REVISED November 19, 2007

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 06-30986

In The Matter Of: AHERN ENTERPRISES INC

Debtor

--------------------------------------

ELIXIR INDUSTRIES INC

Appellant

v.

CITY BANK & TRUST CO

Appellee

Appeal from the United States District Court 

for the Western District of Louisiana

Before GARWOOD, JOLLY, and STEWART, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

In this bankruptcy case, Elixir Industries, Inc. (“Elixir”) appeals the

district court’s judgment in favor of mortgage-holder City Bank & Trust Co.

(“City Bank”), which held that Elixir’s judgment lien was voided during the

bankruptcy proceeding. We hold that upon confirmation of the reorganization

plan, the lien was voided under 11 U.S.C. § 1141(c), and thus AFFIRM the

judgment of the district court.

United States Court of Appeals

Fifth Circuit

F I L E D

November 6, 2007

Charles R. Fulbruge III

Clerk
No. 06-30986

2

I.

In May 1996 Elixir properly filed and recorded a judgment lien in the

mortgage records of NatchitochesParish,Louisiana, in the amount of $40,961.53

(plus costs and interest) on property owned by the bankrupt, Ahern Enterprises,

Inc. (“Ahern”). The property subject to the lien included Ahern’s manufacturing

facility in Campti, Louisiana. The manufacturing facility property was subject

to a prior recorded mortgage held by City Bank that exceeded the value of the

property. 

On July 31, 1996, Ahern filed for Chapter 11 protection. On November 21,

1996, Elixir filed a proof of claim in the amount of $53,406.02 as an unsecured

priority claim. Ahern, as debtor in possession, objected to the proof of claim and

argued that Elixir only had a general unsecured debt because there was no

unencumbered property to which the lien could attach. A hearing was held on

April 7, 1998, after which the bankruptcy court entered an order sustaining

Ahern’s objection because Elixir’s lien was junior to that of City Bank. The

bankruptcy court reduced Elixir’s claim to a general unsecured claim in the

amount of $40,961.53, the principal amount of Elixir’s judgment. 

On September 26, 1997, City Bank filed a motion for Authority to Execute

Dation En Paiement and to Cancel Indebtedness, which sought to cancel all

judgment liens on two parcels of Ahern property that were pledged to the bank

as collateral. The motion, however, did not include the manufacturing facility

property. The bankruptcy court granted the motion on October 22 and issued

an order requiring the Natchitoches Parish clerk to cancel all judgments

affecting these two parcels. No order was issued concerning the manufacturing

facility property. 

Ahern’s Chapter 11 plan was confirmed by the bankruptcy court on May

30, 1997.
No. 06-30986

3

On November 10, 1997, Ahern voluntarily converted its Chapter 11 plan

into a request for relief under Chapter 7. In February 1998, City Bank and the

Chapter 7 trustee filed a joint motion requesting court approval to sell the

manufacturing facility property to the bank, as senior lien holder, in satisfaction

of a portion of Ahern’s debts. The bankruptcy court approved the sale on March

12 and credited $693,000 against City Bank’s claim, leaving it with an unsecured

claim of $471,366.58. The Trustee transferred the deed for the property to City

Bank on March 22. 

City Bank sold the manufacturing facility property to a third party on

March 30. No title check was performed to discover that Elixir’s judgment lien,

as well as three additional liens, remained on the property. The third party later

defaulted, and City Bank foreclosed on the property. 

In 2005, as it contemplated selling the property again, City Bank

determined that Elixir’s lien (as well as the three others) had not been cancelled.

On April 29, City Bank filed a complaint for declaratory relief in bankruptcy

court, seeking a ruling thatthe liens had been voided during Ahern’s bankruptcy

case. Elixir counter-claimed, requesting a declaration that the lien was still

valid. After cross-motions for summary judgment, the bankruptcy court found

in favor of City Bank. The court concluded that its April 1998 order sustaining

Ahern’s objection to Elixir’s proof of claim had extinguished the lien. 

