DE JESUS RIVERA et al v. GE CAPITAL CORP OF PR

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

In re:

WILFREDO DE JESUS RIVERA, : Case No. 00-00801 (GAC)
SONIA M. HERNANDEZ MELENDEZ, :

Debtors : Chapter 13

WILFREDO DE JESUS RIVERA,
SONTA M. HERNANDEZ MELENDEG,

Plaintiffs
Vv. : Adv. No. 04-00165
GENERAL ELECTRIC CAPITAL CORP. :
OF PUERTC RICO, : LED & ENTERED
Defendants 3 FFA 9 4 9006

J.8. BANERUPTOY COUAT
NSS Mt ro F
BECISION AND ORDER AC JUAN, PUSATO RICO

The debtors filed a petition under Chapter 13 on January 28,
2000. The debtors scheduled General Electric Capital Corp. of
Puerto Rico (“GEC”) as a secured creditor in the amount of
$35,002.00, with a conditional sales contract over a 1997
Peterbuilt towing truck. The claims bar date was June 5, 2000.
The debtors filed a proof of secured claim, in the amount of
$35,500.00, on GEC’s behalf on April 11, 2000. GEC filed an
amended claim on May 15, 2000, seeking the amount of $33,411.00.
GEC did not include interest in its claim.

The debtors amended plan, which ultimately became the plan of
the case, was dated June 15, 2000 (dkt. #23). This plan provided

for payments of $1,550.00 for thirty-six months, for a base of

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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$55,800.00. The debtors proposed to have the trustee pay GEC’s
secured claim in full. Debtors also proposed to provide GEC with
insurance directly as of December of 2001. No objections were
filed. The plan was confirmed on August 4, 2000.

Prior to obtaining confirmation of their amended plan, on May
12, 2000, GEC filed a motion for relief from automatic stay under
11 U.S.C, § 362 (dkt. #14A). Among other issues, GEC complained
that the debtors’ plan extended the contract between GEC and the
debtors for eight months after the contract’s due date, without the
payment of interest. On duly 7, 2000, the debtors and GEC filed:a
stipulation for adequate protection (dkt. #28).

In the stipulation, the parties recognized that GEC is the
holder of a secured claim in the principal amount of $33,411.00.
They indicate that the debtors will provide adequate protection by
Maintaining current payments under the amended Chapter 13 plan,
consisting of thirty-six payments of $1,550.00. The debtors were
required to maintain the collateral fully insured and in good
condition and “otherwise, fully comply with debtor’s obligations
and responsibilities under the conditional sale contract.” The
stipulation further provides that “GEC will maintain its lien until
payment in full of the stipulated payments” and that “secured
creditor will be paid in full within the due date of the contract.”
The parties indicated that the terms of the stipulation were

binding and that an order approving the same would have res

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judicata effect. The Court entered an order approving the
stipulation on August 4, 2000, the same date that the debtors’
amended plan was confirmed.

On September 17, 2003, the trustee filed a notice of plan
completion (dkt. #34). The debtors received their discharge on
December 29, 2003 fdkt. #35). On July 13, 2004, the debtors filed
this adversary proceeding. Thereafter, the trustee filed his final
report and account, which showed that GEC received $33,411.00 (dkt.
#39). The trustee gave notice to creditors and parties in interest
that they had thirty days to filed objections (dkt. #39). No
objections were filed.

In the present adversary proceeding, the debtors seek damages
for violation of the automatic stay and violation of the discharge
injunction. The debtors also seek transfer of title to the vehicle
in which GEC had a security interest. The debtors allege that
since the discharge, they have approached GEC on several occasions
to have title to the vehicle transferred to the debtors and GEC has
refused, The debtors also allege that GEC retained a check
destined to the debtors for vehicle repairs. The debtors allege
various damages based on these acts.

GEC filed an answer to the complaint, which only admitted that
the debtors filed a bankruptcy petition, that GEC was a secured
creditor and that the bankruptcy case remains open. GEC denied

every other allegation of the complaint, including that it had

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filed a secured claim in the amount of $33,411.00, that its claim
was paid in full and that the debtors sought to have the title to
the vehicle transferred to them.

