FILED

OCT 29 2019

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

ORDERED PUBLISHED

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re:

JEFFREY MARK FREEMAN,

Debtor.

JEFFREY MARK FREEMAN,

Appellant,

v.

NATIONSTAR MORTGAGE LLC,

Appellee.

BAP No. CC-18-1261-TaFS 

Bk. No. 2:11-bk-34162-NB

 OPINION

Argued and Submitted on September 26, 2019

at Pasadena, California

Filed – October 29, 2019

Ordered Published – November 5, 2019

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Neil W. Bason, Bankruptcy Judge, Presiding
 

Appearances: Mark T. Young of Donahoe & Young LLP argued for

appellant; Valerie Schratz of Hall Griffin LLP argued for

appellee.

 

Before: TAYLOR, FARIS, and SPRAKER, Bankruptcy Judges.

TAYLOR, Bankruptcy Judge:

INTRODUCTION

Jeffrey Freeman (“Debtor”) and a secured creditor agreed in open

court upon a chapter 131

 plan that bifurcated the secured creditor’s claim

into secured and unsecured portions and provided for full payment of the

secured portion of the claim (with interest) during the plan term. Debtor

made all of the payments under his plan, including full payment of the

secured portion of the claim, and received his discharge. Nevertheless, the

secured creditor’s successor-in-interest commenced post-discharge

proceedings to foreclose its lien.

Debtor filed a motion to hold the successor lienholder in contempt of

the discharge order. Subsequently, the successor lienholder reconveyed its

trust deed, implicitly acknowledging that its secured claim had been paid

in full under the chapter 13 plan; but it strongly opposed the contempt

1

 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532.

2
motion. The bankruptcy court concluded that because the plan and the

discharge order did not expressly, and in its view sufficiently, avoid the

trust deed, the initiation of foreclosure proceedings and related activity

was not contemptuous. 

We disagree with the bankruptcy court in one respect. The

undisputed evidence in the record establishes that the secured claim was

paid in full under Debtor’s plan. And under controlling law, payment in

full of the secured claim voided any lien. So, a discharge violation

occurred.

And we cannot affirm the bankruptcy court’s conclusion that the

successor lienholder, Nationstar Mortgage LLC, did not willfully violate

the discharge injunction due to an intervening change in the law. Since its

decision, the Supreme Court rejected the then-binding Ninth Circuit

precedent followed by the bankruptcy court. The bankruptcy court must

apply the new test to the facts before it.

Accordingly, we REVERSE in part and VACATE and REMAND for

further determinations consistent with this decision and under the

standard now required by the Supreme Court. 

FACTS

Debtor’s initial chapter 13 proceedings. Debtor filed a chapter 13

petition and scheduled an interest in rental property (the “Property”)

valued at $215,000. The Property secured a senior obligation held by BAC

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Home Loans Servicing, LP (“BAC”) and another loan. Debtor scheduled

the BAC obligation at $308,267.06 and promptly obtained an order

avoiding the junior trust deed.

Debtor’s initial chapter 13 plan treated BAC as a fully secured

creditor. But after BAC filed a secured proof of claim and documented

additional arrearages and an increased debt, he filed amended plans. In his

final plan, he proposed to pay the secured portion of BAC’s claim in full

during the course of the case; thus, the plan treated the secured claim as

equal to the value of the Property and treated the remainder of BAC’s

claim as an unsecured claim. 

BAC objected to confirmation. It did not directly oppose Debtor’s

valuation of the Property and the corresponding reduction in the secured

portion of the claim, but it strongly opposed the plan’s use of a 0.24%

interest rate and argued that the appropriate rate was no less than 6.76%. In

response, Debtor argued that an appraisal conducted by BAC established

that the value of the Property was less than $215,000.

