Santander Consumer USA, Inc. v. Dunkes (In re Dunkes)

In re: Robert Charles Dunkes, Sr., Debtor.

Santander Consumer USA, Inc., Movant, v. Robert Charles Dunkes, Sr., et al., Respondents.

Case No. 19-19194-MMH

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MARYLAND at Baltimore

November 16, 2020

Chapter 13

MEMORANDUM OPINION

The chapter 13 bankruptcy process strives to balance the rights of debtors and creditors to the greatest extent possible, distributing some funds to the debtor's creditors and ultimately providing the debtor with a fresh financial start. In general, a chapter 13 debtor only receives a bankruptcy discharge if the Court confirms a multi-year repayment plan and the debtor completes all payments under that plan. The objectives of chapter 13 and the Bankruptcy Code¹ moregenerally thus, to some extent, rest on the finality of a confirmed plan. That plan establishes, among other things, the general treatment of creditors' claims and defines the debtor's path to discharge.

Courts have long recognized the res judicata effect of confirmed chapter 13 plans. As the U.S. Supreme Court has explained, "[c]onfirmation has preclusive effect, foreclosing relitigation of 'any issue actually litigated by the parties and any issue necessarily determined by the confirmation order.'" Bullard v. Blue Hills Bank, 575 U.S. 496, 135 S. Ct. 1686, 1692 (2015). To that end, the chapter 13 confirmation process contemplates notice and due process for all potential parties in interest, including creditors. If a creditor does not take advantage of its opportunity to object to a debtor's proposed chapter 13 plan, that creditor cannot later complain about the terms of the confirmed plan.

The creditor's pending motion relies upon an alleged lack of adequate protection as grounds to lift the automatic stay in this case. The debtor responds that the confirmed modified chapter 13 plan addresses any adequate protection issues relating to the creditor's claim. This matter is further complicated by an interruption in plan payments under the debtor's original plan and then the filing of a modified plan under the CARES Act.² The Court has considered the parties' respective arguments and has reviewed the applicable sections of the Code and the relevant case law. Based upon this review and as further explained below, the Court determines that the confirmed modified plan in this case bars continued litigation concerning, and sufficiently addresses, any preconfirmation adequate protection issues. The Court thus will deny the motion without prejudice.

I. Relevant Background

Robert Charles Dunkes, Sr., the above-captioned debtor (the "Debtor"), filed this chapter 13 case on July 5, 2019. The Debtor then filed his chapter 13 plan on September 4, 2019. ECF 24. In connection with his plan, the Debtor also filed a chapter 13 plan supplement, which sought to determine the value of the secured claim asserted by Santander Consumer USA, Inc. (the "Creditor"). ECF 25. Specifically, the supplement indicated that the value of the collateral securing the Creditor's claim, namely a 2013 Volkswagen CC Sport (the "Vehicle"), was $7,825.00. The Debtor served the chapter 13 plan and the plan supplement on the Creditor. The Creditor did not file an objection to either the plan or the plan supplement. The Court entered a Statement of Review relating to the plan supplement on October 23, 2019 and an Order confirming the chapter 13 plan on October 28, 2019. ECF 28, 30.

At the time of confirmation, the Debtor was employed by the United States Postal Service, and the Court entered a wage order directing the Debtor's employer to make the payments required by his plan directly to the Chapter 13 Trustee. ECF 31. As further detailed below, the Debtor ceased working in February 2020, which eventually stopped payments under the wage order. This employment interruption triggered a default under the Debtor's chapter 13 plan. The Creditor then filed a Motion for Relief from Stay (the "Stay Motion"), seeking relief from the automatic stay of section 362(d) of the Code to exercise its state law remedies with respect to the Vehicle. ECF 35. The Debtor filed an objection to the Stay Motion and, immediately prior to the hearing on the Stay Motion on September 17, 2020 (the "September Hearing"), filed a Motion to Modify Plan (the "Plan Motion"). ECF 38, 40.

At the September Hearing, the parties set forth their respective positions on the record. The Creditor emphasized the default in plan payments and its lack of adequate protection. Tr., ECF 45 at 4-5, 8-9. The Debtor explained the interruption in his employment, the fact that he had sincebeen able to return to work, and his desire to modify his chapter 13 plan to cure the existing plan defaults and facilitate payment of claims thereunder. Id. at 10, 12. The Court treated the September Hearing as a preliminary hearing and continued the matter to October 28, 2020 (the "October Hearing").

