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In re Harvey - 213 F.3d 318 (7th Cir. 2000)

Rule:

A party with adequate notice of a bankruptcy proceeding cannot ordinarily attack a confirmed plan. 11 U.S.C.S. § 1327(a).

Facts:

At the time Diana Harvey filed for protection under Chapter 13 of the Bankruptcy Code in September 1996, she owed $16,165 to General Motors Acceptance Corporation (GMAC) for her 1993 Oldsmobile Cutlass Supreme. Unfortunately (at least for GMAC), the car was then worth only $9,500. GMAC had a perfected security interest in the car, but the disparity between the value of the asset and the total amount of the debt made it an unsecured creditor to the tune of $6,665.

This case concerns the practice known as "lien stripping." Harvey argues that under the terms of the Chapter 13 plan approved by the bankruptcy court, she was entitled to have the lien on the car removed as soon as she paid back the $9,500; GMAC offers a number of reasons why that should not be the case and its lien should continue until the termination of the bankruptcy proceeding or the satisfaction of the full debt, whichever comes first. The district court agreed with GMAC.

Issue:

Can GMAC ordinarily attack the confirmed Chapter 13 plan, notwithstanding the fact that it received adequate notice of the bankruptcy proceeding?

Answer:

No

Conclusion:

The Court of Appeals for the Seventh Circuit determined that it was unnecessary to determine the propriety of allowing the practice of lien stripping because, in this case, GMAC objected too late. As in any contract case, GMAC should have raised objections based on ambiguity at its earliest opportunity, in the confirmation proceeding, when it received copies of both plans. Now it was barred by res judicata.

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