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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove

In re Donnadio

Case Type:
Case Status:
Reversed and Remanded
19-8004, 2019 WL 6270946 (6th Cir. BAP 2019) (6th Circuit, Nov 25,2019) Published
Court cannot confirm Plan as matter of law where Plan provides for payment of secured claim but does not expressly provide that Creditor will retain lien until obligation is paid in full under applicable non-bankruptcy law.
Procedural context:
Debtor filed Chapter 13 Plan using National Form Plan. Creditor objected asserting that Plan did not provide for lien retention. Bankruptcy court confirmed Plan and creditor appealed. BAP reversed and remanded for further consideration.
Within 910 days preceding commencement of the bankruptcy case, Debtor purchased an automobile financed through Santander Consumer, USA. Debtor filed for relief under Chapter 13 and, using the National Form Plan, provided for payment of Santander in full over the term of the Plan. The Plan did not propose to cram the claim or to modify the interest rate and listed the claim at $10,000.00. Santander filed a Proof of Claim showing a balance due of $9,650.50, and objected to confirmation because the Plan did not specifically provide for Santander to retain its lien until the claim is paid in full under applicable non-bankruptcy law. The Bankruptcy Court confirmed the Plan, holding that for a claim that is not bifurcated, Section 1325(a)(5) already requires full payment and there is no reason to require a provision to be restated in the Plan that is already indisputably required by the law. "Explicit language assuring the creditor that its lien will be retained is not necessary to effectuate the actual retention the lien, as there is no reason in the Plan or in the Code why it would be released. The lien is retained by operation of law. To the extent that Section 1325(a)(5) must be applied to a 910-day claim, it does not indicate that the only way for a provision to be 'provided for by the plan' is if the statutory protections and guarantees within the Code are each spelled out verbatim in the plan itself. The vast majority of the Code operates in the background at any given time; if a plan could not be confirmed unless it contained reference to all of the relevant provisions acting upon each of its sections, one might as well be required to submit a complete copy of Title 11 itself." On appeal, the BAP reversed, holding that Section 1325(a)(5) states that the Court may confirm a plan only if "the plan provides that ... the holder of such claim retain[s] the lien securing such claim ...." Debtor's Plan did not explicitly provide for lien retention. The BAP rejected the Bankruptcy Court’s conclusion that lien retention was implicit by the provisions of the Code, and sustained the Creditor's objection that implicit retention is not the same as explicit retention. The Court also rejected Debtor's contention that requiring Debtor to include a non-standard form provision regarding lien retention violated Rule 9009 by requiring alteration of a National Form. The Court concluded that adding a provision for lien retention is not an alteration but an addition which is not implicated in Rule 9009; and Rule 9009 allows modification of National Forms where needed to comply with the Code; and Section 1322(b)(11) allows a form plan to include any other appropriate provision that is not inconsistent with a requirement of Title 11. Case remanded to allow Debtor to modify Plan to include language specifically providing for lien retention.
Wise, Buchanan and Harrison

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