Alan R. Stuart

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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF PENNSYLVANIA
IN RE: ALAN R. STUART : Chapter 13
Debtor(s) :
: Bky. No. 05-19154ELF
O R D E R
AND NOW, Homecomings Financial, LLC (“Homecomings”), having filed a Motion for
Relief from the Automatic Stay (“the Motion”), to which the Debtor filed a response;
AND, the court having held a hearing on January 10, 2008;
Background
AND, Homecomings being the holder of a mortgage on the residential real property
owned by the Debtor and his non-debtor spouse as a result of a consumer creditor transaction that
was consummated in or about January 2004;
AND, on April 20, 2005, Homecomings (or an agent or a predecessor-in-interest) having
obtained a judgment in mortgage foreclosure against the Debtor and his spouse in the Court of
Common Pleas, Chester County;
AND, on May 9, 2005, the Debtor and his spouse having notified Homecomings’
predecessor-in-interest of their intention to exercise their purported right to rescind the January
2004 consumer creditor transaction pursuant to the federal Truth in Lending Act, 15 U.S.C.
§§1601, et seq. (“TILA”), see In re Stuart, 367 B.R. 541, 544 -45 (Bankr. E.D. Pa. 2007);
AND, on July 6, 2005, the Debtor having commenced this bankruptcy case by filing a
petition under chapter 13 of the Bankruptcy Code;
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AND, on July 13, 2005, the Debtor and his spouse having filed an adversary proceeding
in this court, seeking to enforce the rescission of the subject mortgage under TILA;
AND, on November 10, 2005, Homecomings having filed a proof of claim (docketed on
the Claims Register as Claim No. 9), asserting a claim secured by the Debtor’s residence with a
total balance of $396,491.16 and a prepetition arrearage of $32,426.14;
AND, by Order dated April 6, 2007, this court having dismissed the TILA claim without
prejudice, see In re Stuart, 367 B.R. at 558;
AND, after the dismissal of the TILA rescission claim, the Debtor having filed an action
in state court, seeking to enforce the purported rescission of the subject mortgage under TILA;
AND, on October 9, 2007, the Debtor having filed a Second Amended Chapter 13 Plan
(“the Plan”);
AND, the Plan providing, inter alia:
2. The Debtor shall submit to the supervision and control of the Trustee payments
in the amount of $50 monthly for the first four months of the plan, and will
thereafter increase his dpayments [sic] to $178.57 for the remaining 56 months of
the plan.
3. In addition the Debtor and his wife ("the Borrowers") have filed an action in the
Court of Common Pleas of Chester County to enforce their right to rescind a loan
secured by a first mortgage on her home held by Decision One Mortgage, which
they are advised was assigned to RFC Homecomings Financial American
("RFC"). The Borrowers will make any payments which are found to be due to
RFC directly, outside of the plan. However, the automatic stay will remain in
effect as too [sic] RFC to prevent the Borrowers from losing their residence proior
[sic] to resolution of the validity of the rescission.
AND, upon the recommendation of the Standing Chapter 13 Trustee and in the absence
of any objection by a party in interest, the Plan having been confirmed by Order of this court
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Sections 1322 and 1325(a) were amended by the Bankruptcy Abuse Prevention1
and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005) ("BAPCPA"),
effective as to cases filed beginning October 17, 2005. This case was filed prior to October 17,
2005. Therefore, the earlier versions of §§1322 and 1325(a) are applicable in this case.
A chapter 13 debtor has four (4) options for treatment of a secured claim in a2
chapter 13 plan. First, the debtor may provide for full payment of the claim. See 11 U.S.C.
