Opinion ID: 76178
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Heading Rank: 1

Heading: The Bankruptcy Court's Sustainment of Debtor's (Constructive) Objection

Text: 19 Title 11, United States Code § 1322 sets forth the mandatory contents of a Chapter 13 plan. Generally, the holder of a secured claim is entitled to protection under the bankruptcy code to the extent of the collateral's value securing the claim. 11 U.S.C. § 506(a). However, § 1322(b)(2) specially prohibits any modification of a homestead mortgagee's rights in the Chapter 13 plan. Because of the protection afforded to mortgagees by § 1322(b)(2), the protected security interest is not compromised even if the interest is undersecured by the value of the property. Nobelman v. Am. Savs. Bank, 508 U.S. 324, 329, 113 S.Ct. 2106, 2110, 124 L.Ed.2d 228 (1993). Thus, even if the residential mortgage is undersecured, the plan is prohibited from reducing the mortgagee's secured claim. 5 At first blush it seems somewhat strange that the Bankruptcy Code should provide less protection to an individual's interest in retaining possession of his or her home than of other assets. The anomaly is, however, explained by the legislative history indicating that favorable treatment of residential mortgagees was intended to encourage the flow of capital into the home lending market. Id. at 332, 113 S.Ct. at 2111-12 (Stevens, J., concurring). This is not to say, of course, that the contractual rights of a home mortgage lender are unaffected by the mortgagor's Chapter 13 bankruptcy. The lender's power to enforce its rights — and, in particular, its right to foreclose on the property in the event of default — is checked by the Bankruptcy Code's automatic stay provision. Id. at 330, 113 S.Ct. at 2110 (citing 11 U.S.C. § 362); see also 11 U.S.C. § 1301. 20 Inclusion of creditors for disbursements under a Chapter 13 plan is not an automatic process. If the debtor wants to be discharged of certain liabilities, then the debtor must list the claim amounts and their proposed treatment under the plan. Correspondingly, if a creditor wants to ensure it will be provided for in the confirmed plan, it will file a proof of claim. 11 U.S.C. § 502. 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 ... [but one] should be filed only when some purpose would be served. Simmons v. Savell, 765 F.2d 547, 551 (5th Cir.1985) (citations omitted). An unsecured creditor is required to file a proof claim for its claim to be allowed, but filing is not mandatory for a secured creditor. See Fed.R.Bankr.P. 3002(a). In fact, a secured creditor need not do anything during the course of the bankruptcy proceeding because it will always be able to look to the underlying collateral to satisfy its lien. In re Folendore, 862 F.2d 1537, 1539 (11th Cir.1989) (Because an unchallenged lien survives the discharge of the debtor in bankruptcy, a lienholder need not file a proof of claim under section 501.); see also Long v. Bullard, 117 U.S. 617, 620-21, 6 S.Ct. 917, 918, 29 L.Ed. 1004 (1886) (holding that a secured creditor can ignore a bankruptcy proceeding because it can always look to the lien to satisfy its claim). 21 If the secured creditor wants to receive payments under the confirmed plan, it must file the proof of claim in a timely manner. See In re Baldridge, 232 B.R. 394, 395-96 (Bankr.N.D.Ind.1999). The debtor also has an interest in ensuring that a proof of claim is filed, if the secured creditor neglects to do so, because the debtor is the party seeking the protection of the bankruptcy court and the ultimate benefit of the discharge of his or her liabilities. Under § 502(a), [a] claim or interest, proof of which is filed under section 501 of [Title 11], is deemed allowed, unless a party in interest ... objects. A proof of claim filed pursuant to Federal Rule of Bankruptcy Procedure 3001 shall constitute prima facie evidence of the validity and amount of the claim. Fed.R.Bankr.P. 3001(f). 22 The prima facie evidence of a proof claim can be rebutted if the debtor files an objection pursuant to Federal Rule of Bankruptcy Procedure 3007. If an objection is made as to the amount or validity of the claim, the bankruptcy court will conduct a hearing to determine such, and, if appropriate, will disallow the claim. 11 U.S.C. § 502(b). Although § 502(a) does not provide for a time limit to file an objection, it must be filed prior to plan confirmation. In re Justice Oaks II, Ltd., 898 F.2d 1544, 1553 (11th Cir.1990); In re Starling, 251 B.R. 908, 909-10 (Bankr. S.D.Fla.2000). 23 Universal timely filed a proof of claim before the Plan's confirmation. Accordingly, unless Bateman, or any other party in interest, objected to the proof of claim, it is deemed allowed and is prima facie evidence of the validity and amount of the mortgage arrearage. § 502(a); Fed. R. Bankr.P. 3001(f). It is undisputed that Bateman did not file an objection to Universal's proof of claim prior to confirmation of the Plan. Instead, it was not until the trustee notified Bateman of the discrepancy between the Plan and Universal's proof of claim over one year after the Plan's confirmation that she filed an objection to Universal's proof of claim. 6 24 The bankruptcy court decided ex post facto, however, that [a]s a matter of substance the Chapter 13 plan provided an objection to the claim which placed a duty on the mortgagee to pursue the matter if the $21,600.00 was not acceptable. R1-2-B20 at 2. We disagree. See In re White, 908 F.2d 691, 694-95 (11th Cir.1990) (per curiam) (refusing to permit a bankruptcy court to determine the validity of a lien in connection with fixing valuation for purposes of confirmation when it did not follow procedure pursuant to Rule 3007). 25 Universal properly filed its proof of claim. In fact, because Universal has a secured claim, that act was not even necessary or required. Indeed, Universal decided that it would pursue treatment under the plan for its secured claim for arrearage, therefore, it filed the proof of claim. Universal was not the only party with an interest in ensuring that a proof of claim was filed and provided for in the Plan. Bateman had every incentive to provide for the secured mortgage claim in her Chapter 13 plan; otherwise, the claim would have survived beyond the confirmed plan and the debtor would no longer have enjoyed the protection afforded by the automatic stay and periodic payments, and could possibly face foreclosure on her property. If Bateman disagreed with the amount of the claim, Rule 3007 provided the procedures by which she could resolve the dispute. 26 Bateman failed to file a timely objection and the amount in Universal's proof of claim was deemed allowed under § 502. Instead, she listed a lower amount as disputed on her proposed plan, without more, and the Plan passed through the confirmation process uncorrected. Given the deemed allowed language of § 502, the explicit procedures set forth in Rule 3007 to effect a proper disallowance, the existence of a secured home mortgage claim, and the failure by the debtor here, not the creditor, to follow the proper procedures, we refuse to permit an inconsistent plan provision to constitute a constructive objection by reason of the Plan's notation of dispute alone, especially where a bankruptcy court does not consider an objection until over a year after the Plan's confirmation. See In re Starling, 251 B.R. at 910 (To allow the Debtor to object, months after the plan has been confirmed, would contradict the `finality' objective of the confirmation process and would overlook the express language of section 1327(a) of the Bankruptcy Code.). That the Plan states an amount in conflict with the proof of claim demands a resolution of the inconsistency, but a debtor's post-confirmation objection is not the appropriate vehicle by which to do so. Because the bankruptcy court granted this objection and held that Universal was bound to the amount provided in the Plan and, in addition, that Universal would not be permitted to recoup the balance of the mortgage arrearage, the district court's affirmance of its ruling in this regard is REVERSED. 27