Supreme Court Decision 1991- Chpt 7,discharge certain debts, foreclosure happens then...

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The original notes were worth $470,000.00, the debtor went through a Chpt 7 and discharged debts for which he is personally responsible (in personam). Then there was a state court case (foreclosure) with a judgment of $200,000 (maybe one of the notes??). Then he filed a chp 13 and created a plan to pay the $200,000 over time (in rem - against a thing).
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  U.S. Supreme Court decision REVERSED appellate courts and allowed Chap 13 Plan Johnson v. Home State Bank (90-693), 501 U.S. 78(1991) 90-693 -- OPINION v. HOME STATE BANK NOTICE: This opinion is subject to formal revision before publication in the preliminary printof the United States Reports. Readers are requested to notify the Reporter of Decisions,Supreme Court of the United States, Wash- ington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press. No. 90-693 REED JOHNSON, PETITIONER v. HOME STATE BANK[June 10, 1991]  Justice Marshall delivered the opinion of the Court.The issue in this case is whether a debtor can include a mortgage lien in a Chapter 13 bankruptcy reorganization planonce the personal obligation secured by the mortgaged prop- erty has been discharged in a Chapter 7 proceeding. Wehold that the mortgage lien in such a circumstance remains a claim against the debtor that can be rescheduled underChapter 13.I This case arises from the efforts of respondent Home State Bank (Bank) to foreclose a mortgage on the farm propertyof petitioner. Petitioner gave the mortgage to secure promis- sory notes to the Bank totaling approximately$470,000. [n.1]  When petitioner defaulted on these notes, the Bank initiated foreclosure proceedings in state court. During the pendency of theseproceedings, petitioner filed for a liquidation under Chapter 7 of the Bankruptcy Code. Pursuant to11 U.S.C. 727   the Bankruptcy Court discharged petitioner from per- sonal liability on his promissory notes to the Bank. Not- withstanding thedischarge, the Bank's right to proceed against petitioner in rem survived the Chapter 7 liquidation. After the Bankruptcy Court liftedthe automatic stay pro- tecting petitioner's estate, see 11 U.S.C. 362 the Bank reinitiated the foreclosure proceedings. [n.2]  Ultimately, the state court entered an in rem judgment of approximately $200,000 for the Bank. Before the foreclosure sale was scheduled to take place, pe- titioner filed the Chapter 13 petition at issue here. In hisChapter 13 plan, petitioner listed the Bank's mortgage in the farm property as a claim against his estate and proposedto pay the Bank four annual installments and a final balloon payment equal in total value to the Bank's inrem judgment. Over the Bank's objection, the Bankruptcy Court confirmed the Chapter 13 plan. The Bank appealed tothe District Court, arguing that the Code does not allow a debtor to in- clude in a Chapter 13 plan a mortgage used tosecure an ob- ligation for which personal liability has been discharged in Chapter 7 proceedings; the Bank argued in thealternative that the Bankruptcy Court had erred in finding that peti- tioner had proposed the plan in good faith andthat the plan was feasible. The District Court accepted the first of these arguments and disposed of the case on thatground. See In re Johnson , 96 B. R. 326, 328-330 (Kan. 1989).The Court of Appeals affirmed. See 904 F. 2d 563 (CA10 1990). Emphasizing that petitioner's personal liability on thepromissory notes secured by the mortgage had been dis- charged in the Chapter 7 proceedings, the court reasoned thatthe Bank no longer had a claim against petitioner sub- ject to rescheduling under Chapter 13. See id  ., at 565, 566.Like the District Court, the Court of Appeals disposed of the case without considering the Bank's contentions that John-son's plan was not in good faith and was not feasible. See id  ., at 566.In contrast to the decision of the Tenth Circuit in this case, two other Circuit Courts of Appeals have concluded that adebtor can include a mortgage lien in a Chapter 13 plan even after the debtor's