Debtor’s Chapter 13 plan was confirmed cramming down the claim of Greater Piedmont Credit Union against mobile home and land, prior to the filing of the Proof of Claim by GPCU showing that title to the mobile home had been cancelled, affixing it to the real property. Within thirty days of confirmation and before the passing of the bar date for filing claims, GPCU filed a Motion pursuant to Rule 60(b) for relief from the Confirmation Order based on mistake.
The bankruptcy court held that to obtain relief under Rule 60(b)(1), GPCU was required to show:
(1) That the underlying motion was filed within one year of the date the Confirmation Order;
(2) That GFCU had a meritorious defense;
(3) That the Debtor would not be unfairly prejudiced by having the judgment set aside; and
(4) The existence of mistake, inadvertence, surprise, or excusable neglect as a ground for relief.
As the title to the mobile home had been cancelled, GFCU had a meritorious defense as it lien was secured only by real property that served as the Debtors’ principal residence with 11 U.S.C. § 1322(b)(2) precluding cram-down. The actual status of the residence as only realty not mixed personal and real property, constituted the mistake by the Debtors in the proposed plan. As the motion by GPCU was brought within thirty days of the entry of the confirmation order AND prior to the expiration of time to file claims the first and third prongs of a Rule 60(b) motion were met, particularly as the Debtors monthly payment to GPCU would decrease if treated as a long-term debt rather than cramming down the claim.
The bankruptcy court distinguished this result from United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), focusing on the ten year delay there between confirmation and the motion to set aside the Chapter 13 “discharge by declaration” plan compared with only thirty days in the instant case. Because it is the policy of the Middle District bankruptcy court to confirm plans prior to the claims bar date, in order to quickly facilitate payment to creditors, such “policy can work ‘only if the confirmation can be reviewed and the order vacated when the claims actually filed alter the assumptions on which the confirmation was granted.’” Citing In re Carr, 318 B.R. 517, 521 (Bankr. W.D. Wis. 2004).
This opinion will increase the uncertainty regard the finality of Chapter 13 plan, with Rule 60(b) motions likely from all sides. Given the apparent habit of many creditors to file claim only after confirmation or even after the bar date, Debtors should also be permitted to have confirmation similarly set aside if the claim filed subsequently shows a mistaken assumption about the nature of a claim, for example additional collateral . This is a different standard than for a modification under 11 U.S.C. § 1329, which requires a substantial and unanticipated change in circumstances and may not necessarily allow reclassification of a claim. It would be expected that a creditor would argue that a later cram-down would be an unfair prejudice, since it would receive less in total, but given that the total amount the Debtors would have to pay for their home was not an unfair prejudice here, but instead only the monthly payment of importance, it would be hoped that such argument would be unavailing for either side.
Also worth noting that while parties believed and stated the claim was only secured by real property, such may be a mistaken belief as the note additionally took the Debtors’ bank accounts as collateral. Whether this provision is valid under Article 9 of the UCC and, if invalid, the affect on the entire contract, is unclear. A stuttering Motion to Re-Reconsider Confirmation Order may be pending.
For a copy of the opinion, please see: