Pia P. Lipscomb-King

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
JAMES I. 	KING, JR. and PIA
P. LIPSCOMB-KING,
Debtors.
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Case No. 08-00077
(Chapter 13)
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION RE THE
DEBTORS’ MOTION TO MODIFY CONFIRMATION ORDER
The debtors have filed a motion requesting entry of an order
modifying the order confirming their chapter 13 plan with respect
to the treatment of the claim of Litton Loan Servicing, L.P.
(“Litton”). 	Specifically, they seek an order modifying the
confirmation order so that Litton’s “secured claim . . . shall be
satisfied through surrender of the collateral securing the claim
(i.e. certain real property located at 2014 McHenry St.,
Baltimore, Md. 21223).” 	Upon surrender of the collateral, the
foreclosure sale may not satisfy the secured claim in full
because an unsecured deficiency claim may arise. 	Accordingly,
the court will deny the debtors’ motion.
The decision below is hereby signed. Dated: July
20, 2008.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 	With its motion for relief from the automatic stay, filed
before the bar date for claims, Litton filed a copy of the
promissory note it holds, and it reveals that the debt is one for
which it has recourse against Mr. King: the obligation is not a
nonrecourse obligation under which Litton would be limited to
proceeding against the collateral. 	Litton’s motion claimed that
its claim was not adequately protected.
2
I
The debtors’ confirmed plan, confirmed before the bar date
for filing claims had expired, provided for full payment of all
allowed unsecured and all allowed secured claims. 	Whether
Litton’s claim was filed as a secured claim or an unsecured
claim, it was to be paid in full. 	The effect of the debtors’
proposed amendment would be to treat Litton’s claim as fully
satisfied by way of surrender even if the foreclosure sale by
Litton results in an unsecured deficiency claim. 	As discussed
later, nothing in the Bankruptcy Code authorizes a plan to
eliminate a creditor’s entitlement under nonbankruptcy law to a
deficiency claim via surrender of the creditor’s collateral to
the creditor.
Before addressing the law that leads to that conclusion, it
is noted that upon a foreclosure sale, Litton may end up having
an unsecured deficiency claim against James I. King, Jr. 1 	By an
order entered on June 3, 2008, addressing a motion filed by
Litton, the court granted Litton relief from the automatic stay
in order to proceed with a foreclosure sale of the subject
property. 	Litton had filed a proof of claim in the case
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2 	The debtors did not list the real property on their
schedules of assets in this case because they thought that the
property had already gone to foreclosure before they commenced
the case. 	Accordingly, the debtors have not provided any
information regarding the value of the property.
3
indicating that it had a secured claim as of the petition date in
the amount of $50,989.74, that the claim was secured by real
property, and that no part of the claim was unsecured. 	The proof
of claim indicated that the value of the collateral was “not
available.” 	Although Litton indicated in an attachment to the
proof of claim that “[t]he value of the secured property is
sufficient to fully secure all prepetition and postpetition
amounts reflected in this claim,” 2 Litton did not address whether
that statement was based on a replacement valuation (which, under
Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997),
controls the allowed amount of a secured claim for purposes of
payment under a confirmed plan) or applied as well to the value
that would be realized on a foreclosure sale (a value typically
less than the fair market value of a property). 	In any event, it
is common knowledge that in many a foreclosure sale, the proceeds
are insufficient to pay in full the amount of the creditor’s
claim.
II
If the foreclosure sale of the property does not pay
Litton’s claim in full, thereby resulting in an unsecured
deficiency claim, Litton should not be barred by the plan and any
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amended confirmation order from filing an amended proof of claim.
Although 11 U.S.C. § 1325(a)(5)(C) permits a debtor to address a
creditor’s allowed secured claim by providing for the surrender
of the collateral to the creditor, § 1325(a)(5)(C) does not
purport to address satisfaction of the claim, because it does not
amount to a valuation of the collateral, and courts hold that
despite § 1325(a)(5)(C), a plan may not be confirmed that would
treat surrender as precluding the creditor from asserting a
deficiency claim if the collateral on foreclosure fetches an
insufficient amount to pay the claim in full. 	See
DaimlerChrysler Financial Services Americas LLC v. Ballard (In re
Ballard), 526 F.3d 634, 640 (10th Cir. 2008); Capital One Auto
Fin. v. Osborn, 515 F.3d 817, 821-22 (8th Cir. 2008); In re Gay,
375 B.R. 343, 347 (Bankr. E.D. Tex. 2007). 	See also Tidewater
Finance Co. v. Kenney, --- F.3d ----, 2008 WL 2514194 (4th Cir.
June 25, 2008); In re Wright, 492 F.3d 829 (7th Cir. 2007).
Accordingly, the court will deny the debtors’ motion, but
with leave to file a notice that the debtors consent to entry of
an order providing instead that “with respect to Litton Loan
Servicing, L.P.’s allowed secured claim, the debtors shall
surrender the collateral securing the claim (i.e., certain real
property located at 2014 McHenry St., Baltimore, Md. 21223).” 	If
such a notice is filed, the court will sign a proposed order to
that effect submitted with such a notice.
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III
That the confirmed plan, as modified by such a modified
confirmation order, will not bar the filing of an amended claim,
however, does not address whether an amended proof of claim would
be allowed. 	If a deficiency claim does arise, and Litton files
an amended proof of claim asserting that deficiency claim, the
issue of whether that claim ought to be allowed, even though
filed after the bar date for claims, can be addressed then. 	The
case law is in conflict. 	Compare In re Spurling, 2008 WL 2421707
(Bankr. E.D. Tenn. June 12, 2008) (chapter 7 case, but
criticizing decisions not allowing claim filed as fully secured
to be amended after bar date to assert deficiency claim); In re
Tessier, 333 B.R. 174, 176 (Bankr. D. Conn. 2005) (chapter 13
case); In re Delmonte, 237 B.R. 132 (Bankr. E.D. Tex. 1999)
(chapter 13 case), with In re White, 380 B.R. 855 (Bankr. M.D.
Fla. 2007) (chapter 13 case: untimely amended claim not allowed
because original claim did not assert right to recover any
deficiency claim that might result on foreclosure); In re Hibble,
371 B.R. 730, 737 (Bankr. E.D. Pa. 2007) (same); In re McBride,
337 B.R. 451, 460 (Bankr. N.D.N.Y. 2006) (same). 	It is
noteworthy that in this case, the confirmed plan called for
Litton to be paid in full whether its claim was secured or
unsecured.
When a plan provides for an allowed secured claim by
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6	O:\TEEL\Judge Temp Docs\King (James I. and Pia Lipscomb) Mem Decision re Surrender Plan_v2.wpd
specifying, pursuant to 11 U.S.C. § 1325(a)(5)(C), that the
collateral is surrendered to the creditor, that plan provision
does not amount to a valuation of the collateral. 	In re Ballard,
526 F.3d at 640; In re Gay, 375 B.R. 343 (Bankr. E.D. Tex. 2007).
An order follows.
[Signed and dated above.]
Copies to: Debtor; Debtor’s attorney; Chapter 13 Trustee;
Daniel J. Pesachowitz
Samuel I. White, P.C.
913 King Street
Alexandria, VA 22314
Litton Loan Servicing, LP
P.O. Box 829009
Dallas, Texas 75382-9009
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