personal liability on the debt securedby the property has been discharged in a Chapter 7 liquidation. See In re Saylors , 869 F. 2d 1434, 1436 (CA11 1989); Inre Metz  , 820 F. 2d 1495, 1498 (CA9 1987). Having granted cer- tiorari to resolve this conflict, see 498 U. S. --- (1991),we now reverse.II Chapter 13 of the Bankruptcy Code provides a reorganiza- tion remedy for consumer debtors and proprietors withrela- tively small debts. See generally H. R. Rep. No. 95-595, pp. 116-119 (1977). So long as a debtor meets theeligibility requirements for relief under Chapter 13, see 11 U.S.C. 109  (e),  [n.3]  he may submit for the bankruptcy court's confirma- tion a plan that modif[ies] the rights of holders of secured claims . . . or . . .unsecured claims, 1322(b)(2), and that provide[s] for the payment of all or any part of any [allowed] claim, 1322(b)(6). The issuein this case is whether a mortgage lien that secures an obligation for which a debtor's personal liability has been discharged in aChapter 7 liquida- tion is a claim subject to inclusion in an approved Chapter 13 reorganization plan. To put this question in context, we must first say more about the nature of the mortgage interest that survives aChapter 7 liquidation. A mortgage is an interest in real property that secures a creditor's right to repayment. But unless  the debtor and creditor have provided otherwise, the creditor ordinarily is not limited to foreclosure on the mort-gaged property should the debtor default on his obligation; rather, the creditor may in addition sue to establish thedebt- or's in personam liability for any deficiency on the debt and may enforce any judgment against the debtor's assetsgener- ally. See 3 R. Powell, The Law of Real Property 467 (1990). A defaulting debtor can protect himself from per-sonal liability by obtaining a discharge in a Chapter 7 liquida- tion. See 7 U.S.C. 727  . However, such a discharge ex- tinguishes only  the personal liability of the debtor.  11 U.S.C. 524 (a)(1). Codifying the rule of  Long v. Bullard  ,117 U.S. 617 (1886), the Code provides that a creditor's right to foreclose on the mortgage survives or passes through the bankruptcy. See 11U.S.C. 522 (c)(2); Owen v. Owen , 500 U. S. ---, --- (1991); Farrey  v. Sanderfoot  , 500 U. S. ---, --- (1991); H. R. Rep. No. 95-595, supra , at 361. Whether this surviving mortgage interest is a claim sub- ject to inclusion in a Chapter 13 reorganization plan is astraightforward issue of statutory construction to be resolved by reference to the text, history, and purpose of theBank- ruptcy Code. Farrey  v. Sanderfoot , supra , at ---. Under the Code, `[C]laim' means -- (A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B) right to an equitable remedy for breach of per- formance if such breach gives rise to a right to payment, whetheror not such right to an equitable remedy is re- duced to judgment, fixed, contingent, matured, unma- tured, disputed,undisputed, secured, or unsecured. 11 U. S. C. A. 101(5) (Supp. 1991).We have previously explained that Congress intended by this language to adopt the broadest available definition of claim. See Pennsylvania Dept. of Public Welfare v. Davenport , 495 U. S. ---, ---, --- (1990); seealso Ohio v. Kovacs ,469 U.S. 274  , 279 (1985). In Davenport  , we concluded that `right to payment' [means] nothing more nor less than an en- forceableobligation . . . . 495 U. S., at ---.  [n.4]   Applying the teachings of Davenport , we have no trouble concluding that a mortgage interest that survives the dis-charge of a debtor's personal liability is a claim within the terms of 101(5). Even after the debtor's personal obliga-tions have been extinguished, the mortgage holder still re- tains a right to payment in the form of its right to the pro-ceeds from the sale of the debtor's property. Alternatively, the creditor's surviving right to foreclose on the mortgagecan be viewed as a right to an equitable remedy for the debtor's default on the underlying obligation. Either way,there can be no doubt that the surviving mortgage interest corresponds to an enforceable obligation of the debtor.  