The confirmation hearing results in a consensual plan. At the final

confirmation hearing, and after months of fits and starts, the bankruptcy

court was ready to dismiss the case. And BAC was unhappy that Debtor

was arguing for a reduction in the value of the secured portion of its claim

below $215,000, particularly as he did so based on an appraisal provided as

a courtesy and through what it described as “a motion [o]n improper

4
procedure[.]” Hr’g Tr. (June 14, 2012) 11:3–14. But the bankruptcy court

allowed the matter to trail to allow for negotiation. When the bankruptcy

court called the matter again, Debtor’s counsel represented: “[BAC’s

counsel] and I have met and conferred and I believe we are in agreement to

a consensual plan which provides a value of the [Property] at $190,000, and

interest rate payment of 6.75 percent . . . .” Id. at 15:21–25. BAC’s counsel

stated his agreement: “[Debtor’s counsel] and I are in agreement for those

exact terms, as confirmed today.” Id. at 16:5–6.2

The bankruptcy court trailed the matter yet again, this time to allow

the parties and the chapter 13 trustee to determine the precise numbers to

include in the plan. When the hearing resumed, the chapter 13 trustee’s

attorney stated: “[BAC’s counsel] and debtor’s counsel have agreed to

value the [Property], for purposes of the cramdown, in the secured claim

amount of $169,340,3 which will be paid interest at the rate of 6.75 percent

2

 BAC, thus, waived its argument that valuation at $190,000 required a motion

and hearing.

3

 The difference between $169,340 and $190,000 apparently was necessary to take

into account preconfirmation payments. While Nationstar argues that there is no

evidence in the record to support this conclusion, we disagree. The record supports that

Debtor had made payments to BAC before confirmation. Thus, in order to take into

account the negotiated value of the Property as of the petition date ($190,000), the

forward looking nature of the plan that provided for payment in full of this claim over

the next 48 months, and the fact that some claim reducing payments predated the

confirmation hearing, a number less than the agreed value was required for the plan to

avoid payment of more than $190,000. The record does not include the data needed to

(continued...)

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for the remaining 48 months of the plan.” Id. at 21:15–19. BAC’s counsel

stated that he had no objections.

The confirmation order and payoff orders. An attachment page to

the confirmation order stated that the parties stipulated and agreed to

certain provisions and that the bankruptcy court confirmed the plan with

those provisions. One provision read specifically as to the BAC claim:

For purpose of plan confirmation, the value of the [Property] is

determined to be $194,000. The amount of the secured claim

which shall be paid, in full, during the life of the chapter 13

plan is $169,340, with interest at the rate of 6.75% for the

remaining 48 months of the Chapter 13 Plan.

After confirmation, BAC transferred its claim to Nationstar Mortgage

LLC (“Nationstar”).

Over a year later, Debtor filed motions requesting approval of a

refinance of the Property and modification of the plan to allow early

payment in full of only the secured claim. Nationstar objected; it argued

that Debtor failed to provide evidence that the chapter 13 plan modified its

lien, and principally it argued that its claim could not be finally modified

before the plan was fully performed and discharge was appropriate. The

bankruptcy court subsequently denied Debtor’s motions without prejudice.

Debtor then filed a new motion to modify the plan to allow him to

3

(...continued)

confirm the figures in the Plan, but BAC, Debtor, and the chapter 13 trustee’s counsel

agreed to them. 

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pay the entire plan off early. This time, Nationstar did not oppose, and the

bankruptcy court eventually granted the motion by an order stating: 

Debtor may shorten his plan from 60 months to a final lump

sum payment which pays off his entire plan, namely . . . [t]he

remaining balance owed on the senior secured claim of

[Nationstar] in the total amount of principal and accrued

interest through May 30, 2014 of $121,632.21 . . . [and] One

Percent (1%) to allowed . . . . general unsecured claims in the

amount of $153.33 . . . .

It also provided: “Upon payment of such Claims, [] Nationstar’s secured

claim will be deemed satisfied in accordance with the modified plan . . . .”

The bankruptcy court subsequently entered an amended order. It

noted that the remaining balance of the Nationstar claim was $123,649.62.

And it repeated: “Upon payment of such Claims, [] Nationstar’s secured

claim will be deemed satisfied in accordance with the modified plan . . . .”

We refer to these orders, collectively, as the “Payoff Orders.”

Debtor thereafter made the required payment, and the bankruptcy

court entered a discharge order.

Post-discharge events. Nine months later, Debtor reopened the

bankruptcy case to address alleged discharge violations; he asserted that

Nationstar sent him a statement claiming significant arrearages and other

amounts due and also filed a notice of default to commence foreclosure. In

a subsequent status report, Debtor advised that, after reopening, Nationstar

agreed that foreclosure was not appropriate and that Debtor anticipated

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reconveyance of Nationstar’s trust deed. 

