortgage loan. Allowing Mr. Johnson to reschedule its 

debt to the Bank under Chapter 13, after failing to reaffirm the 

discharged debt in his Chapter 7 action, would allow Mr. Johnson 

to impose on the Bank a unilateral reaffirmation of the mortgage. 

Because the Bank could have refused to agree to a reaffirmation of 

the mortgage in Johnson's Chapter 7 proceeding, see 11 u.s.c. 

§ 524(c), it cannot effectively be forced to agree to a 

reaffirmation now by confirming scheduling in Johnson's Chapter 13 

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Appellate Case: 89-3029 Document: 01019857853 Date Filed: 06/07/1990 Page: 6 
plan. See In re Russo, 94 Bankr. 127, 129 (Bankr. N.D. Ill. 

1988); In re McKinstry, 56 Bankr. at 193. 

Similarly, the Bank does not have a "claim" against Johnson 

as defined in 11 U.S.C. § 101(4). That statute defines claim as 

a: 

(A) right to payment, whether or not such right is 

reduced to judgment, liquidated, unliquidated, fixed, 

contingent, matured, unmatured, disputed, undisputed, 

legal, equitable, secured, or unsecured; or 

(B) right to an equitable remedy for breach of 

performance if such breach gives rise to~ right to 

payment, whether ~not such right to an equitable 

remedy is reduced to judgment, fixed contingent, 

matured, unmatured, disputed, undisputed, secured, or 

unsecured. 

(Emphasis added.) Clearly, the Bank has no "right to payment" 

from Johnson under § 101(4)(A), because Johnson's personal 

liability on the mortgage was discharged under Chapter 7. 

Moreover, the Bank has no right to an equitable remedy for breach 

of performance which gives rise to a right to payment under 

§ 101(4)(8). Although the Bank has a right to an equitable remedy 

in the form of a state court foreclosure proceeding because 

Johnson breached performance on his promissory note, that breach 

does not give rise to a "right to payment." The Bank no longer 

has a right to receive payment from Johnson due to his breach 

because Johnson obtained a discharge from personal liability under 

Chapter 7. Thus, the Bank has no right to payment from Johnson, 

either directly or indirectly through a mortgage foreclosure 

action in state court. Accordingly, the Bank has no "claim" as 

defined in either paragraph (A) or paragraph (B) of§ 101(4). 

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Appellate Case: 89-3029 Document: 01019857853 Date Filed: 06/07/1990 Page: 7 
Because we hold that a debtor's Chapter 13 plan cannot be 

confirmed where it improperly schedules a debt previously 

discharged under Chapter 7, we do not reach the good-faith and 

feasibility issues raised by the Bank. 2 we affirm the district 

court's ruling reversing Johnson's Chapter 13 plan and remand to 

the bankruptcy court for further proceedings as necessary. 

AFFIRMED. 

2 We note, however, that the Bank presents compelling arguments 

with respect to each of these issues. 

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Appellate Case: 89-3029 Document: 01019857853 Date Filed: 06/07/1990 Page: 8