GEC filed a motion to dismiss the complaint and a request for
summary judgment (dkt. #15). In the motion, GEC admitted that it
filed its proof of claim, that the debtors received their discharge
and that the debtors had requested the title to the vehicle and
were told that they still had an outstanding balance pending
payment. GEC argues that pursuant to the conditional sales
contract, the debtors still-owe $3,897.27 for unpaid late charges
and interest because its lien survived the bankruptcy discharge.
It premises this contention on jurisprudence suggesting that liens
pass through bankruptcy unaffected and on language in the
stipulation stating that the debtors would fully comply with their
obligations and responsibilities under the conditional sales
contract.

The debtors filed an answer to the motion for summary judgment
and requested partial summary judgment in their favor (dkt. #17).
The debtors argue that GEC is not entitled to interest outside the
plan. The debtors contend that GEC agreed to its treatment under
the plan, by failing to object to confirmation.

They argue that the confirmation of their plan bound GEC and that
the confirmation order is res judicata as to all issues that were

or could have been litigated prior to entry of the order of

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confirmation. The debtors also contend that the stipulation
provided that GEC would only maintain its lien until the stipulated
payments were made. The debtors conclude that GHC’s lien was
extinguished upon their completion of payments under the plan and
that they have been discharged from payment of interest or any
further amounts to this creditor. The debtors claim that GEC’s
attempts to collect interest violated the discharge injunction of
11 U.S.C. § 524 (a) (2).
DISCUSSTON

The Chapter 13 discharge operated to discharge the debtors
from all debts provided for by the plan. 11 U.S.C. § 1328(a). It
continues to operate “as an injunction against the commencement or
continuation of an action, the employment of process, or an act, to
collect, recover or offset any such debt as a personal liability of
the debtor.” 11 U.S.C. § 524(a) (2). “Generally, a discharge in
bankruptcy relieves a debtor from ail pre-petition debt, and §
524 (a) permanently enjoins creditor actions to collect discharged

debt.” Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 444 (1st

Cir. 2000). The bankruptcy court can invoke § 105(a) to enforce
the discharge injunction of § 524(a). Id. at 445. For violation
of the injunction, the Court may award damages, attorney’s fees,
and, where appropriate, punitive damages. Id.

At issue in the present case, is whether a secured creditor

who filed a proof of claim for a sum certain, without requesting

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interest, who participated in the Chapter 13 case without objection
to the plan, and who waited until after the completion of payments
before asserting a claim for interest, has an in rem claim for
interest. The Bankruptcy Appellate Panel for the First Circuit has

emphatically stated that the answer is “no.” Doral Mortqage Corp.

v. Echevarria (In re Echevarria), 212 B.R. 185 (B.A.P. 15° Cir.

1997), aff’d, 141 F.3d 1149 (1st Cir. 1998). As explained below,
GEC is bound by the order of confirmation and the stipulation,
which preclude collection of additional interest.

GEC argues that its lien passed through the bankruptcy
unaffected. This, however, is an incomplete statement of the law.
The general statement that liens pass through bankruptcy
unaffected, must be qualified. “[L]jiens pass through bankruptcy
unaffected . . . unless they are brought into the bankruptcy

proceeding and dealt with there.” Matter of Penrod, 50 F.3d 459,

463 (7th Cir. 1995). A lien on property exists only to secure

payment of a specific debt. In re Echevarria, 212 B.R. 26, 28

(Bankr.D.P.R.), aff’d, 212 B.R. 185 (B.A.P. 1% Cir. 1997), aff'd,
L41 F.3d 1149 (1st Cir. 1998). Liens do not survive bankruptcy
where the debt is provided for in the plan and is paid in full.
Id.

The Court must consider whether GEC’s debt was provided for in
the confirmed plan and whether it was paid in futl. The debtors

initially filed a proof of claim on GEC’s behalf in the amount of

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$35,500.00. GEC amended the proof of claim to the amount of
$33,411.00 and did not include a claim for interest. The debtors’
proposed to have the trustee pay GEC’s secured claim in full. GEC
did not object to confirmation. Rather, GEC affirmatively
incorporated the terms of the plan into the stipulation that it
entered into with the debtors. The stipulation required the
debtors to make the payments contemplated in the plan and indicated
that GEC would maintain its lien until all the stipulated payments
were made. GEC received treatment that conformed with its proof of
claim and with the stipulation.