§1325(a)(5)(B) (statutory provision in its pre-BAPCPA incarnation); In re Bryant, 323 B.R. 635,
645 (Bankr. E.D. Pa. 2005); see generally Till v. SCS Credit Corp., 541 U.S. 465, 468-469, 124
S.Ct. 1951, 1955 (2004) (discussing the methodology for determining the present value of a
secured claim being paid in full through a stream of plan payments). Second, the debtor may
provide for a “cure” of the prepetition delinquency, while maintaining contractual instalment
payments falling due during the life of the plan. See 11 U.S.C. §1322(b)(5); Sapos v. Provident
Inst. of Sav., 967 F.2d 918, 922 (3d Cir. 1992) (referring to §1322(b)(5) as a “cure and maintain”
alternative to full payment of a secured claim). Third, the Debtor can surrender the secured
property to the secured creditor. 11 U.S.C. §1325(a)(5)(C). Finally, the debtor may choose to
“not provide” for the secured claim at all, in which case the claim and the lien pass through the
bankruptcy case unaffected. See In re Waldman, 75 B.R. 1005 (Bankr. E.D. Pa. 1987); 8 Collier
on Bankruptcy ¶1322.06[1][a] (15 rev. ed. 2006); see generally Lellock v. Prudential Ins. Co.,th
811 F.2d 186 (3d Cir. 1987) (even though underlying debt is discharged, lien created by the debt
is not affected by the discharge order); Matter of Tarnow, 749 F.2d 464 (7 Cir. 1984) (ath
creditor’s lien is not affected by the bankruptcy discharge, unless the lien is modified during the
case pursuant to a specific Code provision, such as 11 U.S.C. §§522(f) or 1322(b)(2)). What
might be considered a fifth option is the possibility that the debtor can convince the secured
creditor to accept some treatment not set forth in the Code. See 2 Keith M. Lundin, Chapter 13
Bankruptcy ¶101.1 (3d ed. 2004).
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dated November 13, 2007 and entered November 14, 2007 (“the Confirmation Order”), see
Docket Entry No. 91;
AND, the Debtor having made no payments to Homecomings on account of the disputed
mortgage obligation since the entry of the Confirmation Order;
Applicable Legal Principles
AND, 11 U.S.C. §§1322 and 1325(a)(5) providing several alternative methods for the1
treatment of a secured claim in a chapter 13 plan;2
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The Debtor suggests that because the Plan makes a reference to the Movant’s3
claim and states that he (and his spouse) will “make payments” once the amount of the liability is
determined, the Plan “provides for” the claim. I have difficulty with the proposition that a
general reference to payment of a claim, after the completion of litigation in a non-bankruptcy
forum, at some indeterminate time in the future and without concrete terms regarding payment
amount, frequency and term, constitutes “providing for” a claim in a chapter 13 plan. See Rake
v. Wade, 508 U.S. 464, 473, 113 S.Ct. 2187, 2192 (1993) (finding that a chapter 13 plan
provided for the cure of a claim “by establishing repayment schedules for the satisfaction” of the
arrears). Indeed, in this case, the Plan itself refers to the Movant’s claim as being “outside of the
plan.” Because there are no terms for repayment of the Movant’s claim and the Plan expression
that the claim will be dealt with “outside” the Plan, I conclude that the Plan does not “provide
for” the Movant’s claim. Cf. In re Trusty, 2007 WL 3274420, at *1 n.5 (Bankr. E.D. Pa. Nov. 5,
2007) (discussing misuse of the term “outside the plan” to refer to treatment of claims being in a
specific manner described in the plan with the debtor, not the trustee, acting as the disbursing
agent).
See 8 Collier on Bankruptcy ¶1325.06, at 1325-29 (15 rev. ed. 2007); In re4 th
Vincente, 260 B.R. 354, 356-58 (Bankr. E.D. Pa. 2001); In re Evans, 66 B.R. 506, 510 (Bankr.
E.D. Pa. 1986) (“Being dealt with ‘outside’ the Plan may make it quite easy for the secured
claimant to obtain relief from the automatic stay, and hence proceed exactly as if there had been
no filing”), aff'd, 77 B.R. 457 (E.D. Pa. 1987).
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AND, the Plan not “providing for” Homecoming’s secured claim, within the meaning of
11 U.S.C. §1325(a)(5);3
AND, ordinarily, a holder of an allowed secured claim whose claim is not “provided for”
in a chapter 13 plan being entitled to obtain relief from the automatic stay for cause under 11
U.S.C. §362(d), upon motion, after confirmation of the plan;4
AND, the Plan in this case specifically providing that “the automatic stay will remain in
effect” pending the outcome of the pending state court action to determine the validity of the
purported rescission of the Movant’s mortgage by the Debtor and his spouse;
AND, 11 U.S.C. §1327(a) providing that the “provisions of a confirmed plan bind the
debtor and each creditor . . . .”
