New case from 9th Circuit: Beware of Form Plans in a Chapter 13

12 Oct New case from 9th Circuit: Beware of Form Plans in a Chapter 13

In a Chapter 13 bankruptcy, the form plan in a confirmed case did not give adequate due process notice to the taxing authority regarding its lien, according to a recent decision from the 9th circuit:In re Brawders, ____ F.3d ____, 2007 WL 2596468 (September 11, 2007).

The debtors had confirmed a plan, dealt with a tax debt to Ventura County and even entered into a stipulation with the county as to the amount to pay on the debt. The County had placed a lien on debtor’s home however. When the debtors sought to remove the lien, the County objected in spite of the stipulation (which didn’t address treatment of the lien; only of the debt).

Although the debtors prevailed in the bankruptcy court, the BAP reversed and the 9th circuit upheld the BAP. Apparently, according to the 9th Circuit Court of Appeals, the form plan used by the debtors put the County on notice that the amount of its debt was being modified, reduced or stripped and therefore it didn’t comply with the due process requirements for objections to claims under Rule 3007 or adversary proceedings under Rule 7001.

Further, this court up-held long standing 9th Circuit law that a confirmed plan has no preclusive effect on issues that must be brought as an adversary proceeding, or were not sufficiently evidenced in the plan to provide adequate notice to the creditor.

The practical effect of this decision for bankruptcy attorneys or pro se debtors is that more notice than just the form plan may be necessary for various secured creditors, especially where the plan changes the amount due, the interest rate, rate of payment, etc.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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