IN RE:
UNITED STATES BANKRUPTCY
COURT
EASTERN DISTRICT OF KENTUCKY
CORBIN
IN RE:
JOSEPH WARREN
CONNIE SUE WARREN CASE NO. 99-61118
DEBTORS
ORDER
In accordance with the memorandum opinion
this day entered, IT IS HEREBY ORDERED that the debtors motion to avoid the
second mortgage lien of The Money Store except to the extent of $22,000 is
SUSTAINED.
Dated:
By the court
__________________________
JOSEPH M. SCOTT, JR.
U. S. BANKRUPTCY JUDGE
Copies to:
Marcia A. Smith,
Esq.
Alan J. Ullman, Esq.
Beverly M. Burden,
Esq.
UNITED STATES BANKRUPTCY
COURT
EASTERN DISTRICT OF KENTUCKY
CORBIN
IN RE:
JOSEPH WARREN
CONNIE SUE WARREN CASE NO. 99-61118
DEBTORS
MEMORANDUM
OPINION
This case is before the court on motion of
the debtors to partially avoid the second mortgage lien of The Money Store
(TMS) in the debtors principle place of residence. (Document # 16). TMS
objected to the motion (Document # 18), the parties have briefed the issues
presented (Documents # 21 & 27), and the matter is submitted for
decision (Document # 30).
FINDINGS OF FACT:
On November 15, 1999 the debtors filed a
petition in this court for relief under chapter 13 of the U. S. Bankruptcy
Code. On that same date they
filed their chapter 13 Plan (Document # 4) and a Certificate of Service of the
Plan (Document # 5). The Certificate of
Service indicates TMS was served with a copy of the Plan at the address of its
counsel in this case Lerner, Sampson & Rothfuss of Cincinnati, Ohio on
November 12, 1999, presumably the date the petition was mailed for filing.
TMS is referred to in the Statement of
Financial Affairs and three times in Schedules. The reference in the Statement of Financial Affairs is to a
foreclosure suit brought by TMS against the debtors in Pulaski Circuit
Court. The first reference in Schedules
is Schedule A (Real Property) as one of two secured creditors on a House &
1 acre. TMS is listed as the second
secured creditor with a claim of $23,000 in the property which is valued by the
debtors at $60,000. Kentucky Housing
Corp. with a claim of $38,000 is listed as the first.
The
next mention of TMS is in Schedule D (Creditors Holding Secured Claims) as
second mortgage holder on house & 1 acre with a secured claim in the
amount of $22,000 and unsecured in the amount of $1,000. In that same Schedule, Kentucky Housing
Corp. is listed as first mortgage holder with a secured claim of $38,000 in the
property which is valued by the debtors at $60,000. Schedule D offers as Additional information regarding the debt
to Kentucky Housing Corp. that the debt of $38,000 will be paid outside the
Plan and regarding the debt to TMS that the debtors Will pay debt $22,000
through the plan for 2nd mortgage on home.
The third mention of TMS is in the statement
of intention regarding the debt owed to TMS on House & 1 acre which
states that $22,000 will be paid through the Plan for the second mortgage. Kentucky Housing Corp. is to be paid in full
in the amount of $38,000 outside the
Plan.[1]
The chapter 13 Plan, also filed on November
15, 1999, provides in Paragraph (5):
The holder of any allowed
secured claim provided for by the plan shall retain a lien securing such claim
until the amount for which the claim is allowed as secured is paid in full, 11
U.S.C.§ § 1325(A)(5)(B), 1327(c). The
following secured debts shall be paid in full only to the extent of the value
of the collateral as follows, and 8% post-petition interest shall be paid on
said debt...THE MONEY STORE, 2ND MORTGAGE ON HOME, (SECURED
PORTION), $22,000.
Counsel for the debtor certified that a copy
of the Plan was mailed on November 12, 1999 to each of the creditors at the
addresses shown in the schedules accompanying the Petition. For TMS that would have been to the address
of its counsel in this case, in other words, to Cincinnati, Ohio.
On November 15, 1999 creditors including TMS
were given notice of the filing, Meeting of Creditors, and deadlines. (Document # 6). Dates given in the Notice included the Meeting of Creditors on
December 16, 1999, the deadline of March 15, 2000 for filing a proof of claim,
the Confirmation Hearing on February 10, 2000.
Notice was given to TMS at the address of its counsel in this case.
On December 14, 1999 TMS, with an address in
Raleigh, North Carolina, filed a proof of claim as a secured claim in the
amount of $31,134.38, including arrearage and other charges in the amount of
$4,201.72, on real estate valued at $42,000.
(Claim # 4). There were no
attachments to the claim. On December
15, 1999 TMS filed an amended proof of claim as a secured claim in the amount
of $25,150.65, including arrearage and other charges in the amount of
$4,201.72, on real estate valued at $42,000.
(Claim # 5). The only attachment
to the amended proof of claim is a worksheet detailing how TMS arrived at the
totals. Neither Proof of Claim
identifies the real property claimed as secured.
On December 16, 1999 the Section 341 hearing
was conducted. No creditors were in
attendance. (See Document # 9.)