The Debtor's Plan Motion was served on the Creditor and the attached notice explained that parties needed to file any objection to the proposed modified plan on or before October 15, 2020, and that if objections were filed, the Court would hold a hearing on the Plan Motion on October 28, 2020. The notice further stated that "[i]f you or your lawyer do not file and serve a timely response to the motion, the court may find that you do not oppose the relief sought in the motion and may grant or otherwise rule on the motion without a hearing." ECF 40. Neither the Creditor nor any other party filed an objection to the Plan Motion. The Chapter 13 Trustee filed a Line of No Opposition to the Plan Motion. ECF 41. The Court then entered an Order granting the Plan Motion. ECF 42.³

At the October Hearing, the Creditor again restated its argument that it lacked adequate protection and that cause existed under section 362(d) of the Code to lift the automatic stay. The Debtor argued that the modified plan provided for the payment of the Creditor's claim and precluded any further arguments concerning a lack of adequate protection of the Creditor's interest in the Vehicle. The Court took the matter under advisement at the conclusion of the hearing.

II. Jurisdiction and Legal Standards

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Under 28 U.S.C. § 157(a) and its Local Rule 402, the United States District Court for the District of Maryland hasreferred this case to the Court. This matter is a statutorily core proceeding under 28 U.S.C. §§ 157(b)(1) and (b)(2). The Court has constitutional authority to enter final orders in this matter.

Section 362(a) of the Code provides that the filing of a bankruptcy petition stays, among other things, "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. § 362(a)(3). The automatic stay essentially stops most collection efforts against a debtor to provide the debtor (or bankruptcy trustee) with an opportunity to assess and resolve those claims through the bankruptcy case. The automatic stay is not, however, indefinite; for example, creditors may seek relief from the automatic stay under section 362(d) of the Code.

Section 362(d) of the Code provides, among other things, that a bankruptcy court shall grant a moving party relief from the automatic stay imposed by section 362(a) if, among other things, (i) cause exists or (ii) the debtor lacks equity in the asset and the asset is not necessary for an effective reorganization. 11 U.S.C. §§ 362(d)(1), (2). Under section 362(d)(1), a debtor's failure to make postpetition payments to a creditor may constitute a lack of adequate protection and cause for granting relief from the automatic stay. See, e.g., In re Dumbuya, 428 B.R. 410, 416 (Bankr. N.D. Ohio 2009) ("A debtor's failure to make periodic cash payments may constitute, and commonly forms, the basis for a creditor's assertion that 'cause' exists to relieve the automatic stay based upon a lack of adequate protection."). "While 'adequate protection' is not defined by the Bankruptcy Code, whether a particular secured creditor is adequately protected is a determination to be made on a case-by-case basis and is within the discretion of the Court." In re Franklin Equip. Co., 416 B.R. 483, 522-23 (Bankr. E.D. Va. 2009). The Bankruptcy Code further offers guidance on what a debtor may provide a creditor to adequately protect the creditor's interest. 11 U.S.C. § 361.

Although not specifically addressed by the Stay Motion, this matter also involves the standards governing confirmation of a chapter 13 plan. Section 1325 sets forth the requirements for confirmation of a chapter 13 plan. With respect to a secured creditor, section 1325(a) provides that, among other things, the secured creditor must retain its lien during the term of the plan, and receive payments under the plan in an amount equal to its allowed secured claim and "not ... less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan." 11 U.S.C. § 1325(a)(5). Section 1327, in turn, states that "[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a). Moreover, any modified plan, including one filed under the CARES Act, must comply with sections 1322(a), 1322(b), and 1323(c), as well as the requirements of section 1325(a), of the Code.⁴

III. Analysis

Prior to February 2020, the Debtor was operating under his confirmed plan and the Creditor was scheduled to receive payments equal to the amount of its allowed secured claim. Things changed dramatically after that point. The Debtor made the difficult decision to leave his employment with the United States Postal Service at the onset of the global pandemic, as he is in a high risk category with respect to...