Bankruptcy Court Rules Creditor Is Bound By Plan Confirmation Despite Lack Of Stay

The U.S. Bankruptcy Court for the Central District of California granted a debtor’s motion seeking to enjoin a creditor’s foreclosure sale, ruling that the creditor was bound by the terms of the debtor’s confirmed Chapter 13 plan even though the debtor’s automatic stay had been lifted.. The primary issue in In re Hileman, (Bankr. C.D. Calif., No. 1:10-bk-14174-June 13, 2011) was whether the creditor was bound by the confirmed plan notwithstanding the termination of the stay pursuant to Bankruptcy Code Section 362(c)(3)(A). The creditor argued that the termination of the automatic stay permitted it to exercise post-petition remedies despite the confirmed Chapter 13 plan. The court held that this argument completely ignores long standing jurisprudence on confirmation orders. Section 1327(a) provides that the provisions of a confirmed plan bind both the debtor and creditor, regardless of whether the creditor has objected to, accepted, or rejected the plan. The creditor also argued that it should not have to monitor debtors’ proposed plans after it has already received an order denying an extension of an automatic stay. But the court, relying on the Supreme Court’s decision in _Espinosa v. United Student Aid Funds Inc._, 130 S. Ct. 1367 (2010), held that when a creditor fails to timely object to a debtor’s plan confirmation, the creditor’s only cause for relief is the debtor’s material failure to adhere to plan’s payment terms. Thus, a creditor is required to monitor plan provisions if it wants to avoid being bound by plan provisions it dislikes. The creditor could have protected itself from being bound by the plan by filing either an objection to the treatment of its claim in the plan or by filing a timely appeal to the order confirming the plan, the court said.

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