Case Type:
Case Status:
Nos. 21-2681, 21-2682, 21-2687 & 21-2782 (7th Circuit, Jun 16,2022) Published
A creditor was bound by a confirmed reorganization plan, even if the creditor was never served, because: (i) the creditor filed a motion for relief from the automatic stay, thus appearing in the bankruptcy case; (ii) the creditor's counsel conceded, at oral argument, that the creditor was a party to the bankruptcy proceedings; (iii) the creditor negotiated and received better plan terms from the debtors; and (iv) failed to take customary steps to challenge confirmation of the debtors' reorganization plan.
Procedural context:
The debtors and a party that paid a certain tax debt of the debtors appealed an order of the district court that affirmed the confirmation of the debtors' amended reorganization plan. The amended plan called for payment of amounts advanced by the creditor to pay the tax debt. The creditor argued that the confirmed reorganization plan was not binding on the creditor because it had never been served with process in the bankruptcy case.
Ramon and Bertha Aguirre borrowed approximately $1.3 million from JPMorgan Chase Bank (the "Bank"). The loan was secured by a restaurant in Cook County, Illinois. The Aguirres stopped paying real estate taxes. Wheeler Financial paid the delinquent taxes on the Aguirres' behalf and received the right to a tax deed once a redemption period had expired. The Bank could have paid the taxes, or redeemed from Wheeler, and added the amount to the loan in order to protect its interest. The Bank did not. The Aguirres subsequently filed a bankruptcy petition. The Aguirres failed to schedule the Cook County tax debt and did not identify Cook County or Wheeler as creditors. The Bank knew of the unpaid taxes but failed to ensure that Cook County or Wheeler were served with notice. The Aguirres proposed a reorganization plan that would pay all back property taxes. Again, Cook County and Wheeler were not served. The plan was confirmed. When Wheeler failed to receive a distribution for the tax payments, Wheeler filed a motion in the bankruptcy court seeking relief from the automatic stay so that Wheeler could get a tax deed. The bankruptcy court granted Wheeler's motion, and a state court issued the tax deed. The debtors appealed to the district court. The district court reversed and remanded. On remand, the bankruptcy court found the tax deed was void and confirmed an amended reorganization plan that provided payment to Wheeler. On appeal, the district court reversed the bankruptcy court's decision that the tax deed was void. The district court also concluded that the order confirming the amended plan was valid and that the plan properly eliminated Wheeler's lien.

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