Sears, Roebuck & Co. v. Burgess (In Re Burgess)

Citations: 163 B.R. 726; 1993 Bankr. LEXIS 2091; 1993 WL 592201Docket: Bankruptcy 5-91-00682

Court: United States Bankruptcy Court, M.D. Pennsylvania; July 13, 1993; Us Bankruptcy; United States Bankruptcy Court

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Sears, Roebuck and Company filed a Motion for Relief from Automatic Stay related to a $3,670.28 debt secured by household items purchased on a Sears account in 1990. The Debtors, Sam and Irene Burgess, argued that Sears was listed as an unsecured creditor in their bankruptcy schedules and had not objected to their confirmed Chapter 13 plan, which indicated no payments to secured creditors. The Debtors contended that Sears accepted the plan by not objecting and could not seek relief without demonstrating a default in payments. Conversely, Sears claimed its secured Proof of Claim filed on June 3, 1991, was allowed and that it should not be bound by the Debtors' plan, which did not address its secured claim. The court analyzed whether Sears could pursue relief from the automatic stay despite the confirmed plan. It examined 11 U.S.C. § 1327(a), which binds both Debtors and creditors to the confirmed plan, and 11 U.S.C. § 362(c)(1), which concerns the continuation of the automatic stay until the property is no longer part of the estate. The central issue was whether the confirmation of the Chapter 13 plan precluded Sears from seeking relief due to its failure to be identified as a recipient of payments.

The collateral belonging to Sears was considered property of the estate upon filing for Chapter 13 bankruptcy. Under 11 U.S.C. § 1327(b), once the bankruptcy plan was confirmed on December 3, 1991, this collateral vested in the Debtors and was no longer classified as property of the estate. However, 11 U.S.C. § 362(a)(5) imposes an automatic stay on actions to perfect or enforce liens against the debtor's property for claims arising before the bankruptcy filing. Although 11 U.S.C. § 362(c)(1) does not apply after confirmation, § 362(c)(2) extends the stay until the case is closed, dismissed, or the debtor is discharged.

The next step is to ascertain whether Sears' security interest persisted post-petition. If it did not, Sears would struggle to demonstrate 'cause' under 11 U.S.C. § 362(d)(1) or a lack of 'equity' under § 362(d)(2). The applicability of 11 U.S.C. § 1327(c) is critical in evaluating the status of Sears' security interest post-confirmation, indicating that property vested in the debtor is free and clear of any claims from creditors provided for by the plan. The term "provided for" can be interpreted through the Supreme Court's decision in Rake v. Wade, which suggests that a creditor must be explicitly mentioned in the plan for their claim to be addressed. This principle is supported by other Chapter 13 provisions that use similar language. Given the significant implications of § 1327(c) in potentially removing a lien from a creditor 'provided for by the plan', it is essential for the court to assess the wording of the plan, the adequacy of notice, and the protection of the due process rights of secured creditors.

A Chapter 13 plan must adequately protect the vested property rights of secured creditors, as established in Matter of Anderson. The clarity of the plan's language and proper notice to creditors are essential; otherwise, the plan lacks binding authority. Each plan's sufficiency is assessed on a case-by-case basis, as different creditors may require different disclosures. In this case, Sears was initially recognized as an unsecured creditor, which affected its expectations regarding plan payments. The notice provided indicated no payments would be made to secured creditors since the debtors were current on their obligations. The plan specified that certain secured creditors would receive regular payments, implicitly excluding Sears from such treatment. With the determination that Sears is a secured creditor, the court will apply 11 U.S.C. § 362(d) to assess any relief entitlement. The court also noted that Sears' failure to object to the plan did not bar it from seeking relief, emphasizing that a Chapter 13 plan must disclose any intent to modify obligations. Consequently, the court denied the Debtors' Motion for Summary Judgment, allowing for a final hearing on Sears' Motion for Relief from Automatic Stay. The hearing is scheduled for August 2, 1993. The attached Chapter 13 plan outlines the payment structure and classifications of claims, explicitly stating that no amounts shall be paid to secured creditors through the plan while detailing regular payments to specific creditors.