Court Opinion

ID: 2967071
Source: CourtListenerOpinion
Date Created: 2015-09-22 01:51:39.299164+00
Date Added: 2024-06-11T12:11:56.501848
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: MURRAY L. DEUTCHMAN,
Debtor.

MURRAY L. DEUTCHMAN,
                                                                     No. 98-2029
Debtor-Appellant,

v.

INTERNAL REVENUE,
Defendant-Appellee.

Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Deborah K. Chasanow, District Judge.
(CA-98-841-DKC, BK-94-10500-BK, AP-96-1335-DK)

Argued: March 2, 1999

Decided: September 21, 1999

Before LUTTIG, MOTZ, and TRAXLER, Circuit Judges.

_________________________________________________________________

Affirmed by published opinion. Judge Traxler wrote the opinion, in
which Judge Luttig and Judge Motz joined.

_________________________________________________________________

COUNSEL

ARGUED: Andrew Martin Croll, SCARLETT & CROLL, P.A., Bal-
timore, Maryland, for Appellant. Thomas James Sawyer, Tax Divi-
sion, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellee. ON BRIEF: Robert B. Scarlett, SCARLETT &
CROLL, P.A., Baltimore, Maryland, for Appellant. Loretta C.
Argrett, Assistant Attorney General, Gary D. Gray, Lynne A. Bat-
taglia, United States Attorney, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C., for Appellee.

_________________________________________________________________

OPINION

TRAXLER, Circuit Judge:

This case involves the effect of a confirmed Chapter 13 plan on
liens securing a creditor's claim. Specifically, a debtor appeals from
an order of the district court affirming the bankruptcy court's determi-
nation that the completion of the payments due under his Chapter 13
plan would not extinguish liens on his property held by the Internal
Revenue Service ("IRS"). We affirm.

I.

Murray L. Deutchman ("Deutchman") filed a voluntary petition for
Chapter 13 bankruptcy on February 2, 1994. At the time, Deutchman
owed over $190,000 in tax liabilities to the IRS, most of which were
secured by liens on his property.

On April 28, 1994, Deutchman filed an amended Chapter 13 plan
("the plan"), which listed the IRS's liens but contained conflicting
directions as to how the IRS's claim would be treated. Specifically,
the plan did not list the IRS as a secured creditor, which the plan
defined as "[t]he owners of secured indebtedness holding debts,
demands or claims, of whatever character, for which the owners have
a security interest." Rather, it listed the majority of the IRS's secured
claim as a Class II "Priority Claim," which, under the plan's defini-
tion, consisted of unsecured claims entitled to priority to the extent
allowed by 11 U.S.C.A. § 507(a)(8) (West Supp. 1999).1 The plan
also provided that the liens of such Class II creditors "shall be consid-
_________________________________________________________________
1 The plan itself referred to 11 U.S.C.A. § 507(a)(7) (West 1993),
which was subsequently recodified at § 507(a)(8).

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ered released and of no effect" upon the payment of all "Allowed
Claims" due them. The remainder of the IRS's secured claim was
listed as a Class III claim, which consisted of unsecured dischargeable
claims.

Additionally, although initially seeming to require payment "in
full" of $172,000 of the IRS's claim, the plan substantially discounted
this amount, asserting that approximately $117,000 of the Class II
debt was not entitled to priority under § 507 because those amounts
represented debts that had become due more than three years prior to
the filing of the bankruptcy petition. See 11 U.S.C.A.
§ 507(a)(8)(A)(i). Hence, the plan apparently mandated payment of
only $35,667.31 "to satisfy, in full, the Debtor's joint obligation, he
holds with his wife, to the [IRS]. . . ."

Two weeks after Deutchman filed the plan, the IRS filed a proof
of claim on behalf of the United States in the amount of $190,876.94,
the majority of which, $172,579.15, was listed as secured debt, with
the remainder, $18,297.79, listed as unsecured. Deutchman did not
object to the IRS's proof of claim.

Pursuant to a notice sent to all creditors, including the IRS, a con-
firmation hearing on the plan was thereafter held before the bank-
ruptcy court. Although provided with a copy of the plan, the IRS did
not attend the confirmation hearing nor otherwise object to confirma-
tion of the plan. The bankruptcy court confirmed Deutchman's reor-
ganization plan, and no appeal was taken.

