by A plan providing for delayed payments to secured creditors was confirmed over the trustee’s objection based on the creditors’ implied acceptance of the repayment terms. Bronitsky v. Bea (In re Bea), No. 14-1376, 2015 Bankr. LEXIS 1793 (B.A.P. 9th Cir. May 29, 2015).
Lionel Bea’s plan proposed to pay three tax lienholders (city, state and federal) in full over 12 to 15 months and pay nothing to unsecured creditors. The plan further provided that: “the fixed monthly payments to the Secured Creditors do not begin until month seven of the Plan, in order to allow the Debtor’s $3,000 in outstanding attorneys fees to be paid first.” Although the taxing authorities did not object to the treatment of their liens, the trustee objected to the plan. In separate orders the bankruptcy court overruled the trustee’s objection and confirmed the debtor’s plan as proposed.
In her objection, the trustee argued that because the plan delayed payments to the secured creditors it did not provide adequate protection as required by section 1325(a)(5)(B)(iii)(II). She further argued that the creditors’ failure to object did not remedy the problem because United Student Aid Funds, Inc. v. Espinosa, 130 S.Ct. 1367 (2010), imposes an obligation on the bankruptcy court to make sure a plan conforms to Code requirements before confirming it.
On appeal the Bankruptcy Appellate Panel for the Ninth Circuit addressed two questions: 1) whether a plan that provides for the equal payments to secured creditors to commence later than the first plan payment necessarily violates the bankruptcy code, and 2) whether the secured creditor’s failure to object to the plan constitutes acceptance under section 1325(a)(5)(A).
In affirming the bankruptcy court, the BAP discussed two post-Espinosa cases. In re Montoya, 341 B.R. 41 (Bankr. D. Utah 2006), involved a plan proposing to pay the full secured amount of a 910-vehicle but proposing to pay only a small percentage of the unsecured portion, counter to the hanging paragraph of section 1325(a)(9). The secured creditor did not object. In finding that the plan was not confirmable, the Montoya court differentiated between chapter 11, where the balloting system allows creditors to affirmatively declare acceptance of treatment of their claims, and chapter 13 where acceptance may be presumed in the absence of objection. The court found that implied acceptance does not apply when a plan provision contravenes one of the “few” non-ambiguous requirements of the Code such as the prohibition against bifurcation of claims for so-called 910-vehicle debts.
In In re Thomas, 2010 WL 9498475 (Bankr. E.D. Cal. Sept. 13, 2010), the plan proposed to pay two claims secured by vehicles, one of which would be paid at 1.9% interest and the other at no interest. Neither creditor objected. The trustee objected, arguing that the repayment plan violated section 1325(a)(5)(A) in that the interest rates did not compensate the creditors for the delay in paying their claims in full, and, therefore, did not provide adequate protection as required by the Code. The Thomas court distinguished cases like Montoya, in which the terms of a plan violate a “self-executing” provision of the Code. It found that the requirement of providing adequate protection was not one of the self-executing provisions, but rather, required the court to make factual determinations based on evidence relating to the present value of the creditors’ claims.
The court in Bea concluded that the issue of whether delayed payments violates the adequate protection requirement is a fact-based determination that does not give rise to the obligation espoused in Espinosa. The panel found that where, as in this case, the plan provided for full repayment of the secured debts, the creditors’ failure to object could have been based on their determination that the plan provided adequate protection. Because it could not be found as a matter of law that it did not the bankruptcy court was not precluded under Espinosa from confirming the plan as proposed.
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