Elixir appealed to the district court, which affirmed, asserting multiple

reasons. The court held that: 1) the bankruptcy court’s April 1998 order

sustaining Ahern’s objection voided Elixir’s lien; 2) the bankruptcy court’s

confirmation and the substantial consummation of Ahern’s Chapter 11 plan was

sufficient to void Elixir’s lien; and 3) conversion to Chapter 7 did not reinstate

Elixir’s lien. 

Elixir subsequently filed this appeal. 

II.
No. 06-30986

1 Section 506(d) provides: 

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 under section 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.

4

On appeal, Elixir argues that the bankruptcy court’s order sustaining

Ahern’s objection to its proof of claim did not void its lien on the manufacturing

facility property. Although the bankruptcy court reduced Elixir’s claim to a

general, non-priority claim, Elixir contends thatthe court merely reclassified its

claim for the purposes of distribution in the bankruptcy proceedings, which did

not affect its judgment lien. City Bank counters that, because the court found

Elixir’s claim to be an allowed unsecured claim, it was not an “allowed secured

claim” under 11 U.S.C. § 506(d),1 and the lien was therefore voided.

Elixir also contests the district court’s holding that its lien was voided by

the confirmation of the Chapter 11 plan. Elixir contends that, because the plan

had not reached the “consummation date” necessary for its provisions to take

effect, the plan’s lien-stripping language did not take effect, leaving its lien on

the manufacturing property. City Bank argues that 11 U.S.C. § 1141(c) operated

to void Elixir’s lien. City Bank contends that the plan took effect on “substantial

consummation” as defined by 11 U.S.C. § 1101. 

III.

A.

In reviewing cases originating in bankruptcy, we perform the same

function as the district court: the bankruptcy court’s findings of fact are

reviewed for clear error, and issues of law are reviewed de novo. In re Soileau,

488 F.3d 302, 305 (5th Cir. 2007).
No. 06-30986

2 Although we do not reach the district court’s holding affirming the bankruptcy court’s

judgment on the basis of the bankruptcy court’s April 1998 order, we note that the holding is

suspect in the light of the Supreme Court’s decision in Dewsnup v. Timm, 502 U.S. 410 (1992).

In Dewsnup, the Court found that section 506(d) only serves to strip liens in cases where “a

claim secured by the lien itself has not been allowed.” Id. at 415-16. Because Elixir’s claim was

allowed, it is not clear that section 506(d) voided Elixir’s lien. 

5

We do not address the district court’s holding that Elixir’s lien was voided

by the bankruptcy court’s April 1998 order reducing Elixir’s claim and

classifying it as a general unsecured creditor.2 We conclude instead that the

provisions of 11 U.S.C. § 1141(c) decide this case. In reaching this decision, we

hold firstthat, under section 1141(c),the confirmation of a Chapter 11 plan voids

liens on property dealt with by the plan unless they are specifically preserved,

if the lien holder participates in the reorganization. Elixir’s judgment lien was

voided because Ahern’s Chapter 11 plan was confirmed without Elixir’s

objection; because the property subjectto Elixir’s lien was dealt with by the plan;

because Elixir participated in the reorganization proceedings; and finally

because the plan did not preserve Elixir’s lien.

B.

Title 11 U.S.C. § 1141(c) provides, with immaterial exceptions, that “except

as otherwise provided in the plan or in the order confirming the plan, after

confirmation of a plan, the property dealt with by the plan is free and clear of all

claims and interests of creditors, equity security holders, and of general partners

in the debtor.”

Other circuits who have considered § 1141(c) in the context of facts similar

to those presented here have found that the section operates to extinguish liens

that are not preserved in a confirmed Chapter 11 plan. The first court to state

this default rule was the Seventh Circuit. In re Penrod, 50 F.3d 459 (7th Cir.

