Victor Manuel Chavez

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Victor Manuel Chavez
05-14619
Order Denying [30-1] Second Amended Plan . Original EOD: 5/19/06.
Received on: 2006-05-19 14:33:34.000
2006-05-19 00:00:00.000
2006-05-25 00:00:00.000
Patti Hennessy
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1Bank One, N.A. is the assignee of Valley National Financial Services Co., and
predecessor to JPMorgan Chase Bank, N.A., which acquired Bank One, N.A. by merger.
2The Chapter 13 Trustee also objected to Debtor’s proposed payment schedule because it
includes a three-month period during which the Debtor will make no plan payments.
1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	VICTOR CHAVEZ, 	No. 13-05-14619 MA
Debtor.
ORDER ON CONFIRMATION OF DEBTOR’S CHAPTER 13 PLAN
THIS MATTER is before the Court on confirmation of the Debtor’s chapter 13 plan. At
issue is whether a previously entered Agreed Order for Adequate Protection and Relief from
Stay (“Adequate Protection Order”) controls the treatment of such creditor under the Debtor’s
plan of reorganization. The Debtor’s Second Amended Chapter 13 Plan (“Second Amended
Plan”) proposes to pay Bank One, N.A. 1 (“Creditor”) its claim directly outside the plan. The
Chapter 13 Trustee objected to confirmation asserting that the payments to Creditor should be
paid through the Plan, that the Adequate Protection Order does not require that the plan continue
the terms of the Adequate Protection Order, and that because the Debtor valued the Creditor’s
collateral at a lower value elsewhere in his statements and schedules, direct payment to the
Creditor of the contract amount creates an impermissible preference in favor of Creditor to the
detriment of other creditors.2
After reviewing the Adequate Protection Order and the Second Amended Plan, and being
otherwise sufficiently informed, the Court finds that the Adequate Protection Order does not
automatically bind the parties to its terms in a subsequent confirmation order, and the Second
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2
Amended Plan which provides for continued payments to Creditor outside the plan cannot be
confirmed over the objection by the Chapter 13 Trustee.
The procedural history of is as follows:
1. Debtor filed a voluntary petition under Chapter 13 of the Bankruptcy Code on June 8,
2005.
2. Creditor holds a purchase money security interest in a 2000 Chevrolet Cavalier
(“Vehicle”). 	Creditor filed a secured claim in the Debtor’s bankruptcy proceeding in the
amount of $7,211.61. (See Claim # 3).
3. 	Debtor has not filed an objection to Creditor’s claim.
4. Debtor’s initial plan of reorganization provided for direct payment to Creditor outside
the plan on its estimated claim in the amount of $7,489.00. (See Docket # 7).
5. Debtor’s Schedules C and D value the Vehicle at $3,500.00.
6. The Chapter 13 Trustee objected to confirmation of Debtor’s plan asserting that
Debtor’s proposed payment to Creditor outside the plan impermissibly preferred Creditor
because it would pay the unsecured portion of Creditor’s claim in full. (See Docket # 16).
7. On September 1, 2005, Debtor and Creditor entered into an Adequate Protection
Order. (See Docket #17).
8. The Chapter 13 Trustee approved the Adequate Protection Order. Id.
9. The Adequate Protection Order included the following provision: that in order to
retain possession of the Vehicle, Debtor must resume making the regular monthly payments to
Creditor in the amount of $335.92 beginning October 12, 2005, and on the 12th day of each
month thereafter until the amounts due under the contract are paid in full.
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3
10. Debtor filed an Amended Plan on October 13, 2005, which crammed down the value
of the Vehicle to $3,500.00 and proposed to pay Creditor through the plan on its secured claim in
the amount of $3,500.00 with interest at 6%. (See Amended Plan, Docket # 21).
11. Creditor objected to the Amended Plan, asserting that by valuing the Creditor’s
collateral at $3,500.00 and paying Creditor only the collateral value, Debtor was not complying
with the terms of the previously entered Adequate Protection Order, and that the terms of the
Adequate Protection Order should be enforced.
11. The Chapter 13 Trustee objected to the Amended Plan on grounds that the Amended
Plan was not feasible, and that the Amended Plan failed to increase the plan payments to include
the monthly payment to Creditor. (See Docket # 23).
