Insights

Your customer files a Chapter 13 bankruptcy petition. You file a secured proof of claim. Your customer files a plan reflecting the secured status of your claim and provides for payment to you. The bankruptcy court confirms the plan. You're home free, even if you think that the perfection of your lien on the customer's property might have been avoidable in the bankruptcy case, right? Not necessarily.

Ricky Fluellen bought a car that was financed by Acorn Financial, Inc. A month later, on July 21, 2010, Fluellen filed a Chapter 13 bankruptcy petition. Acorn did not perfect its security interest until six days later, on July 27. Acorn filed a secured proof of claim on August 12. Thereafter, Fluellen obtained confirmation of a plan that provided for monthly payments of $146 to Acorn on account of its secured claim.

A week after the plan was confirmed, Camille Hope, the Chapter 13 trustee, filed an adversary proceeding against Acorn to avoid its lien on Fluellen's car as a preferential transfer. Acorn moved for summary judgment, arguing that Hope was bound by the terms of the confirmed plan. The bankruptcy court granted the motion, and the district court affirmed, as did the U.S. Court of Appeals for the Eleventh Circuit recently.

The appellate court concluded that Hope was bound by the terms of Fluellen's confirmed plan because she had all the information she needed to challenge Acorn's claim prior to confirmation, yet she affirmatively recommended to the bankruptcy court that Fluellen's plan be confirmed. The appellate court noted that its holding was limited to the facts of this case and would not necessarily apply to a case where the trustee is unaware of the defects in the creditor's security interest at the time the plan is confirmed.

This case is a good one to have in your back pocket if your lien is challenged post-confirmation, but it will only be persuasive if you can prove that the trustee knew about the potential problems with the perfection of your lien before the plan was confirmed.

Hope v. Acorn Financial, Inc., 2013 U.S. App. LEXIS 19661 (11th Cir. (M.D. Ga.) September 26, 2013).

Shelley B. Fowler is a Managing Editor of CARLAW, HouseLaw, PrivacyLaw, and Spot Delivery. Shelley can be reached at 410-865-5406 or by e-mail at rfowler@hudco.com.