1995). In Penrod, the debtor’s Chapter 11 plan made provision for payment of

a creditor’s claim, which was secured by a lien on the debtor’s hogs. Id. at 461.
No. 06-30986

6

Neither the plan nor the order confirming it provided whether the lien would be

extinguished. Id. The Seventh Circuit acknowledged the “old saw” that liens

pass through bankruptcy unaffected. Id. It reasoned, however, that “when

lienholders participate in a bankruptcy proceeding, and especially in a

reorganization, they know that their liens are likely to be affected, and indeed

altered.” Id. at 462. The court held that liens are “interests” covered by section

1141(c) and that “unless the plan of reorganization, or the order confirming the

plan says that a lien is preserved, it is extinguished by the confirmation . . .

provided, we emphasize, that the holder of the lien participated in the

reorganization.” Id. at 463. The court found that its interpretation of section

1141(c) would lower the transaction costs of dealing with a reorganized debtor

by allowing prospective creditors or investors to determine from the plan of

reorganization itself whether liens of creditors whose interests are defined in the

plan survive. Id. 

The Eighth Circuit acknowledged Penrod’s rationale when it considered

the Federal Deposit Insurance Corporation’s appeal of an order confirming a

Chapter 11 plan. FDIC v. Union Entities (In re Be-Mac Transport Co., Inc.), 83

F.3d 1020 (8th Cir. 1996). The court noted the rule that “a secured creditor who

participates in the reorganization may also lose its lien by confirmation of a

reorganization plan which does not expressly preserve the lien.” Id. at 1025. The

Be-Mac court found, however, that the FDIC’s lien was not voided by the

confirmed Chapter 11 plan because the bankruptcy court erroneously disallowed

its claim, on account of the FDIC’s untimely filed proof of claim. Id. at 1027.

Had its claim been classified properly as a secured claim, the FDIC would have

been entitled to vote and receive distributions as a secured creditor. The court

held, citing Penrod, that because the FDIC was denied that right, it did not

participate in the reorganization sufficiently to allow its lien to be extinguished.

Id. The court stated that “[the FDIC]’s lien was never brought into the
No. 06-30986

7

bankruptcy proceedings and could therefore not be extinguished by confirmation

of the plan.” Id.

Citing Be-Mac, the Tenth Circuit acknowledged in In re Barton that a

confirmed Chapter 11 plan may void a lien. 104 F.3d 1241, 1245 (10th Cir. 1997).

The court there found that the plan at issue did not void a secured creditor’s lien

because the plan did not specifically refer to the property on which the creditor

held a lien, the creditor’s interest in the property, or the plan’s effect on the

property. Id. at 1246. The creditor did not receive sufficient notice for the

Chapter 11 plan to affect its security interest. Id. 

Finally, the Fourth Circuit determined in In re Regional Bldg. Systems,

Inc. that section 1141(c) operates to extinguish liens not expressly preserved by

a Chapter 11 plan. 254 F.3d 528, 531 (4th Cir. 2001). In Regional, a creditor

held a claim secured by a security interest in certain home construction

materials. Id. at 530. The claim was allowed only as an unsecured claim,

however, because the property had a value of zero at the time of filing. Id. The

creditor participated in the reorganization as a member of the unsecured

creditors committee and filed a proof of claim asserting an unsecured,

nonpriority claim. Id. Prior to plan confirmation, the debtor settled an

unrelated lawsuit, resulting in the payment of about $5 million. Id. The plan

that was confirmed shortly thereafter did not provide for retention of the

creditor’s lien, even though the settlement funds were then available to satisfy

the claim. Id. Nevertheless,the Fourth Circuit affirmed the bankruptcy court’s

holding that the confirmed Chapter 11 plan had extinguished the lien. Id. at

533. The court found that all the elements necessary to satisfy section 1141(c)

were satisfied. Id. at 530. The Chapter 11 plan was confirmed without any

objection by the creditor. Id. The property to which the lien would attach, that

is,the settlementfunds, was dealt with by the plan. Id. Finally, neither the plan

nor the order confirming the plan expressly preserved the creditor’s lien. Id.
No. 06-30986

3 The Southern District of Texas applied the Penrod rule in In re Burton Securities, 202

B.R. 411, 420 (S.D. Tex. 1996). That court held that “confirmation of a chapter 11 plan of

reorganization extinguishes a creditor’s lien where the plan provides for payment of the

creditor’s claim, but makes no provision for preservation of the lien, and the creditor

participated in the bankruptcy proceedings. Consequently, since Appellant participated in the

bankruptcy proceedings and the reorganization plan did not expressly preserve its lien, the

Court concludes that the bankruptcy court’s confirmation of Debtor’s plan of reorganization

extinguished [Appellant]’s lien.” Id. (citation omitted). This court affirmed the district court’s

judgmentin a short unpublished opinion. In re Burton Securities, 129 F.3d 607 (5th Cir. 1997).