12. In response to Creditor’s objection to the Amended Plan, Debtor filed a Second
Amended Plan, which again proposed direct payment to Creditor outside the plan on its
estimated claim of $6,063.59. (See Docket # 30).
13. The Second Amended Plan proposes payments of $181.00 for the first three months,
beginning July 12, 2005, then payments of $260.00 for the next two months, then payments of
$0.00 for the next 3 months, and finally $200.00 for a minimum period of 28 months. Id.
14. The Chapter 13 Trustee objected to the Second Amended Plan, objecting to the
payment schedule, objecting to feasibility, and objecting to the direct payment of Creditor
outside the plan given the value for the Vehicle listed on Debtor’s Schedule D.
DISCUSSION
“A lift stay order by its own nature is temporal. Of necessity, it must be superceded by
any order confirming a plan unless preserved therein.” In re Simons, 113 B.R. 942, 949
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3That section provides:
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
4
(Bankr.W.D.Tex. 1990). 	In other words, agreed orders regarding the automatic stay that are
entered into prior to confirmation do not survive confirmation unless the terms are expressly
incorporated into a confirmation order. See In re Diviney, 225 B.R. 762, 771 (10th Cir. BAP
1998) (“[U]nless expressly preserved in the plan or the order confirming the plan, all pre-
confirmation agreements and orders concerning the treatment of a claim are superceded by the
terms and provisions of the confirmed plan.”); Green Tree Fin. Corp. v. Garrett (In re Garrett),
185 B.R. 620, 623-624 (Bankr.N.D.Ala. 1995) (applying and adopting principle enunciated in
Simons to chapter 13 case). 	An agreed order regarding automatic stay, therefore, “becomes of
no further force or effect” as of the date of entry of an order confirming plan. Simons, 113 B.R.
at 949. In this case, Creditor and Debtor argue that the previously entered Adequate Protection
Order (to which the Chapter 13 Trustee consented) controls, and therefore, requires that the
Second Amended Plan provide for direct payment of Creditor according to the contract terms.
This contention is unfounded, given the nature and purpose of agreed orders regarding the
automatic stay.
The purpose of an agreed order regarding the automatic stay is to state the conditions
under which the debtor may continue to retain collateral and to bridge the period between the
filing of the petition and confirmation of a plan of reorganization. 	It should, therefore, not be
binding on any subsequent confirmation order just because it was entered prior to confirmation.
See Simons, 113 B.R. at 949 (stipulation regarding stay becomes of no further force and effect
upon entry of confirmation order). This approach is also consistent with 11 U.S.C. § 1327(a) 3
,
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creditor has objected to, has accepted, or has rejected the plan.
11 U.S.C. § 1327(a).
See also, Ledford v. Brown (In re Brown), 219 B.R. 191, 193-194 (6th Cir. BAP 1998) (finding
that although § 1327(a) does not expressly apply to the trustee, “[a] trustee is considered a party
to a confirmation proceeding, and . . . is bound by the [confirmation] proceedings,” and finding
further that “the mechanism to change the binding effect of § 1327 is § 1329, which allows for
modifications” after confirmation)(citation omitted); In re Mitchell, 281 B.R. 90, 94
(Bankr.S.D.Ala. 2001) (“Plan confirmation orders bind debtors, creditors, trustees and other
parties in interest.”);
In re Wellman, 322 B.R. 298, 301 (6th Cir. BAP 2004) (“Once a plan is confirmed, it is treated as
the exclusive and transcendent relationship between the debtor and the creditor.”).
4See Diviney, 225 B.R. at 771 (finding that creditor could not rely on the provisions in the
stay order as authorization for its post-confirmation actions where confirmation order did not
incorporate the provisions of the stay order); Wellman, 322 B.R at 301 (affirming bankruptcy
court’s determination that “the provisions of the Debtors’ confirmed plan bound the Bank and
pretermitted its motion from relief from stay, absent a post-confirmation default in carrying out
the plan.”); Mitchell, 281 B.R. at 94 (“The binding effect of a confirmation order precludes relief
from the stay on grounds of lack of adequate protection absent a default in carrying out the
plan.”) (citing Anaheim Savings and Loan Assoc. v. Evans (In re Evans), 30 B.R. 530, 531 (9th
Cir. BAP 1983) (remaining citation omitted).