GEC now contends that it is entitled to interest because one
section of the stipulation obligated the debtors to comply with
their obligations and responsibilities under the conditional sales
contract. The Court finds this interpretation disingenuous since
it is included in a section of the stipulation related to the
maintenance of insurance and maintaining the coilateral in good
condition. Moreover, GEC’s interpretation clearly contradicts
other, more specific language included in the stipulation i.e. that
GEC would only maintain its lien until the stipulated plan payments
were made. Accordingly, the Court concludes that GEC’s lien did
not survive the bankruptcy because the debt was provided for in the
plan and in the stipulation and it was paid in full.

In a case with very similar facts, the Bankruptcy Appellate

Panel for the First Circuit in Echevarria held that a creditor,

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that filed a secured claim that did not include interest, that was
dealt with in the plan and that waited for completion of plan
payments before asserting a claim for interest, did not have an in
rem claim against the collateral for interest. The court examined
and found compelling, the Seventh Circuit Court of Appeal’s

decision in In re Chappell, 984 F.2d 775 (7** Cir. 1993).

In Chappell, a secured creditor filed a proof of claim, with
no separate claim for interest. The plan provided for payment of
the amount claimed. The attorney for the creditor wrote several
letters to debtor’s counsel regarding payment of interest, but took
no other action until after completion of the plan, at which time
it sought to foreclose its mortgage. The Seventh Circuit Court of
Appeals, concluded that whatever right the secured creditor had to
interest was waived by remaining silent until the plan was
completed. The court stated that “[a]s a general rule, the
failure to raise an ‘objection at the confirmation hearing or to
appeal from the order of confirmation should preclude . . . attack
on the plan or any provisions thereof as illegal in a subsequent

hearing.’” Id. at 782 (quoting In re Gregory, 705 F.2d 1118, 1121

(9 Cir. 1983) (other citations omitted)).

Moreover, pursuant to 11 U.S.C. § 1327(a), a confirmed Chapter
13 plan binds creditors to its terms. Where there is no evidence
that a debtor is scheming to defraud the creditor and where a

secured creditor has the opportunity to object to its treatment

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under a plan and fails to do so, it is barred from later seeking to

collect interest. In re Mchevarria, 212 B.R. at 188.

The reasoning of the courts in Echevarria and Chappell are
fully applicable here. GEC did not include interest in its claim.
GEC never objected to its treatment under the plan, rather it
stipulated with the debtors for the exact treatment that it
received. GEC’s claim was dealt with and paid in full through the
plan. There is no allegation that the debtors were scheming to
defraud GEC. Thus, GEC lost any right that it had to collect
interest and may not now pursue an in rem claim. After the order
of confirmation, the conclusion of payments under the plan and an
order of discharge, the Court concludes that GEC’s claim to
interest, after having its claim paid in full under the plan, was
waived.

GEC was prohibited by the discharge order, 11 U.S.C. § 1328 (a)
and § 524(a) from attempting to collect interest on the debt, which
was paid in full, pursuant to the confirmed plan and stipulation.
GEC will be required to immediately deliver title to the vehicle to
the debtors and any insurance proceeds that it may have received.

The Court will schedule a hearing on damages.

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ORDER AND NOTICE

WHEREFORE IT IS ORDERED that GEC’s motion to dismiss the
complaint and the request for summary judgment (dkt. #15) shall be,
and it hereby is DENIED. The debtors’ request for partial summary
judgment (dkt. #17) is GRANTED.

TT IS FURTHER ORDERED that GEC shall immediately deliver the
title to the Peterbuilt towing truck to the debtors and it shall
immediately refund to the debtors any insurance proceeds received,
related to post discharge vehicle repairs.

A hearing on damages will be held on Friday, June 9, 2006, at
9:30 a.m. in the United States Bankruptcy Court for the District of
Puerto Rico, 300 Recinto Sur, Courtroom 3, Old San Juan, Puerto
Rico.

SO ORDERED.

San Juan, Puerto Rico, this 24th day of February, 2006.

s/ Gerardo A. Carlo

GERARDO A, CARLO
Chief, U.S. Bankruptcy Judge

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