8

The court found that the creditor “fell asleep at the switch,” by failing to object

to confirmation of a Chapter 11 plan that did not preserve its lien, and the lien

was therefore extinguished. Id. at 533. 

Given the sound reasoning and results of these cases, as set forth above,

we have no reason not to now join the other circuits that have considered the

issue and hold that 11 U.S.C. § 1141(c) provides the default rule that a

confirmed Chapter 11 plan may void liens not specifically preserved.3 We hold

that confirmation of a Chapter 11 plan voids liens not preserved by the plan,

provided that the plan dealt with the property to which they attach and the lien

holder participates in the reorganization. 

C.

Four conditions must therefore be metfor a lien to be voided under section

1141(c): (1) the plan must be confirmed; (2) the property that is subject to the

lien must be dealt with by the plan; (3) the lien holder must participate in the

reorganization; and (4) the plan must not preserve the lien. We now apply these

criteria to the lien claimed by Elixir. 

First, Ahern’s Chapter 11 plan was confirmed by order of the bankruptcy

court on May 30, 1997. Elixir made no objection to confirmation of the plan.

Second, the property subject to Elixir’s lien was dealt with by the plan.

The plan states that “City Bank and Trust Company is the senior secured

creditor of the Debtor and holds a mortgage and security interestin the Debtor’s

land, building, inventory and fixtures. . . . City Bank and Trust Company shall
No. 06-30986

9

retain its liens and encumbrances until paid in full[.]” Elixir’s judgment lien was

attached to the debtor’s manufacturing facility property -- its land and building.

The plan mentioned the property subjectto Elixir’s lien and specifically provided

that City Bank’s encumbrances would remain on the property following

confirmation. 

We do note, however, that there is some ambiguity in the cases discussed

above concerning exactly what must be “dealt with” by a Chapter 11 plan under

section 1141(c). The Penrod court suggests that the lien that is to be voided

must be dealt with. It states: “[U]nless the plan of reorganization, or the order

confirming the plan, says that a lien is preserved, it is extinguished by the

confirmation. This is provided, we emphasize, that the holder of the lien

participated in the reorganization. If he did not, his lien, would not be ‘property

dealt with by the plan,’ and so the section would not apply.” Penrod, 50 F.3d at

463 (emphasis added). Penrod has been interpreted to require thatthe lien itself

be dealt with in the plan. See 260 Gregory LLC v. Black Hawk/Central City

Sanitation Dist., 77 P.3d 841, 845 (Colo. App. 2003) (holding that the lien at

issue was not extinguished by silence in the plan as to its survival unless it is

dealt with by the plan by a provision for the payment of or securing of the claim);

Coffin v. Malvern Fed. Savings Bank, 189 B.R. 323, 236-27 (E.D. Penn. 1995)

(holding that, because secured creditor did not attempt to collect its entire debt

through the bankruptcy proceeding, “[t]he liens in question were not ‘property

dealt with by the plan for § 1141(c) purposes”). 

On the other hand, section 1141(c) has been interpreted to require thatthe

property that is subject to the lien be dealt with in the plan. In Regional, the

court stated that “the property to which [appellant] now seeks to attach its lien

was ‘dealt with by the plan.’ Specifically, the plan stated that after certain other

claims had been paid, [appellant] and the other unsecured creditors would

receive a pro rata share of the remainder of the estate, including any amounts
No. 06-30986

4 The court in Be-Mac found that confirmation of the plan did not void the FDIC’s lien

because the FDIC was not allowed to participate as a secured creditor. 83 F.3d at 1027. In

that case, however, the FDIC was entitled to participate as a secured creditor because there

was property to which its lien attached, unlike this case. See id.

10

left in the $5 million settlement fund [to which appellant seeks to attach its

lien].” 254 F.3d at 531.

