Bankr. W.D.N.C.: In re Hatten- Res Judicata Affect of Confirmation Order as to Creditor Standing

Summary:

Following a Motion for Relief from Stay filed by ASC, the Debtor argued that ASC was not a a “party in interest” and lacked standing as there was neither an endorsement on the note nor an allonge affixed and presented in support of the Motion. \

Avoiding this issue, the Bankruptcy Court held “that a confirmed Chapter 13 plan, which represents a new contractual agreement between debtors and their creditors, is res judicata on the issue of a creditor’s rights as a party in interest with standing to seek relief from the stay.” In re Jeter, No. 08-07872-HB, 2011 WL 6014173, at *3 (Bankr. D.S.C. Dec. 1, 2011) (citing In re Neals, 459 B.R. 612, 617 (Bankr. D.S.C. 2011). A Debtor cannot wait “until after the creditor asserted a default [to] [raise] or [revive] any such challenge.” Accordingly, pursuant to First Union Commercial Corp. v. Nelson, Mullins, Riley and Scarborough (In re Varat Enterprises, Inc.), 81 F.3d 1310,1315 (4th Cir. 1996) (citing Brown v. Felsen, 442 U.S. 127, 132 (1979)), “the confirmation order in this case is a final judgment with res judicata effect and that the Debtor is estopped from asserting that ASC is not a party in interest with standing to bring the Motion.”

Commentary:

This case again affirms that Debtors should list ALL claims as disputed in petition (or at the very least as “NOT ADMITTED”) and specifically decline admission of claim in any Objection to Claim or other pleading.

It is also worth noting that the Standard Confirmation Order for cases in the Middle District provides both that “providing for a claim under the plan does not bar objections to the claim” and that “[n]otwithstanding the allowance of a claim as secured, all rights under Title 11 to avoid liens are reserved and confirmation of the plan is without res judicata effect as to any action to avoid a lien.”  See:
http://www.ncmb.uscourts.gov/sites/default/files/general-ordes/Standing%20Order%20-%20CH%2013%20Confirmation.pdf

The typical Eastern District Motion for Confirmation also provides that confirmation “will be without prejudice to objections to claims and avoidance actions….” Since nearly identical language appears in the standard Wester District plan (“Confirmation of this plan does not bar a party in interest from objecting to a claim for good cause shown.”), it is not clear why the Debtor is not allowed to object to the claim, which forms the basis for the Motion for Relief , on the grounds of standing. This argument was specifically rejected on this grounds by Judge Stocks in Lilley v. Wells Fargo, N.A. (In re Lilley), 2011 Bankr. LEXIS 1406, 2011 WL 1428089 (Bankr. M.D.N.C. Apr. 12, 2011), who held that the Confirmation Order preserved the Debtor’s right to object to claims.

For a copy of the opinion, please see:

Hatten- Res Judicata Affect of Confirmation Order as to Creditor Standing.pdf

About

1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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