By Stephanie M. Acree
A Chapter 13 plan confirmation order discharging post-petition interest on a judgment involving the debtor's negligent operation of a motor vehicle was found to be binding on the creditor insurance company March 19 by the U.S. Bankruptcy Court for the Eastern District of Wisconsin (American Family Mutual Insurance Co. v. Reichartz (In re Reichartz), Bankr. E.D. Wis., No. 2:12-ap-02697 (SVK), 3/19/13).
Judge Susan V. Kelley found that because the creditor had failed to object to the plan, the order must be enforced even though the provision discharging the post-petition interest would likely not have been confirmed if the creditor had objected.
Debtor Martin L. Reichartz filed for Chapter 13 protection on Oct. 13, 2004. Prior to the filing, Reichartz was involved in the negligent operation of a motor vehicle while intoxicated, which resulted in American Family Mutual Insurance Co. paying certain medical expenses pursuant to Reichartz's insurance policy.
American Family obtained a judgment against Reichartz on June 25, 2003, and filed a general unsecured proof of claim in Reichartz's bankruptcy case. The claim stated that the amount due as of the date of the petition was “$22,612 plus judgment interest.” Pursuant to Wisconsin state law, American Family's judgment would accrue 12 percent interest per year.
The debtor's Chapter 13 plan provided that the debtor would pay American Family's claim in full, but that “[i]nterest, penalties, and garnishment [would] cease.” American Family did not object to the plan confirmation, and the bankruptcy court confirmed the plan on Nov. 29. 2004, with the order specifically containing the provision that interest would cease. American Family recieved $22,612 worth of payments under the plan. The plan was completed in 2007 and the bankruptcy court entered an order discharging the debtor.
However, in 2012, both American Family and the debtor moved to reopen the case and both parties instituted adversary proceedings. The debtor alleged that American Family was attempting to collect a discharged debt because it had wrongfully applied the Chapter 13 plan payments to interests, costs, and other charges and now claimed to be owed more money after discharge. American Family claimed that it recalculated the debt, applying all of the plan payments to the principal amount of the judgment, and sought in its complaint a determination that $6,460 it calculated in post-petition interest was nondischargeable.
Both parties filed motions for summary judgment.
In deciding the case, the bankruptcy court relied on the U.S. Supreme Court's decision in United Student Aid Funds Inc. v. Espinosa, 559 U.S. 260 (2010)(22 BBLR 399, 3/25/10). In Espinosa, the Chapter 13 debtor's plan provided that it would pay the principal on a nondischargeable student loan, but that the interest would be discharged. The creditor failed to object and the bankruptcy court confirmed the plan. The creditor eventually attempted to collect the post-petition interest and moved to declare the confirmation order void pursuant to Rule 9024 of the Federal Rules of Bankruptcy Procedure, arguing that the order violated the Bankruptcy Code because student loans are nondischargeable without an adversary proceeding finding of due hardship.
The Supreme Court concluded that the provision discharging the interest should have been considered invalid and the bankruptcy court should not have confirmed the plan, but that once it had been confirmed the order must be enforced.
The bankruptcy court concluded that the decision in Espinosa was controlling. The court said that because the plan “unambiguously provided for discharge of American Family's post-petition interest,” and because American Family had failed to object to the provision, it was now binding. The court acknowledged that had American Family objected to the provision, the plan likely would not have been confirmed.
Accordingly, the bankruptcy court granted Reichartz's motion for summary judgment and dismissed American Family's complaint.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)