CHAPTER 13 DEBTORS
a senior mortgage lender’s latefiled proof of claim, and confirming
a plan without any mortgage
arrearage cure while preserving
the homeowner’s automatic stay
protection through the remaining
life of the plan. In a ruling of first
impression at the circuit court
level, the Seventh Circuit in In re
Pajian8 held that Rule 3002(c)’s9
90-day proof of claim filing deadline
applies to secured creditors.
As prevailing counsel in Pajian,
I immediately recognized the
strategic advantage of this ruling to
NACBA attorneys striving to save
homes from foreclosure despite
debtors’ insufficient income to cure
the mortgage arrearages. A review
of the case is instructive.
The Pajian debtor filed bankruptcy
on the eve of a foreclosure sheriff
sale on one property and after the
sheriff sale of a second property.
This case was debtor’s second
bankruptcy case in less than a year
so a motion to extend the automatic
stay was required by §362(c)(3)
(B).10 The mortgage lender who
held notes on both properties
objected to the stay extension.
A trial was held and the stay was
extended. Meanwhile, the claims
filing deadline clock was ticking.
Debtor proposed a chapter 13 plan
that bifurcated the obligations owed
to the mortgage lender. The plan
proposed fully paying what debtor
thought was the correct mortgage
arrearage on the not yet foreclosed
property plus the monthly postpetition mortgage payment required
by the mortgage note. The plan also
proposed paying a 10% dividend for
the unsecured mortgage deficiency
on the already foreclosed property.
was ultimately confirmed. Debtor
appealed directly to the Seventh
Circuit.
The mortgage lender objected to
the plan after the proof of claim
deadline had passed, asserting
that the true mortgage arrearage
was substantially greater than the
mortgage arrearage provided in
the chapter 13 plan. Debtor could
not afford to cure the full mortgage
arrearage asserted by the lender
over the 60-month plan term.11
So debtor responded by filing a
modified plan12 t hat reduced to
zero ($0.00) the amount paid to
the mortgage lender regarding the
unsecured mortgage deficiency.
Plus, the modified plan reduced
to zero ($0.00) the amount of the
mortgage arrearage cure, retaining
only the monthly post-petition
mortgage payment required by the
mortgage note.
c. Seventh Circuit Holds Rule
3002(c) Applies to Both Secured
and Unsecured Claims
The mortgage lender responded
by filing a single proof of claim
after the Rule 3002(c) filing
deadline, combining both its
secured and unsecured claims.
Debtor objected to the late-filed
proof of claim asserting that Rule
3002(c)’s deadline applies to both
secured and unsecured claims.
The bankruptcy court sustained
the objection as to the unsecured
mortgage deficiency, but overruled
the objection as to the secured
claim for the mortgage arrearage
holding that Rule 3002(c)’s filing
deadline does not apply to secured
claims. The bankruptcy court then
found that the secured creditor’s
filing deadline was the date a plan
National Association of Consumer Bankruptcy Attorneys
Winter 2015
The Seventh Circuit reversed the
bankruptcy court and held that a
secured creditor must file its proof
of claim by the 90-day deadline
contained in Rule 3002(c). The
Pajian court began its analysis by
noting that a creditor must file a
proof of claim in order to participate
in chapter 13 plan distributions.
But while all creditors must file a
proof of claim in order to receive
distributions, a secured creditor
who fails to do so can still enforce
its lien through a foreclosure action,
even after the debtor receives a
discharge.13
The Pajian court recognized that
debtors may object and courts must
disallow any claim that is not timely
filed.14 But when is the deadline
after which a secured creditor’s
claim is “late?” The Seventh Circuit
stated the issue in Pajian as whether
Rule 3002(c)’s deadline applies to
all creditors or merely unsecured
ones.
Rule 3002(a)’s15 filing requirement
applies only to unsecured creditors
and does not mention secured
creditors. Plus, the court noted that
Rule 3002 never expressly refers
to “secured creditors” anywhere.
But the court segregated Rule
3002(a) as only addressing the
issue of “who” must file; whereas
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