Creditor Estopped from Objecting to Amended Plan

Posted by NCBRC - February 21, 2023

A mortgage creditor who accepted the debtor’s plan could not late object to confirmation of an amended plan that contained the same terms with respect to that creditor. In re Ritter, No. 22-40120 (Bankr. S.D. Ill. Feb. 2, 2023).

The debtor filed a chapter 13 petition listing his mortgagee’s claim at $116,819.95. The debtor proposed a plan to pay the claim at 0% interest and $0 monthly payments. Within minutes of filing that plan, he filed a second “original” plan proposing to make monthly payments to the mortgagee in the amount of $1,200.00 for 60 months, to pay $43,000.00 in arrearages, and to make a Limbo payment of $2,400.00. The creditor, Shellpoint Mortgage, filed an objection to the first original plan but withdrew it three days later stating that the second original plan provided sufficient treatment of its claim. Shellpoint then filed a proof of claim listing the outstanding principle as $119,308.66 and the arrearage as $35,247.86. It later added to its claim $2,125.00, in fees, expenses, and charges. Neither the debtor nor the trustee objected to Shellpoint’s claim.

The trustee objected to various aspects of the second original plan and, in response, the debtor filed a first amended plan, which mooted those objections. The amended plan also changed the payments to Shellpoint to a monthly payment of $763.72, the Limbo payment of $1,527.44, the pre-petition delinquency as $35,247.86, and the post-petition fees of $2,125.00. Shellpoint did not object to the amended plan, and the trustee objected only with respect to certain discrepancies which the debtor corrected in a second amended plan. Shellpoint objected to that plan raising for the first time the argument that the debtor could not cure arrearages because the property had been sold in a pre-petition foreclosure sale, though that sale had not yet been confirmed by the state court.

The debtor filed a third amended plan to correct certain issues raised by the trustee but did not change its treatment of the Shellpoint’s claim. Shellpoint reasserted its objections as to the third amended plan.

The court found Shellpoint’s objections were barred by the judicial estoppel and by certain provisions of the Bankruptcy Code.

As to judicial estoppel, the court found Shellpoint’s objections were inconsistent with its statement with respect to the second original plan that the plan “provides sufficient treatment as to Creditor.” At that time, Shellpoint’s asserted bases for its objection were not that the property had been sold, but were that the mortgage would not mature during the course of the plan and that the arrearage amount to be cured under the plan was $35,247.86. When the debtor amended his plan to conform to Shellpoint’s position, Shellpoint did not object or withdraw its claim.

In reliance on Shellpoint’s stated position, the court allowed Shellpoint to withdraw its objections and the trustee made monthly payments to Shellpoint totaling more than $10,000. The court found that if Shellpoint prevailed on its objections and were permitted to retain the payments as requested, it would give Shellpoint an unfair advantage over other creditors and harm the debtor.

The court also found sections 1325 and 1323 precluded the result Shellpoint sought. Section 1325(a)(5)(A) provides that the court shall confirm a plan if each secured creditor has accepted it. The court found Shellpoint’s withdrawal of its objection constituted such acceptance. Under section 1323, once it accepted the plan, Shellpoint could not later object to an amended plan containing the same terms.

The court overruled Shellpoint’s objections and confirmed the debtor’s plan.

Ritter BAnkr SD Ill Feb 2023

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