But the reconveyance was not received, so several months later

Debtor filed his motion for an order to show cause why Nationstar should

not be sanctioned for violating the discharge injunction. He alleged that

Nationstar’s secured claim was paid in full through his chapter 13 plan. He

argued that Nationstar: received notice of the discharge; knew the

discharge injunction applied; and then violated the discharge injunction

through its collection activity and by failing to respond to his requests for

cessation of foreclosure activity and immediate reconveyance of its trust

deed. He sought punitive and emotional distress damages.

Debtor later filed a declaration in support of the contempt motion.

That same day, Nationstar reconveyed its deed of trust.

Nationstar responded to the contempt motion. It did not contest

Debtor’s assertion that its claim was extinguished by payment in full under

the plan. Instead, it argued that it did not knowingly violate the discharge

injunction and that it both rescinded its notice of default and reconveyed its

deed of trust promptly once it learned that the discharge injunction was

applicable.

After numerous hearings, a failed mediation attempt, and additional

filings by Debtor, the bankruptcy court took the matter under submission.

The bankruptcy court’s decision. The bankruptcy court entered a

memorandum decision denying the motion. In the decision, it concluded

8
that Debtor failed to meet his burden to show, by clear and convincing

evidence, that Nationstar knew that the discharge injunction applied to its

acts and, nevertheless, proceeded in willful violation of the discharge

injunction. In reaching this decision, the bankruptcy court decided two

things: first, the plan and Payoff Orders did not alter the lien; second,

Nationstar would not have expected the plan to do so. In reaching this

decision, the bankruptcy court did not discuss the oral agreements at the

confirmation hearing; and, prior to this decision, Nationstar did not

dispute that the plan paid its secured claim in full and had already

reconveyed its trust deed, so Debtor had no reason to provide a transcript

or other evidence of the agreements made on the record. There is no

indication that this specific issue was the subject of dispute when the

bankruptcy court took the matter under submission.

The bankruptcy court entered a separate order. Debtor timely

appealed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334,

157(b)(2). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Did the bankruptcy court abuse its discretion when it denied

Debtor’s motion for sanctions?

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STANDARD OF REVIEW

We review for an abuse of discretion the bankruptcy court’s decision

on a motion for contempt. Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178,

1191 (9th Cir. 2003). A bankruptcy court abuses its discretion if it applies

the wrong legal standard, misapplies the correct legal standard, or makes

factual findings that are illogical, implausible, or without support in

inferences that may be drawn from the facts in the record. See

TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing

United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).

DISCUSSION

The only issue before the bankruptcy court when it took the matter

under submission was whether Nationstar was subject to civil contempt

sanctions based on action and inaction before its reconveyance of its trust

deed. “Under traditional principles of equity practice, courts have long

imposed civil contempt sanctions to ‘coerce the defendant into compliance’

with an injunction or ‘compensate the complainant for losses’ stemming

from the defendant’s noncompliance with an injunction.” Taggart v.

Lorenzen, 139 S. Ct. 1795, 1801 (2019); cf. In re Dual-Deck Video Cassette

Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993) (“Civil contempt in

this context consists of a party’s disobedience to a specific and definite

court order by failure to take all reasonable steps within the party’s power

to comply.”). Bankruptcy courts may hold parties in contempt, including

10
for violating the discharge injunction. Taggart, 139 S. Ct. at 1801. 

The relevant legal standard has changed: the Supreme Court’s

Taggart decision. When the bankruptcy court issued its decision and order,

it cited and relied on the Ninth Circuit’s then-binding decision, Lorenzen v.

Taggart (In re Taggart), 888 F.3d 438 (9th Cir. 2018). But thereafter, the

Supreme Court concluded that the Ninth Circuit applied the wrong legal

standard and thus vacated and remanded. Taggart, 139 S. Ct. at 1804.

In its Taggart decision, the Ninth Circuit held that if a creditor had a

“good faith belief” that the discharge injunction did not apply, then a

contempt finding would be inappropriate. 888 F.3d at 444–45. This was

true, the Ninth Circuit held, even “if the creditor’s belief is unreasonable.”

Id. at 444. Applying the law to the facts of the case before it, the Ninth

Circuit ruled: “Although the Creditors . . . were ultimately incorrect, their

good faith belief, even if unreasonable, insulated them from a finding of

contempt.” Id.

So, the Ninth Circuit’s Taggart standard was forgiving to creditors: it

allowed a creditor to proceed with otherwise objectively unreasonable acts

so long as it held a subjective good faith belief that it was in the right.