The latter view is the better view, and it is the one that we adopt. We note

first that, according to Penrod, the condition that the lien itself be “property

dealt with by the plan” can be satisfied by the lien holder’s participation in the

reorganization. Penrod, 50 F.3d at 463. More importantly, a requirement that

the lien itself be dealt with by the plan is not a sensible reading of section

1141(c). Section 1141(c) provides that “property dealt with by the plan is free

and clear of all claims and interests. . .” If the lien is the property that must be

dealt with, then section 1141(c) would have to be read to say that “liens dealt

with by the plan are free and clear of liens.” Because liens constitute one of the

interests that section 1141(c) extinguishes, it is sensible to interpret “property

dealt with by the plan” as the property subject to the lien. 

Third, the record indicates that Elixir participated in the reorganization

proceeding. Although the requirement that a secured creditor participate in the

reorganization proceeding is a judicial gloss on section 1141(c), participation

ensures that the secured creditor has notice of the plan and its potential effect

on the creditor’s lien. See Penrod, 50 F.3d at 462; Be-Mac, 83 F.3d at 1027. 

Penrod required that the creditor participate by filing a proof of claim. See 50

F.3d at 462. At least one bankruptcy court has stated that the only participation

necessary is that the creditor receive notice of the plan and an opportunity to

object. In re Regional Building Systems, Inc., 251 B.R. 274, 287 (Bankr. D.Md.

2000). 

In the instant case, it is a sufficient level of participation that Elixir filed

a proof of claim as an unsecured priority creditor.4In addition, the plan of
No. 06-30986

11

reorganization provided for pro-rata payment of all unsecured and undersecured

creditors of the debtor, specifically stating that this class of claims included all

judgment lien holders. Although the plan did not mention Elixir by name, it

gave sufficient notice of the plan’s treatment of the property to which Elixir’s

lien attached and the status of Elixir’s claim to satisfy the requirements of due

process. 

Finally, we come to the consideration of whether the plan of reorganization

provided otherwise than that the property subject to Elixir’s lien would be “free

and clear.” In general, a plan of reorganization “provides otherwise” by

expressly stating that the lien that is asserted remains on the property to which

it is attached. Regional, 254 F.3d at 531 (“[C]onfirmation of [debtor]’s Chapter

11 plan rendered the $5 million settlement fund ‘free and clear of all claims’ not

expressly preserved.”); Penrod, 50 F.3d at 463 (“[U]nless the plan of

reorganization, or the order confirming the plan, says that a lien is preserved,

itis extinguished by the confirmation.”). Ahern’s plan did not expressly preserve

Elixir’s lien. Instead, it stated that City Bank would retain its liens and

encumbrances on Ahern’s land, building, inventory and fixtures, making no

mention of Elixir’s lien. 

Elixir contends, nevertheless, that the Chapter 11 plan “provides

otherwise.” The parties have argued this point at length, both parties starting

from the premise that this question is resolved by an interpretation of article

8.14 of the plan of reorganization. Their argument is not, however, whether

specific terms ofthe plan “provide otherwise,” but whether the plan was in effect

at the time the bankrupt Ahern abandoned the plan and converted its

bankruptcy to Chapter 7. Elixir’s argument assumes that, before the proceeding

was converted to Chapter 7, the lien had not been voided and thus remains in

effect. 

Article 8.14 states, in relevant part: 
No. 06-30986

5 11 U.S.C. § 1101(2) provides:

"substantial consummation" means--

(A) transfer of all or substantially all of the property proposed by

the plan to be transferred;

(B) assumption by the debtor or by the successor to the debtor

under the plan of the business or of the management of all or

substantially all of the property dealt with by the plan; and

(C) commencement of distribution under the plan.

12

The confirmation of the Plan (subject to the occurrence

of the Consummation Date) shall discharge the Debtor

from any debt that arose before the Consummation

date. . . .

Upon consummation of the Plan, its provisions will

bind, and inure to the benefit of, the Reorganized

Debtor, any Entity affected by the Plan and its

respective predecessors, successors, assigns, agents,

officers, and directors. Except as otherwise specifically

provided by the Plan, the distributions and rights that

are provided in the Plan will be in complete

satisfaction, discharge and release of (I) all Claims and

Causes of Action against, liabilities of, liens on,

obligations of and Interestin the Debtor or the direct or

indirect assets and properties of the Debtor whether

known or unknown[.]