On February 2, 2000 the chapter 13 trustee
filed her Report and Recommendation as to confirmation of the Plan stating that
confirmation was recommended and that the claim of TMS would be treated as
Unsecured - Security Agreement not attached; collateral not described. (Document # 10). Service of the Report and Recommendation was made upon TMS at the
address given on its Proofs of Claim, in other words, to Raleigh, NC.
On February 15, 2000 an order was entered
confirming the Plan. (Document #
12). No objection to confirmation of
the Plan was filed by TMS, or any other creditor. No party, including TMS, appealed the courts order confirming
the Plan.
On
February 17, 2000 the debtors filed a proof of claim on behalf of TMS as a
secured claim in the amount of $25,150.65 on real estate. Attached to the claim are copies of a Note
and Mortgage dated September 10, 1997 securing property located at 3166 Cabin
Hollow Road, Somerset, Kentucky. (Claim
# 8). On February 18, 2000 the court
gave notice to TMS of the filing of a proof of claim on its behalf in the
amount of $25,150.65. (Document #
13).
Nearly two months passed and on April 10,
2000 TMS filed an amended proof of claim, attaching copies of a Note and
Mortgage dated September 10, 1997 securing real estate located at 3166 Cabin
Hollow Road, Somerset, Kentucky and a worksheet. In its Proof of Claim, TMS asserts a secured claim in the total
amount of $28,094.10 and values the collateral at $42,000. Arrearage and other charges included in the
claim are in the total amount of $5,615.72.
(Claim # 11).
Two days thereafter, on April 12, 2000, the
debtors filed their motion to partially avoid the lien of TMS.
CONCLUSIONS OF LAW:
The issue presented in this case is
reminiscent of In re Sanders, 243 B.R. 326 (Bankr. N.D.Ohio 2000). The creditor and law firm representing the
creditor in this case are identical to those in Sanders. In Sanders TMS attempted to object
to the debtors proposed chapter 13 Plan by noting its rejection of the Plan
on its proof of claim. The court held
that objection in such a manner was of no legal consequence, citing Bankruptcy
Rule of Procedure 3015(f) which governs the Plan objection process.
The Sanders court further stated 11
U.S.C. § 1327(a), which provides that provisions of a confirmed chapter
13 Plan are binding upon the debtor and creditors, bars the relitigation of any
issues raised or that could have been raised in Plan confirmation
proceedings. The court concluded with
quotation from the Fifth Circuit case Republic Supply v. Shoaf, 815 F2d
1046 (5th Cir. 1987), Creditors who sleep on their rights through
the confirmation process do so at their own peril.
Turning to the case at hand, as an initial
matter this court finds that TMS had notice of the debtors proposed treatment
of its claim in the Plan and that there is no due process issue despite the
claim of TMS it was sandbagged.
(Document # 21). The filing of a
proof of claim by TMS on December 14, 1999 evinces TMS was aware of the
debtors having filed bankruptcy.
Counsel for the debtors certified that one month prior to TMS filing
its proof of claim she mailed a copy of the Plan to TMS in care of its counsel
in this case. (Document # 5). In addition, the chapter 13 trustee
certified she mailed a copy of her Report and Recommendation to TMS at its
address in North Carolina (Document # 10), that occurring some two weeks after
the amended proof of claim filed by TMS, which did not include documentation of
its secured status or description of the collateral claimed secured, and over
two months prior to TMS filing substantiated proof of its secured status. The Report and Recommendation clearly states
that the chapter 13 trustee recommends confirmation of the Plan and that the
claim of TMS would be treated as unsecured because TMS had not provided either
a description of the collateral claimed secured or a copy of its security
agreement. Regardless of the current
assertion by TMS that the debtors proposed Plan is not manifestly clear as
to the debtors intention to partially avoid its lien, TMS was on notice
prior to the confirmation hearing that the trustee viewed its claim for $25,150.65
as totally unsecured.
Certainly this court is aware of the holdings
in Nobleman v. American Savings Bank, 508 U.S. 324 (1993), and In
re Moncrief, 163 B.R. 492 (Bankr. E.D. Ky. 1993), which stand for the
proposition that modification of a secured claim in a chapter 13 Plan is
impermissible if there is even one dollar of equity in property which is the
debtors principal place of residence.
However, in this case the Plan was confirmed without substantiation by TMS
of its secured status and without objection by TMS prior to the confirmation
hearing. Further, TMS did not appeal
the confirmation order.
TMS is bound by the terms of the confirmed
Plan. Stoll v. Gottlieb, 305
U.S. 165, 170-171, 59 S.Ct. 134, 83 L.Ed. 104 (1938). The debtors motion is sustained.
Dated:
By the court
__________________________
JOSEPH M. SCOTT, JR.
U. S. BANKRUPTCY JUDGE
Copies to:
Marcia A. Smith,
Esq.
Alan J. Ullman, Esq.
Beverly M. Burden,
Esq.
[1] The
statement of intention filed with Petition and Schedules was by Connie Sue
Warren only. A separate statement by
Joseph Warren was filed on November 15, 1999.
(Document # 8).