Taggart, 139 S. Ct. at 1803 (“[The Ninth Circuit’s standard] may too often

lead creditors who stand on shaky legal ground to collect discharged debts

. . . .”). Finding such a creditor in contempt, then, required investigating

and litigating “difficult-to-prove states of mind.” Id. And what the

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bankruptcy court found here, in effect, was that the plan, related orders,

and the lack of the conventional lien reduction motion created such

confusion and uncertainty that Nationstar had an adequate defense under

the Ninth Circuit Taggart standard. 

The Supreme Court, however, changed the metrics of decision after

the bankruptcy court ruled. It determined that a bankruptcy court may

“impose civil contempt sanctions when there is no objectively reasonable

basis for concluding that the creditor’s conduct might be lawful under the

discharge order.” Id. at 1801. This standard is “generally” an objective

one. Id. at 1802. The Supreme Court rejected the Ninth Circuit’s “good faith

belief” standard: “We have explained before that a party’s subjective belief

that she was complying with an order ordinarily will not insulate her from

civil contempt if that belief was objectively unreasonable.” Id. That said,

subjective intent is not always irrelevant: “Our cases suggest, for example,

that civil contempt sanctions may be warranted when a party acts in bad

faith.” Id. On the other hand, a party’s good faith, even if it does not

prevent a finding of civil contempt, might help determine the appropriate

sanction. Id.

Given the change in controlling law, we must vacate the decision and

remand for a decision under the standard now required by the Supreme

Court.

The bankruptcy court erred to the extent it concluded that the plan

12
and bankruptcy proceedings did not affect Nationstar’s lien. The

bankruptcy court also determined that performance under the plan did not

require reconveyance of the Nationstar lien; we reverse on this point. We

agree that the plan did not expressly so state. But the legal effect of the

payment in full of the BAC secured claim as established by the plan had

this effect. In chapter 13 proceedings, non-residential real property secured

claims are subject to negotiated or compelled modification, and payment in

full of such a modified secured claim eliminates the lien. Debtor’s plan,

agreed to by Nationstar’s predecessor-in-interest, bifurcated its claim and

paid the secured portion in full.

The Code generically describes a discharge as barring efforts to

collect debts personally from the debtor. See 11 U.S.C. § 524(a)(2). But a

creditor’s right to foreclose or otherwise realize on its collateral, which is an

in rem action against specific property, will often pass through the

bankruptcy. Johnson v. Home State Bank, 501 U.S. 78, 83 (1991). The debtor’s

personal liability on the claim is discharged, but the underlying obligation

remains secured by the property. Id. at 85. So secured creditors may often

foreclose on liens post-discharge. In some circumstances, however, the

bankruptcy proceedings may alter the underlying claim.

Here, Debtor received a chapter 13 discharge under § 1328(a), which

provides that, absent certain exceptions, as soon as practicable after a

chapter 13 debtor finishes making plan payments, the bankruptcy court

13
“shall grant the debtor a discharge of all debts provided for by the plan or

disallowed under section 502 of this title . . . .” 11 U.S.C. § 1328(a). The

scope of the discharge, then, depends on the plan.

A plan is, at heart, a contract between a debtor and her creditors, and

it “must be interpreted according to the rules governing the interpretation

of contracts.” Miller v. United States, 363 F.3d 999, 1004 (9th Cir. 2004).

Whether a contract is ambiguous is a question of law. Id. at 1003–04.

So, the relevant questions are: did the plan provide for BAC’s claim

and how was it treated? The transcript of the final confirmation hearing

makes clear that BAC negotiated consensual plan terms with Debtor. The

confirmation order also evidences that the parties stipulated to the plan’s

terms. And the Payoff Orders state that the secured claim would be

satisfied by payment under the plan. The record, thus, provides

undisputed evidence that the plan provided for payment in full of the

secured portion of the BAC claim. Debtor then performed on that plan, as

later modified, and obtained a chapter 13 discharge of the secured claim. 

Payment in full of a secured claim has import under the controlling

California law. In California, a lien does not exist independently of the

underlying debt; satisfaction of the underlying debt satisfies the lien. All.

Mortg. Co. v. Rothwell, 10 Cal. 4th 1226, 1235 (1995); Cal. Civ. Code § 2909.

Put simply, as a matter of California law, once an obligation no longer

exists to be secured by the lien, the lien is void. See, e.g., Martin v.