5
which provides that the debtor, creditors, and the trustee are bound to the terms of a confirmed
plan, and with the principal that a creditor cannot proceed to enforce its rights under an order
regarding automatic stay once the plan of reorganization is confirmed.4 A confirmation order
can incorporate terms of a previously entered stipulation regarding automatic stay, but not
because the stipulation requires it. Rather, a debtor can choose to incorporate the terms of a
prior order regarding automatic stay in a proposed plan of reorganization so that all creditors and
the trustee may have an opportunity to object.
Moreover, the Adequate Protection Order did not include express language stating that
the parties intended its terms to be binding in any subsequent confirmation order, and even if it
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6
did, such language would be insufficient in the context of a Chapter 13 proceeding to mandate
inclusion of such terms in a confirmation order. In re Allen, 300 F.3d 1055 (9th Cir. 2002), a
chapter 11 case involving a pre-confirmation agreed order regarding automatic stay, is
instructive. 	In Allen, the bankruptcy court confirmed a plan of reorganization which did not
incorporate the terms of a previously entered stipulation for relief from automatic stay over the
objection of the creditor. Id. at 1057. 	While acknowledging that stipulations are not to be set
aside lightly, the Ninth Circuit held that “[a]n order modifying the automatic stay . . . operates
only until the confirmation of the reorganization plan-unless . . . the order itself provides that it
will outlast reorganization.” Id. at 1059. 	The Allen court reasoned further that
[r]equiring that the parties to a stipulation modifying the automatic stay expressly
state within that stipulation that it will bind the parties and the court in any future
reorganization plan ensures that other creditors and interested parties, as well as
the bankruptcy court, will have notice of the intended effect before the
bankruptcy court issues an order approving it. With such notice, creditors or their
representatives will have an opportunity to object to a preconfirmation
determination of aspects of the reorganization plan . . . ”
Allen, 300 B.R. at 1060.
Unlike chapter 11 proceedings, agreed orders for relief from stay in chapter 13 proceedings do
not require notice to creditors in accordance with Rule 4001(d), Fed.R.Bankr.P. Thus, an agreed
order regarding automatic stay entered in a chapter 13 proceeding which contains language
indicating its terms must be incorporated into a confirmation order will not afford all creditors an
opportunity to object. Only the Debtor, the Creditor, and the Chapter 13 Trustee were parties to
the Adequate Protection Order. No other creditors were given an opportunity to object to its
terms. Therefore, while Debtor’s plan could incorporate the terms of the Adequate Protection
Order, the prior entry of the Adequate Protection Order does not require it because the Adequate
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7
Protection Order did not afford all creditors an opportunity to object.
Having disposed of the Debtor’s first argument, the Court must now determine whether
Debtor’s Second Amended Plan can be confirmed over the objection by the Chapter 13 Trustee.
The Chapter 13 Trustee argues that the Debtor should be required to pay Creditor through the
plan in the amount of $3,500.0 because Debtor valued the Creditor’s collateral at $3,500.00
elsewhere in the Debtor’s schedules. 	The Chapter 13 Trustee argues further that payment to
Creditor in the amount of $6,063.59 as proposed in the Second Amended Plan would result in an
impermissible preference of Creditor over other creditors because Creditor would be paid on the
unsecured portion of its claim. 	In fact, Creditor filed a proof of claim for a fully secured claim
in the amount of $7,211.61, to which no objection has been filed. 	Pursuant to 11 U.S.C. §
502(a), “[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 there has been no objection to
Creditor’s proof of claim, its claim is deemed allowed in the amount of $7,211.61. 11 U.S.C. §
502(a); Rule 3001(f), Fed.R.Bankr.P. (“A proof of claim executed and filed in accordance with
these rules shall constitute prima facie evidence of the validity and amount of the claim.”).
However, “[a]n allowed claim is only secured to the extent of its value, and is unsecured to the
extent the value is ‘less than the amount of such allowed claim.’” In re Chavez, 138 B.R. 979,
981 (Bankr.D.N.M. 1992) (quoting 11 U.S.C. § 506(a)).
