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A confirmed Chapter 13 plan is binding on all parties until it is modified or completed. Once a plan is confirmed, it acts like a court-approved contract or consent decree that binds the debtor and all of the creditors. The United States Court of Appeals for the Seventh Circuit has long recognized the sanctity of confirmation orders.
Plaintiff Peter McDonald filed for bankruptcy protection under Chapter 13 bankruptcy case. At the time the bankruptcy petition was filed, McDonald owned a single-family home where he lived with his wife and daughter. Defendant Bank Financial ("Bank" ) held a first mortgage against the home. The Bank was scheduled as a creditor and received notice of McDonald's bankruptcy case. McDonald's confirmed Chapter 13 plan provided for payment of pre-bankruptcy arrears on the mortgage in the amount of $ 23,956. The Bank did not object to the plan before confirmation; its later motion to vacate confirmation was stricken for want of prosecution. Although McDonald cured the arrearage pursuant to the plan and made post-bankruptcy mortgage payments, the Bank refused to reinstate McDonald 's loan and caused a judicial sale to be scheduled. McDonald filed a lawsuit against the Bank in federal district court, seeking a ruling that his mortgage loan was reinstated by Plan confirmation and entry of the discharge order in his Chapter 13 case, and to enjoin the Bank's judicial sale. McDonald filed a motion for summary judgment.
Was the confirmed Chapter 13 plan binding on the Bank, thereby making the Bank's disregard of McDonald's discharge order a violation of 11 U.S.C.S. § 524(a)(2)?
The court granted McDonald's motion for summary judgment. The court found that the confirmed bankruptcy plan was binding on the Bank pursuant to 11 U.S.C.S. § 1327, and the plan provided for reinstatement of the mortgage upon cure of the specified arrearage. Because the scheduled arrearage amount was cured, the mortgage was modified under 11 U.S.C.S. § 1322(a)(5) to eliminate the Bank's right to foreclose based on any pre-bankruptcy arrearage. The Bank's disregard of the discharge order in violation of 11 U.S.C.S. § 524(a)(2) amounted to civil contempt, the court ruled.