The Court of Appeals thus erred in concluding that the dis- charge of petitioner's  personal   liability  on his promissorynotes constituted the complete termination of the Bank's claim against petitioner. Rather, a bankruptcy dischargeextinguishes only one mode of enforcing a claim -- namely, an action against the debtor in personam -- while leavingintact another -- namely, an action against the debtor in rem . In- deed, but for the codification of the ruleof Long v. Bullard  , supra , there can be little question that a discharge under Chapter 7 would have the effect ofextinguishing the in rem component as well as the in personam component of any claim against the debtor. Andbecause only claims are dis- charged under the Code, [n.5]  the very need to codify Long v. Bullard  presupposes that a mortgage interest is otherwise a claim. The conclusion that a surviving mortgage interest is a claim under 101(5) is consistent with other parts of the Code.Section 502(b)(1), for example, states that the bank- ruptcy court shall determine the amount of [a disputed]claim . . . and shall allow such claim in such amount, except to the extent that . . . such claim is unenforceable againstthe debtor and property of the debtor   (emphasis added). In other words, the court must allow the claim if it isenforce- able against either  the debtor or  his property. Thus, 502(b)(1) contemplates circumstances in which a claim, like the mortgage lien that passes through a Chapter 7 pro- ceeding, may consist of nothing more than an obligation en-forceable against the debtor's property. Similarly, 102(2) establishes, as a [r]ul[e] of construction, that the phrase `claim against the debtor' includes claim against property of the debtor. A fair reading of 102(2) is that a creditorwho, like the Bank in this case, has a claim enforceable only against the debtor's property nonetheless has a claimagainst the debtor for purposes of the Code.The legislative background and history of the Code confirm this construction of claim. Although the pre-1978 Bank-ruptcy Act contained no single definition of claim, the Act did define claim as includ[ing] all claims of whatevercharacter against a debtor or its property   for purposes of Chapter X corporate reorganizations. See 11 U.S.C. 506  (1) (1976 ed.) (emphasis added). It is clear that Con- gress so defined claim in order to confirm that creditors with interestsenforceable only against the property of the debtor had claims for purposes of Chapter X, see S. Rep. No. 1916, 75th Cong., 3dSess., 25 (1938); H. R. Rep. No. 1409, 75th Cong., 1st Sess., 39 (1937), and such was the established understanding of the lowercourts. See gener- ally 6 J. Moore & L. King, Collier on Bankruptcy 2.05, pp. 307-308 (14th ed. 1978) ( [I]t is to be noted that a claimagainst the debtor's property alone is sufficient for Chapter X). In fashioning a single definition of claim for the 1978 BankruptcyCode, Congress intended to adop[t] an even broader  definition of claim than [was] found in the [pre-1978 Act's] debtor rehabilitationchapters. H. R. Rep. No. 95- 595, at 309 (emphasis added); accord, S. Rep. No. 95-989, pp. 21-22 (1978); see also PennsylvaniaDept. of Public Welfare v. Davenport  , supra , at ---, --- (recognizing that Congress intended broadest available definition of claim).Presuming, as we must, that Congress was familiar with the prevailing understanding of claim under Chapter X of the Act,see Cottage Savings Assn . v. Commissioner  , 499 U. S. ---, --- (1991); Cannon v. University of Chicago ,441 U.S. 677 , 698-699 (1979), we must infer that Congress fully expected that an obligation enforceable only against a debtor's property would bea claim under 101(5) of the Code. The legislative history surrounding 102(2) directly corroborates this inference. The Committee Reports ac- companying102(2) explain that this rule of construction contemplates, inter alia , nonrecourse loan agreements where thecreditor's only rights are against property of the debtor, and not against the debtor personally. H. R. Rep. No. 95-595, supra , at 315; accord, S. Rep. No. 95-989, supra , at 28. Insofar as the mortgage interest that passes through a
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