Ovation Denied Keys to the Candy Store

Posted by NCBRC - November 17, 2022

A bankruptcy court rejected the tax lender’s challenge to the district’s Mandatory Form Chapter 13 Plan where it found the lender, whose claim would be fully paid through that plan, simply did “not want this Court’s oversight in approving claims for reimbursement for any post-petition expense charges.” In re Martin, No. 22-30148 (Bankr. S.D. Tex. Nov. 14, 2022).

The debtor filed for bankruptcy listing Ovation Services as a tax creditor with a lien on her home. Ovation filed a proof of claim for $15,358.32. The debtor’s proposed plan acknowledged Ovation’s secured claim and the validity of its lien and committed to full repayment of the debt. Nonetheless, Ovation objected to the Form Plan because of the provision giving the bankruptcy court oversight over “any post-petition attorneys fee, costs, or other assessments made by the tax lender post-petition but pre-discharge against the debtor.” Ovation argued that the provision was inconsistent with Rule 3002.1 and the Advisory Committee notes relating to that rule.

The bankruptcy court disagreed. It found that, in their efforts to address matters that are local in nature, “many courts promulgate local rules and impose additional obligations,” as authorized by Rule 9029. It found the obligations imposed by the Form Plan here were fully consistent with Bankruptcy Code and Rules and were therefore within the court’s authority to create local rules.

Finding Ovation’s assertion that “most Debtors are happy to pay the fees after the conclusion of the case due to the liberation of some disposable income,” “laughable,” the court emphasized that the Form Plan would not cause Ovation to lose any rights because the tax debt would be fully repaid, including approved post-petition costs, fees, and assessments. Contrary to Ovation’s argument, the Form Plan would not threaten the survival of the tax lien post-discharge because the lien would be released through full repayment of the underlying debt.

The procedures in the Form Plan changed nothing except to ensure “oversight and approval of the any post-petition claims by the Court, as well as the prompt payment of these post-petition claims pre-discharge of the debtor.” The court found this oversight harmonized with Rule 2016(a) which governs collection from post-confirmation income.

The court stated: “What Ovation wants is the keys to the candy store, the authority to charge what it wants, when it wants, for these claims to survive a Chapter 13 Discharge, and for debtors to be forced to pay them after their Chapter 13 cases are complete. This is an abhorrent result and one this Court would never endorse.”

The court rejected Ovation’s argument that the plan did not account for the possibility of conversion or dismissal as being without merit because the Code ensures that, in either of those cases, Ovation’s lien would survive.

The court ended by acknowledging some “small merit” to Ovation’s claim that, if the court rejects its application for post-petition charges, the debtor, in Ovation’s view, would exit bankruptcy without having fully paid the debt. The court found, however, this concern was outweighed by the value of the procedural safeguards and the goal of giving debtors a fresh start.

Martin Bankr SD Tex Nov 2022


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