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For more than twenty-five (25) years, bankruptcy courts in this district have stated5
that the confirmation order “is . . . res judicata as to all justiciable issues decided or which could
have been decided at the hearing on confirmation.” In re Flick, 14 B.R. 912 (Bankr. E.D. Pa.
1981) (quoting In re Lewis, 8 B.R. 132 (D. Idaho 1981); accord In re Vandy, 189 B.R. 342, 349
(Bankr. E.D. Pa. 1995). This principle has been applied to issues involving the automatic stay.
Several courts in this jurisdiction have held that §1327(a) precludes a creditor from obtaining
relief from the automatic stay based on pre-confirmation events and that “cause” for relief under
§ 362(d)(1) may only be predicated on some significant post-confirmation event, such as a
default in the debtor’s performance of the confirmed plan. See In re Owens, 132 B.R. 293
(Bankr. E.D. Pa. 1991); In re Reice 88 B.R. 676 (Bankr. E.D. Pa. 1988); In re Wright, 54 B.R.
553 (Bankr. E.D. Pa. 1985); In re Clark, 38 B.R. 683 (Bankr. E.D. Pa. 1984); In re Pizzulo, 33
B.R. 740 (Bankr. E.D. Pa. 1983).
In this case, the Movant has made no allegation that there has been a post-
confirmation default. It is true that the Debtor has not made post-confirmation monthly
instalment payments on account of the Movant’s secured claim. However, the Plan does not
obligate the Debtor to do so. Thus, there has been no change in circumstances since
confirmation and no post-confirmation default. The issue is whether the provision of the Plan
that purports to restrict the Movant’s rights under 11 U.S.C. §362(a) is binding on the Movant by
virtue of 11 U.S.C. §1327(a).
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AND, case law in this Circuit holding that “absent fraud, the provisions of a confirmed
Chapter 13 plan bind the debtor and each creditor whose claim is provided for thereunder,” In re
Bryant, 323 B.R. 635, 638-39 (Bankr. E.D. Pa. 2005) (citing In re Szostek, 886 F.2d 1405 (3d
Cir. 1989); accord In re Fesq, 153 F.3d 113, 120 (3d Cir. 1998) (citing Szostek for the principle
that “the protection of the finality of Chapter 13 confirmation orders [is] more important than the
obligation of the bankruptcy court and the trustee to ensure that a plan complied with the Code”);
see also In re Pardee, 193 F.3d 1083, 1086 (9 Cir. 1999) (creditor who fails to file timelyth
objection or appeal from confirmation order “cannot later complain about a provision of the plan
that may be inconsistent with the Code”) (citation omitted);5
AND, 11 U.S.C. §1327(a) reflecting a policy strongly favoring the finality of chapter 13
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The principle of finality is tempered somewhat by the right of the debtor and other6
parties, in some circumstances, to modify a confirmed plan. See 11 U.S.C. §1329.
E.g., In re Linkous, 990 F.2d 160, 162 (4 Cir. 1993) (court cannot defer to7 th
confirmation order on res judicata grounds if it would result in a denial of due process in
violation of the Fifth Amendment of the United States Constitution).
In this case, Homecomings had sufficient notice and opportunity to be heard with8
respect to the Plan. The Debtor’s counsel served a copy of the Plan on Homecomings. See
Docket Entry No. 87. Also, through the court’s case management and electronic case filing
system, the Plan was sent electronically in the ordinary course to the attorney who represented
Homecomings in the adversary proceeding referenced above in the text and to the law firm who
filed Homecomings proof of claim and the Motion. Mail and electronic service occurred more
than thirty (30) days before the confirmation hearing.