Following confirmation, Deutchman began making payments to the
IRS under the plan. Two years later, however, Deutchman, in an
effort to refinance his property, pledged to pay all remaining amounts
owed to the IRS under the plan if the IRS would agree to release its
liens on his property. The IRS refused to release the liens, and addi-
tionally asserted that Deutchman's payment of the reduced amounts
called for by the plan could not extinguish the liens.

Deutchman then brought this action, seeking a declaratory judg-
ment that the IRS's liens would be extinguished upon completion of
payments due under the plan. The bankruptcy court granted partial
summary judgment to the IRS, leaving open the question of the value

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of the IRS's secured claim. The parties later agreed that the amount
of the IRS's remaining secured claim was $139,750.89. The district
court affirmed; Deutchman appeals.

II.

We review the district court's decision by applying the same stan-
dard of review that it applied to the bankruptcy court's decision. See
Bowers v. Atlanta Motor Speedway, Inc. (In re Southeast Hotel Prop-
erties Ltd. Partnership), 99 F.3d 151, 154 (4th Cir. 1996). That is, we
review findings of fact for clear error and conclusions of law de novo.
See id.; Canal Corp. v. Finnman (In re Johnson), 960 F.2d 396, 399
(4th Cir. 1992).

A.

We begin with an overview of the Chapter 13 bankruptcy process
as it relates to the events underlying this matter. Section 501 of the
Bankruptcy Code governs the filing of proofs of claims or interests
by creditors. See 11 U.S.C.A. § 501 (West 1993). If proof of a claim
or interest is filed by a creditor and is not objected to, the claim or
interest is "deemed allowed." See 11 U.S.C.A. § 502(a) (West 1993)
("A claim or interest, proof of which is filed under section 501 of this
title, is deemed allowed, unless a party in interest. . . objects.").
Because Deutchman did not object to the IRS's proof of claim, the
IRS held an allowed secured claim in the amount of $172,579.15.

The Chapter 13 debtor must file a plan, see 11 U.S.C.A. § 1321
(West 1993), the contents of which are specified under 11 U.S.C.A.
§ 1322 (West 1993 & Supp. 1999). All interested parties must be noti-
fied of the requisite court hearing to confirm the plan, at which time
any "party in interest may object to confirmation of the plan." See 11
U.S.C.A. § 1324 (West 1993). In the instant case, the IRS neither
appeared at the confirmation hearing nor objected to the confirmation
of Deutchman's plan.

The impact of a confirmed plan on the parties involved in the
Chapter 13 reorganization is governed by 11 U.S.C.A.§ 1327 (West
1993), which provides:

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          (a) The provisions of a confirmed plan bind the debtor and
          each creditor, whether or not the claim of such creditor is
          provided for by the plan, and whether or not such creditor
          has objected to, has accepted, or has rejected the plan.

          (b) Except as otherwise provided in the plan or the order
          confirming the plan, the confirmation of a plan vests all of
          the property of the estate in the debtor.

          (c) Except as otherwise provided in the plan or in the order
          confirming the plan, the property vesting in the debtor under
          subsection (b) of this section is free and clear of any claim
          or interest of any creditor provided for by the plan .

Id. (emphasis added). Relying on this section of the Bankruptcy Code,
Deutchman contends that, despite the fact that the IRS held an
allowed secured claim in the amount of $172,579.15, his confirmed
Chapter 13 plan is now res judicata as to the issues before us.
Accordingly, Deutchman seeks a declaration that the property subject
to the IRS's liens will vest in him free and clear of the liens upon pay-
ment of the substantially reduced amounts called for by the plan. We
disagree.

B.

As a general rule, liens pass through the bankruptcy process unaf-
fected. See Cen-Pen Corp. v. Hanson, 58 F.3d 89, 92 (4th Cir. 1995).
This is because "[a] bankruptcy discharge extinguishes only in
personam claims against the debtor(s), but generally has no effect on
an in rem claim against the debtor's property." Id. In order to extin-
guish or modify a lien, the debtor must take some affirmative step
toward that end. As we have observed in the past,"[u]nless the debtor
takes appropriate affirmative action to avoid a security interest in
property of the estate, that property will remain subject to the security
interest following confirmation." Id.

