Pawtucket Credit Union v. Boyajian

Citation:
United States Bankruptcy Appellate Panel for the First Circuit, Nos. RI 14-049, 14-051, March 31, 2015
Tag(s):
Ruling:
Reversing and remanding, the First Circuit BAP concluded that the binding effect of a confirmed chapter 13 plan prevails over a claim that is disallowed under the claims allowance process set forth in the Bankruptcy Code and Rules. Plan confirmation is a final order, with res judicata effect, so long as the due process requirements, as here, of reasonable and actual notice are satisfied. Accordingly, where a confirmation order specifically deems an unsecured claim as "allowed" in the context of a strip down of a mortgage, notwithstanding the absence of a filed claim at the time and the disallowance of a late-filed claim thereafter, all parties are bound, including a chapter 13 trustee.
Procedural context:
This case involved cross-appeals from a bankruptcy court order on a turnover motion requiring a bank that allegedly had received improper chapter 13 plan payments to return to the chapter 13 trustee 50% of the funds received.
Facts:
Chapter 13 debtors listed PCU, a second mortgagee, as unsecured and in conjunction with their plan also filed a motion to strip off the second mortgage as wholly unsecured. PCU never filed a timely proof of claim, and its late-filed unsecured claim was successfully objected to. But, in conjunction with confirmation of the plan and the debtors' strip off motion, the chapter 13 trustee had submitted a proposed final confirmation order, which stated that PCU's second mortgage claim "will be allowed as a wholly unsecured claim." The order entered. Almost five years later the trustee sought the return of approximately $41,000 from PCU, contending that the bank had been paid in error because it jnever held an allowed claim in light of the objection and the claims allowance procedures. The bankruptcy judge ordered PCU to return 50% of the payments because both parties were "at fault" and neither had taken any action for five years to correct the problem. Cross-appeals followed.
Judge(s):
Kornreich, Tester, and Cary

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