Chapter 13; “Long-term debts”; 11 USC §§ 1322(b)(5) & 1328(a); FDIC v. Union Entities (In re Be-Mac Transp. Co., Inc.) (8th Cir.); United Student Aid Funds, Inc. v. Espinosa; “Judicial estoppel”; White v. Wyndham Vacation Ownership, Inc.; In re Simmerman (Bankr. SD OH); “Proof of claim”; §§ 501(a) & 506(d); In re Nwonwu (Bankr. ED VA); State Bank of Florence v. Miller (In re Miller) (Unpub. 6th Cir.)

In this Chapter 13 case, the bankruptcy court properly ruled that defendant-Bank of America’s mortgage loans were “non-dischargeable” but erred by reducing the balance of each loan by the amount that the Bank would have been paid through the plan had it filed proofs of claim for the debts. The bankruptcy plan listed the Bank’s two mortgages as “long-term debts,” for which the Bank did not file proofs of claim. After the bankruptcy court entered an order discharging the debtors and the case was closed, the debtors filed an adversary proceeding against the Bank, seeking to avoid the debts based on the Bank’s failure to file. The court concluded that the bankruptcy court erred by requiring that the Bank’s debt be reduced based on its failure to file proofs of claim. The plan “itself did not specifically impose such a result and treated the debt as long-term debt.” The bankruptcy court also could not rely on “judicial estoppel” to support its decision to reduce the debts because there was no “bad faith” on the part of the Bank. Although “any creditor may file a proof of claim[,] . . . Federal Rule of Bankruptcy Procedure 3002(a) requires only unsecured creditors to file a proof of claim for the claim to be allowed. Secured creditors ‘are not required to file a proof of claim solely to preserve their lien.’” Thus, the failure to file a claim alone is not an indication of bad faith. While the Bank waived its right to payment under the plan by deciding not to participate in the bankruptcy plan, this “did not result in the Bank’s waiver of its right to payment on the debt.” The debtors exited the bankruptcy case in default because they failed to service the debt by making payments outside the plan, and the Bank was free to collect the payment by executing on the collateral under state law. The Bankruptcy Appellate Panel held that “because the Debtors and the Trustee had the power to file a proof of claim on behalf of the Bank, thus allowing the plan to operate as intended, and because the plan itself did not provide any modification of the Bank’s liens or the discharge of the debt, the bankruptcy court erred by reducing the amount of debt owed to the Bank.” Affirmed in part, reversed in part, and remanded for entry of a judgment consistent with the court’s ruling.