The case of In re Hale, — B.R. 0000, 2007 WL 196599 (Bkrtcy. E.D. Wash. 2007) the debtors commenced a Chapter 13 case and filed a proposed plan. Under paragraph VII entitled “Special Provisions,” the debtors stated “Debtor’s (sic) are surrendering house.” The initial plan would have required a monthly payment of $549.76 to fund the plan, which had a proposed base of $19,791.36 and an estimated term of 36 months. On March 14, 2003, Origen Financial, LLC (hereinafter “Origen”) filed a Proof of Claim in the total amount of $107,825.33. As completed by Origen, the form indicated that based upon the fair market value of the home, Origen held a secured claim of $78,770 and held an unsecured claim of approximately $29,055.33.

After a number of modifications, the Plan was confirmed. On August 30, 2006, three and one-half years after the filing of the Origen Proof of Claim, the debtors objected to that claim. Meanwhile, Origen foreclosed its lien non-judicially by making a credit bid of $107,000 at the foreclosure sale. On September 16, 2005, Origen sold the home for $120,000 to a third party and received net proceeds of $100,611.08, leaving a deficiency of $31,595.38 on the obligation.

The court noted that in Nobelman v. American Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), the Supreme Court held that although bifurcation of many secured claims into both a secured and an unsecured claim was required by § 506(a), § 1322(b) precluded bifurcation of first position residential home mortgage claims. Chapter 13 debtors, therefore, were required to pay residential mortgage lenders in accordance with the terms of the underlying obligation regardless of the value of the residence. The bifurcation of the claim was disallowed.

The crux of the case, however, deals with the res judicata effect of a confirmed Chapter 13 Plan. Once a Chapter 13 plan is confirmed, the plan is res judicata as to all matters contained in the plan. Trulis v. Barton, 107 F.3d 685 (9th Cir.1995). Typically, Chapter 13 plans do not effect or purport to determine the nature and extent and validity of a claim. In re Hobdy, 130 B.R. 318 (B.A.P. 9th Cir.1991). Confirmation of plans does not effect the validity of a claim nor its classification as secured or unsecured. Chapter 13 plans determine the treatment to be accorded claims and are res judicata as to the treatment described in the plan. Plans are not res judicata as to the allowance or disallowance of a claim. Allowance of a particular claim is generally not referenced or effected by the plan. In re Shook, 278 B.R. 815 (B.A.P. 9th Cir.2002).

There is an exception to the general rule that confirmation of a Chapter 13 plan has no res judicata effect on the nature, extent or validity of a claim. That exception occurs when the plan specifically so provides. Plans may modify the rights of the holders of claims in a manner disallowed by the Code if the plan clearly and specifically so provides and due process requirements are met. But by failing to refer to the unsecured claim of Origen with any specificity, the court held that the Plan at issue was not res judicata as to the lender.

The moral of the story is to craft your Plan carefully, being sure to refer to claims with specificity and provide due process to the creditor at issue. Without doing so, the terms of the Plan cannot be deemed binding against the creditor.

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