IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
FRANK and SUSAN TODD, No. 1-84-00998
Memorandum of Decision
The debtors' Chapter 13 plan, which was confirmed in 1984, provides for the surrender of a parcel of
real property to its three lienholders "in full settlement of all obligations." One of the lienholders was the
Internal Revenue Service; the debtors now object to its unsecured claim on the grounds that the plan dealt
with the claim in full by surrendering the property. The IRS argues that the property was not worth
enough to cover its claim, and it therefore has an allowable unsecured claim for the deficiency.
The plan purports to do two things. First, it eliminates the secured claim by surrender of the security;
this is permissible pursuant to section 1325(a)(5)(C) of the Bankruptcy Code and the IRS concedes that
any secured claim it had was extinguished by the surrender. Second, however, the plan limits the
unsecured claim of the IRS by providing that surrender was a satisfaction of all obligations, and not merely
the secured claim. It is the latter effect which is troublesome.
The plan is clearly improper. It has the effect of disallowing the unsecured claim without compliance
with Bankruptcy Rule 3007, and denies the IRS the right to have the value of its lien fixed by adversary
proceeding pursuant to Rule 7001(2). However, the issue here is not whether the plan should have been
confirmed but rather whether, having been confirmed, it is binding as to the IRS, which received proper
notice of it and did not object to its confirmation.
Section 1327(a) of the Code provides that the provisions of a confirmed plan bind each creditor,
whether or not the claim of such creditor is provided for by the plan. The order confirming the plan is
given res judicata effect as to any issue which could have been raised at the time, just like any other
judgment. In re Lewis
(Bkrtcy.D.Idaho 1981) 8 B.R. 132, 137. Absent affirmative action at or prior to
the confirmation hearing, the IRS, like any other creditor, has effectively waived any right to object to its
treatment under the plan. In re Hebert
(Bkrtcy.W.D.La.1986) 61 B.R. 44, 47. See also In re Gurwitch
(Bkrtcy.S.D.Fla.1984) 37 B.R. 513, 515.
A review of the file indicates that the IRS claim was not timely filed in any event, and is disallowable
for that reason alone. However, since the Court finds that the terms of the plan are binding on the IRS
it need not determine whether its claim is barred on timeliness grounds.
For the foregoing reasons, the debtors' objection to claim #5 of the Internal Revenue Service will be
sustained. Pursuant to Bankruptcy Rule 9021, counsel for the debtors shall submit an appropriate form
Dated: June 2, 1988 _________________________