14
CitiFinancial Servs. (In re Martin), 491 B.R. 122, 127 (Bankr. E.D. Cal. 2013).

Bankruptcy law also supports this conclusion. Section 506(d)

provides, subject to two exceptions not applicable here: “To the extent that

a lien secures a claim against the debtor that is not an allowed secured

claim, such lien is void . . . .” 11 U.S.C. § 506(d). Put differently, § 506(d)

voids liens when a creditor’s claim is not allowed in the bankruptcy. HSBC

Bank USA, N.A. v. Blendheim (In re Blendheim), 803 F.3d 477, 489 (9th Cir.

2015). Here, BAC filed a secured claim, and the stipulated plan

confirmation order provided that the amount of the secured claim was

$169,340. That secured claim was paid. To the extent there was any other

debt owing BAC, it was not an allowed secured claim and any lien

allegedly securing it was void.

The correctness of the conclusion that payment in full under the plan

eliminated the Nationstar secured claim and required reconveyance is

underscored by the fact that Nationstar never argued to the contrary and

voluntarily reconveyed the trust deed once Debtor filed its declaration in

support of its discharge violation motion. Again, the record evidences no

dispute on this point before the bankruptcy court took the matter under

submission.

We pause to discuss the bankruptcy court’s conclusion on that point.

The bankruptcy court thought that the lien survived for several reasons.

That is wrong as a matter of law, and, therefore, we cannot agree with

15
those conclusions. 

First, the bankruptcy court did not take into account that the secured

creditor expressly consented to confirmation of the plan and the treatment

of its claim, did not oppose the debtor’s motion to pay off the lien, and

eventually reconveyed the deed of trust. The debtor’s failure to provide the

bankruptcy court with the transcript of the confirmation hearing probably

contributed to this. But even without the transcript, the creditor’s

consistent behavior only makes sense as the creditor’s acknowledgment

that its secured claim had been fully satisfied and its lien rights

extinguished. 

Second, the bankruptcy court misinterpreted a term of the standard

form plan that provides (with the bankruptcy court’s emphasis) that

property that revests in the debtor at the end of the plan term will be

“subject to all liens and encumbrances in existence when the case was filed,

except those liens avoided by court order or extinguished by operation of

law.” The bankruptcy court thought that the underlined language requires

a separate lien avoidance order. But the bankruptcy court did not

emphasize the last phrase: “or extinguished by operation of law.” As we

have pointed out, full payment of an allowed secured claim voids (i.e.,

extinguishes) the lien securing that claim by operation of state law and the

Bankruptcy Code. The plan thus does not support the bankruptcy court’s

conclusion.

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Third, the bankruptcy court stated that local practice requires a twostep process for lien avoidance. But the creditor never complained (in

response to the Debtor’s contempt motion) that its procedural rights were

abridged. Further, the bankruptcy court acknowledged that the local forms

it cited are mandatory only when a debtor seeks to avoid a wholly

unsecured junior lien on the debtor’s residence.4 In this case, the debtor

sought to modify a senior lien on nonresidential property on terms that the

lienholder expressly accepted. The bankruptcy court did not explain why a

debtor should have to file a separate motion to avoid a lien where the

creditor had expressly agreed to the allowed amount of its secured claim,

the debtor paid that claim in full, and state law and the Bankruptcy Code

extinguish liens that do not secure allowed secured claims.5

Fourth, the bankruptcy court emphasized that the plan confirmation

order provides for allowance and payment of the secured claim “[f]or

purpose of plan confirmation.” The bankruptcy court interpreted this

prefatory clause to require a separate lien avoidance motion and order. The

language of the confirmation order is inartful, but there is a more natural

4

 Indeed, the cited form is now optional. See Central District Local Form F 4003-

2.4.JR.LIEN.ORDER.

5

 Local bankruptcy rules cannot enlarge, abridge, or modify substantive rights;

they must be consistent with the Code and federal rules; and they must be applied in a

manner consistent with the federal rules. Anwar v. Johnson, 720 F.3d 1183, 1189 (9th Cir.

2013).

17
reading: the plan was confirmed on the basis that the secured creditor’s

claim was allowed in an agreed amount and would be paid in full. The “for

purposes of” phrase cannot reasonably be interpreted to impose a

procedural requirement that would serve no useful purpose in the context

of a consensual plan like this one.

CONCLUSION

Based on the foregoing, we REVERSE in part and VACATE and

REMAND for further determinations consistent with this decision.

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