In the instant case, Deutchman did not take a sufficient affirmative
step to modify or extinguish the IRS's liens. First, if we assume that
Deutchman intended to challenge the validity or existence of the

                     5
IRS's liens, he failed to effectively do so because he sought no pre-
confirmation adversary hearing. Second, Deutchman filed no objec-
tion to the proof of claim filed by the IRS, sought no valuation hear-
ing pursuant to 11 U.S.C.A. § 506 (West 1993), nor otherwise
attempted to modify the lien in any affirmative way. Instead, Deutch-
man attempted to "provide for" the liens and obtain a favorable result
by merely camouflaging his treatment of the IRS's liens in his plan.2
Obviously, this was not an appropriate affirmative step; and for the
lack of an appropriate affirmative step his effort to avoid the lien fails.

C.

In so holding, we necessarily reject Deutchman's claim that, upon
payment of the partial amount due the IRS under his plan, his prop-
erty will nevertheless vest in him free and clear of the IRS's liens
under § 1327(c) because his plan "provided for" the IRS's claims.
Section 1327(c) does not define "provided for." However, in Rake v.
Wade, 508 U.S. 464 (1993), the Supreme Court defined "provided
for," as used in 11 U.S.C.A. § 1325(a)(5)(West 1993), as "to make a
provision for or stipulate to something in a plan," Rake, 508 U.S. at
473 (internal quotation marks omitted), and, as used in 11 U.S.C.A.
§ 1328(a)(West 1993), as "makes provision for, deals with, or even
refers to a claim," Rake, 508 U.S. at 474 (internal quotation marks
omitted). This court, in Cen-Pen, held that,"[a]s a general matter, a
plan `provides for' a claim or interest [under§ 1327(c)] when it
acknowledges the claim or interest and makes explicit provision for
its treatment." 58 F.3d at 94 (emphasis added). We also held
that"`[e]ven where confirmed without objection, a plan will not elimi-
nate a lien simply by failing or refusing to acknowledge it or by call-
ing the creditor unsecured.'" Id. (quoting Beard, 112 B.R. at 954).
_________________________________________________________________
2 Deutchman has not satisfactorily explained the basis for reducing the
IRS's secured claim, or for eliminating the presumably valid liens upon
his property. There is no indication that he believed that the liens were
invalid or that the claim was not legitimate. Nor is there any reason to
believe that the property securing the claim was of insufficient value to
secure any portion of the claim. Rather, it appears that Deutchman sim-
ply attempted to eliminate valid liens securing an unchallenged claim by
calling the claim something that everyone agrees it was not -- a § 507
unsecured priority claim.

                     6
We adhere to this interpretation today. Although acknowledging
that the IRS held valid liens against Deutchman's property, the plan
nowhere acknowledged that the IRS's claims were allowed secured
claims by virtue of these liens and Deutchman's failure to object to
the IRS's proof of claim. Instead, the plan improperly characterized
all of the IRS's claims as Priority II unsecured claims under § 507 and
created additional confusion by setting forth an unclear payment
schedule.

In Cen-Pen, we discouraged efforts by debtors to misrepresent the
nature of their debts, and we made clear that such efforts could not
provide a basis for avoiding liens. See id. at 94. We therefore hold
that, in order to "provide for" a creditor for purposes of § 1327(c), the
plan must, at a minimum, clearly and accurately characterize the cred-
itor's claim throughout the plan. Accordingly, Deutchman's plan did
not "provide for" the allowed secured claim of the IRS because the
plan did not consistently identify any IRS claim as a secured claim.
Such lack of clarity could only mislead both the secured creditor and
the bankruptcy court, as well as cause improper treatment of the
secured claims in the confirmed plan, and we will not condone it.

D.

Another fatal consequence of Deutchman's plan was its failure to
give specific notice to the IRS of Deutchman's intent to accord the
liens less than full protection. See Piedmont Trust Bank v. Linkous (In
re Linkous), 990 F.2d 160, 162-63 (4th Cir. 1993). Linkous involved
a debtor who had failed to provide a secured creditor with information
of the debtor's intent to have the secured claims reevaluated under
§ 506(a) by the bankruptcy judge at the upcoming confirmation hear-
ing. We held that the lack of adequate notice alone denied the secured
creditor due process and that, accordingly, the confirmation order
devaluing the claims would not be given preclusive effect. See id. at
163. The same result obtains here. Deceptive information is equiva-
lent to no notice at all, and for lack of specific notice, Deutchman's
efforts fail.

                     7
III.

Accordingly, the judgment of the district court holding that com-
pletion of the payments called for under the terms of the confirmed
plan could not extinguish the liens is affirmed.

AFFIRMED

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