Also, I have no concerns that the Plan provision at issue was obscured either by its
drafting style or the manner of its placement in the body of the Plan. The provision maintaining
the automatic stay in place was stated unambiguously and was located on the first page of the
Plan. See In re Huddle, 2007 WL 2332390, *6 (Bankr. E.D. Va. Aug. 13, 2007) (“This is not a
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confirmation orders;6
AND, this principle of finality applying to the Movant in this case, even though the Plan
did not provide for the Movant’s claim, because the plain language of the Code provides that a
confirmed plan is binding on each creditor “whether or not the claim of such creditor is provided
for by the plan,” 11 U.S.C. §1327(a) (emphasis added);
AND, although case law under §1327(a) suggests that an inherent exception to §1327(a)
exists if the process leading to the entry of the confirmation order did not provide a creditor with
procedural due process, the court finding in this case that the process leading to the entry of the7
Order confirming the Plan and the notice given to the Movant regarding the provision of the Plan
that restricts its rights under 11 U.S.C. §362(d) satisfied the requirements of procedural due
process;8
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plan, it must be stressed, in which the [the debtor’s] intent . . . is buried deep within
boilerplate”); In re Zimmerman, 275 B.R. 296, 301 (Bankr. C.D. Ill. 2001) (permitting plan to
avoid creditor’s lien only if plan is “sufficiently specific to put the affected creditor on notice that
its lien will be lost if an objection to the plan is not made”); see generally In re Shook, 278 B.R.
815, 823 -825 (B.A.P. 9 Cir. 2002) (discussion of enforceability of plan provisions thatth
determine value or avoid lien of secured creditor).
Finally, I acknowledge the existence of case law in which courts have declined to
enforce a provision of a confirmed chapter 13 plan that is inconsistent with other provisions of
the Bankruptcy Code. The guiding principle that I draw from these cases is that the
enforceability of such a provision will depend upon whether the creditor has a reasonable
expectation that some separate proceeding other than the confirmation process must be initiated
to modify its rights. See, e.g., Whelton v. Educational Credit Mgt., Inc., 432 F.3d 150, 153 (2d
Cir. 2005) (a plan provision providing for discharge of student loan is not enforceable because
student loans are presumptively nondischargeable under 11 U.S.C. §523(a)(8) and the Federal
Rules of Bankruptcy Procedure require the filing of an adversary proceeding before such a debt
may be discharged); accord In re Ruehle, 412 F.3d 679, 684-85 (6 Cir. 2005). In light of theth
various tools for modifying the rights of secured creditors in a chapter 13 plan, see, e.g., 11
U.S.C. §1322(b)(2), 1325(a)(5), it is difficult to see how it is reasonable for a secured creditor to
assume, without reading a debtor’s proposed chapter 13 plan, that its rights will be unaffected by
confirmation. It follows that, generally speaking, a secured creditor must read a proposed chapter
13 plan and object to confirmation if it believes that the proposed treatment of its claim does not
comport with the requirements of the Code. As the court stated more than twenty (20) years ago
in In re Bonanno, 78 B.R. 52, 57 (Bankr. E.D. Pa. 1987):
[I]f the Code and Rules provide specific mechanisms to be employed when a
debtor seeks to modify or determine a creditor's rights, the creditor may safely
assume that its rights will be unaffected unless the debtor invokes those
procedures. However, upon confirmation, section 1327 will bind a creditor to any
plan provision involving matters which may permissibly be resolved through the
confirmation process. . . . With respect to such plan provisions, a creditor is
obliged to check the plan and its failure to object to confirmation will be binding,
regardless whether the plan provision could have been the subject of a valid
objection at confirmation.
In Bonanno, the court held that a provision of a confirmed plan that restricted an
unsecured creditor’s right to obtain relief from the chapter 13 co-debtor stay – relief that the
creditor otherwise would have been entitled to under 11 U.S.C. §1301(c)(2) – was enforceable.
Similarly, in this case, I conclude that, in the absence of fraud, a provision of the Plan restricting
the Movant’s statutory right to obtain relief from the automatic stay is enforceable. Because
there is no allegation of fraud and the Movant was accorded due process, the principle of finality
embedded in §1327(a) is paramount.
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It is hereby ORDERED that the Motion is DENIED.
Date: February 5, 2008
ERIC L. FRANK
U.S. BANKRUPTCY JUDGE
cc: David A. Scholl
Attorney for Debtor
Andrew N. Spivack
Attorney for Homecomings Financial, LLC
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