The main point of controversy between Elixir and City Bank regarding

article 8.14 is the interpretation of the phrase “Upon consummation.” Elixir

contends that “consummation” refers to the “Consummation Date,” a term

defined by the plan, which both parties concede did not occur before conversion

to Chapter 7. Elixir contends that the occurrence of the Consummation Date

was a suspensive condition, the occurrence of which was necessary for the

remainder of the plan to take effect. City Bank argues instead that

“consummation” in article 8.14 should be interpreted as “substantial

consummation” as defined by 11 U.S.C. § 1101(2), which it contends occurred

sometime between confirmation and conversion to Chapter 7.5
No. 06-30986

13

Upon review of the plan in its entirety, it is difficult to give a consistent

meaning to the term “consummation” as it is used in various places throughout

the plan. That is no matter, however, because we conclude that regardless of

how the term “consummation” is interpreted in article 8.14, Elixir’s lien was

voided upon confirmation of the plan. 

The Eleventh Circuit reached a similar conclusion in considering the

application of 11 U.S.C. §1141(d) in United States v. White, 466 F.3d 1241 (11th

Cir. 2006). Section 1141(d) provides: “(1) Except as otherwise provided in this

subsection, in the plan, or in the order confirming the plan, the confirmation of

a plan- (A) discharges the debtor from any debtthat arose before the date of such

confirmation. . . .” The court found in White that the debtor was granted a

discharge upon confirmation, notwithstanding that the plan provided a postconfirmation effective date. Id. at 1246. The court noted that a postconfirmation effective date does not satisfy the “otherwise provided” condition

of section 1141(d). Id. The court reasoned that a holding that discharge occurs

on some effective date of a plan, instead of upon confirmation of the plan, would

be contrary to Congressional intent: “If the plan could delay the grant of

discharge merely by having a post-confirmation effective date, then Congress’

statement that ‘the confirmation of a plan. . .discharges the debtor from any

debt. . .’ would be in error. . . . [T]he triggering event for discharge would not

actually be the plan’s confirmation but the plan’s taking effect. . . . [W]e should

assume that had Congress intended to condition discharges on a plan’s taking

effect, it would have done so explicitly.” Id. 

The language of section 1141(c) similarly provides that the property dealt

with by the plan will is free and clear after confirmation. Even if Elixir’s

interpretation of the plan is correct, and the plan did not take effect until the
No. 06-30986

6

It is difficult to conclude that Elixir’s interpretation is correct, in any event, because

the plan requires the sale of certain property and the commencement of certain payments

immediately on confirmation. 

7 We note that our analysis has been confined to the effect of a confirmed Chapter 11

plan under 11 U.S.C. § 1141(c). As the Fourth Circuit noted in Regional, there are important

differences in Chapter 11 proceedings and Chapter 13 proceedings that may warrant different

treatment of liens. 254 F.3d 528, 532-33 (“[It was perfectly sensible for Congress to adopt a

rule stating that once property comes within the ambit of a confirmed Chapter 11 plan, it is

free and clear of all claims not expressly preserved. And adopting a different rule for Chapter

13 cases also makes sense given the less complex estates at issue, the fact that a Chapter 13

plan need not address all secured debts, and the fact that Chapter 13 creditors do not vote on

the debtor’s plan.”).

14

Consummation Date, its lien was void after confirmation of the plan, by

operation of § 1141(c), unless the plan specifically provides otherwise.6

In sum, Elixir chose to participate in the reorganization in hopes of

receiving a payout as an unsecured creditor, because there was no equity to

which its lien could attach. Elixir could have objected and asserted its position

that the lien was preserved by appealing the order confirming the plan of

reorganization. See Penrod, 50 F. 3d at 464. Having participated without

objection in a reorganization in which the confirmed plan dealt with the land

and building subject to its lien, Elixir cannot now claim that the lien survived.7

IV.

For the foregoing reasons, the judgment of the district court is 

AFFIRMED.