The proof of claim filed by Creditor states that it has a secured claim in the amount of
$7,211.61. But the deemed allowance of Creditor’s proof of claim under 11 U.S.C. § 502(a) is
insufficient absent further evidence of value to establish the extent of Creditor’s allowed secured
claim. See In re Hudson, 260 B.R. 421, 436 (Bankr.W.D.Mich. 2001) (“The claims allowance
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5Section 506(a) provides, in relevant part:
An allowed claim of a creditor secured by a lien on property in which the estate
has an interest . . . is a secured claim to the extent of the value of such creditor’s
interest in the estate’s interest in such property . . . and is an unsecured claim to
the extent that the value of such creditor’s interest . . . is less than the amount of
such allowed claim. Such value shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of such property, and in
conjunction with any hearing on such disposition or use or on a plan affecting
such creditor’s interest.
11 U.S.C. § 506(a).
8
process gives prima facie proof only to the amount of the entire claim, which may be fully
secured, undersecured, or entirely unsecured . . . . the claims allowance process does not
determine the amount of the secured portion of a claim under § 506(a).”) (emphasis in
original)(citation omitted); 8 Collier on Bankruptcy ¶ 1325.06[1][a] (Alan N. Resnick and Henry
J. Sommer, eds., 15 th ed. rev. 2006) (“It is not plausible under section 502(a) to maintain that the
mere assertion of a secured claim, without further proof, entitles the holder . . . . to the
protections of section 1325(a)(5). Only a claim filed pursuant to section 501 . . . allowed
pursuant to section 502, enforceable against the trustee under sections 544 through 549, and
determined secured to the extent permitted by subsections 506(a) and (b) comes within the
protective provisions of section 1325(a)(5) relating to allowed secured claims.”). Nor does
Debtor’s Second Amended Plan include a motion to value collateral under 11 U.S.C. § 506(a).5
Instead, Debtor’s Second Amended Plan proposes to pay Creditor directly outside the plan, and
estimates that the amount of Creditor’s claim is $6,063.59.
Creditor does not object to the treatment of its claim under the Second Amended Plan.
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6Subsection (a)(5)(A) of 11 U.S.C. § 1325 provides:
with respect to each allowed secured claim provided for by the plan –
(A) the holder of such claim has accepted the plan.
11 U.S.C. § 1325(a)(5)(A).
9
See 11 U.S.C. § 1325(a)(5)(A).6 However, the Chapter 13 Trustee’s objection to confirmation
puts valuation of the Creditor’s collateral at issue. Facing an objection to confirmation, the
Debtor bears the burden of showing that the plan can be confirmed. See In re Maras, 226 B.R.
696, 701 (Bankr.N.D.Okla. 1998) (“The burden of proof to obtain confirmation of the plan is on
the proponent.”) (citations omitted). Here, because the Chapter 13 Trustee objected to
confirmation of the Second Amended Plan on grounds that the proposed payment to Creditor
impermissibly preferred Creditor over other creditors, the burden was on the Debtor to show that
such treatment did not create a preference. Cf. In re Gonzales, 172 B.R. 320, 326 (E.D.Wash.
1994) (“The debtor bears the burden of proof that a plan does not unfairly discriminate [among
classes of unsecured creditors].”) (citing In re Warner, 115 B.R. 233, 236-237 (Bankr.C.D.Cal.
1989)). And in order to show that there is no preference (i.e., that Creditor would be paid the
unsecured portion of its claim in full while other unsecured creditors received less than 100% on
their claims), the Debtor necessarily had to submit evidence of collateral value sufficient to
establish that Creditor is fully secured. 	This the Debtor failed to do. The Court, therefore,
concludes that Debtor’s Second Amended Plan cannot be confirmed over the objection of the
Chapter 13 Trustee based on the evidence now before the Court.
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WHEREFORE, IT IS HEREBY ORDERED, that confirmation of Debtor’s Second
Amended Plan is DENIED, with leave to amend.
_________________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
I certify that on the date shown on the attached
document verification, a true and correct copy of
the foregoing was either electronically transmitted,
faxed, delivered or mailed to the listed counsel
and/or parties.
Steve H. Mazer
Attorney for Debtor
2501 Yale SE 2nd Floor
Albuquerque, NM 87106 -2901
Kelley L. Skehen
Chapter 13 Trustee
625 Silver Avenue SW
Suite 350
Albuquerque, NM 87102 -3111
Allan Wainwright
JP Morgan Chase Bank, N.A., successor to Bank One, N.A.
920 Lomas Blvd NW
Albuquerque, NM 87102 -3150
___________________________
Patti G. Hennessy
Law Clerk
(505) 348-2545
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