THOMAS L. PERKINS, U.S. Bankruptcy Judge
Before the Court is the motion filed by the Debtors, DAMON and LATISHA STAPLETON (DEBTORS), to amend their confirmed Chapter 13 plan and the objection filed by FORD MOTOR CREDIT COMPANY (FMCC).
The DEBTORS filed a Chapter 13 petition on November 8, 2000. The plan filed by the DEBTORS listed FMCC as holding a single claim secured by two vehicles, a 1999 Kia and a 1991 Explorer, valued collectively at $10,000. On December 18, 2000, FMCC filed Claim No. 2, asserting a secured claim in the amount of $7,456.90, on the 1999 Kia, and an unsecured claim in the amount of $6,259.25. A confirmation hearing was held on December 18, 2000. FMCC appeared at that hearing, and advised the Court that it was having difficulty in locating the contract on the 1991 Explorer but that sufficient information had been obtained from the DEBTORS at the first meeting of creditors to enable it to pin down the contract. FMCC did not file an objection to the plan because it had not had an opportunity to consider the plan's treatment of its claim as to the 1991 Explorer.
When questioned by the Court, the DEBTORS stated that the values of the vehicles were "lumped" together for the purposes of the plan, adding that the bankruptcy schedules listed a value of $6,000 for the Kia and $4,000 for the Explorer. FMCC requested fourteen days to file a proof of claim on its claim secured by the 1991 Explorer. The DEBTORS indicated that they might object to the claim.
The Court stated that the DEBTORS' unitary claim would be proper if the vehicle loans were cross-collateralized. That is not the case, however, and the DEBTORS, sticking with their initial treatment of FMCC'S claims, are, for better or worse, now stuck with that result.
The hearing was continued until Jan. 22, 2001.
On December 22, 2000, FMCC filed Claim No. 4, asserting a secured claim in the amount of $7,523.64, as fully secured by the 1991 Explorer. FMCC did not appear at the continued confirmation hearing. The Court indicated that, as a result of FMCC'S failure to appear, FMCC would have an allowed secured claim for $10,900, with the balance to be treated as unsecured. The Court inquired of the TRUSTEE if he would be objecting to FMCC'S proofs of claim and the TRUSTEE responded that he would pay the claims according to the confirmed plan and that he would not be objecting to the claims. An order was entered confirming the DEBTORS' Chapter 13 plan on January 29, 2001, providing that FMCC would be paid $10,900 for the value of the 1999 Kia and the 1991 Ford Explorer, and that the remaining balance of FMCC's claim would be treated as an unsecured claim.
The plan filed by the DEBTORS proposed to treat a default on FMCC'S claim in the amount of $900 as a priority claim and to pay $10,000 to FMCC on its secured claim. At the confirmation hearing, the Court challenged this provision as inappropriate and the TRUSTEE agreed that FMCC was not entitled to priority status. It was determined that the claim would be treated as secured in the amount of $10,900.
On April 18, 2001, the DEBTORS filed a motion for leave to file an amended plan, alleging that they have moved to Chicago and could no longer afford to insure the Ford Explorer and seeking to surrender the vehicle to FMCC. The amended plan attached to the motion provides that FMCC will be paid $6,000 for the 1999 Kia, and treats the balance of its claim as unsecured. FMCC filed an objection to the DEBTORS' motion, relying on the Seventh Circuit's decision in Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000), and claiming that the proposed modification is improper under § 1329.
A hearing was held on the motion and the matter was taken under advisement.
Relying on Adair, FMCC contends that the amounts of its secured claims, as set forth in the proofs of claim filed prior to confirmation, prevail over the terms of the DEBTORS' confirmed plan, which attributes a much lower, unallocated value to the vehicles. In In re Duggins, No. 00-84117, an opinion issued this day, this Court set forth its analysis of Adair and the implications it has upon the claims allowance procedure and the confirmation process. Without repeating that entire analysis here, it suffices to state that FMCC is bound by the amount of its secured claim provided in the confirmed plan. 11 U.S.C. § 1327(a).
That result is particularly appropriate in this case. FMCC participated in the confirmation process, attending the first confirmation hearing. Rather than raise the issue of valuation of its collateral in an objection to the plan, FMCC openly opted to rely upon its proofs of claim. When faced with a Chapter 13 plan that values its collateral, a secured creditor must object to the plan in order to challenge the plan's value. A proof of claim that states a higher value does not take the place of an objection to the plan and does not effect a determination of a secured claim amount under 11 U.S.C. § 506(a).
FMCC also contends that the DEBTORS' proposed modification is not authorized by § 1329 of the Bankruptcy Code, which governs the modification of confirmed Chapter 13 plans. Faced with the conundrum resulting from the surrender of only part of the collateral securing FMCC'S unitary claim, the DEBTORS, at the hearing on their motion, suggested a different treatment of FMCC'S claim, quite unrelated to the provisions of their confirmed plan. The DEBTORS now propose to pay FMCC the amount provided as secured in its proof of claim on the Kia, or $7,456.90, with interest at 12%, and to permit FMCC to file an amended unsecured claim for the deficiency after it sells the Explorer and applies the proceeds to the balance of Claim No. 4. Acknowledging that the DEBTORS may surrender the Explorer, FMCC contends that it is entitled to retain its secured position and that, at a minimum, it must be paid the difference between the amount of its secured claim, as determined at confirmation, and the proceeds it receives from the sale of the Explorer.
Section 1329, governing modification of confirmed plans, provides in part:
(a) At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to —
(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;
(2) extend or reduce the time for such payments; or
(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan.
11 U.S.C. § 1329(a). Courts are divided as to whether a Chapter 13 debtor may, after confirmation of a plan, surrender collateral to a secured creditor and modify the plan to reclassify the remaining deficiency balance of the creditor's claim as unsecured. Some courts have interpreted § 1329(a) broadly, permitting reclassification of a claim after confirmation of a plan, noting that each secured claim is separately classified and that increasing the amount of the creditor's unsecured claim falls within the meaning of § 1329(a)(1), by "increas[ing] . . . the amount of payments on claims of a particular class provided for by the plan. . . ." In re Townley,
256 B.R. 697 (Bankr.D.N.J. 2000); In re Day,
247 B.R. 898 (Bankr.M.D.Ga. 2000).
Other courts hold that § 1329(a) does not permit a confirmed plan to be modified by surrendering collateral and reclassifying the balance of the secured claim as unsecured, interpreting § 1329(a)(1) as authorizing debtors to alter the amount of payments on a claim to either accelerate or reduce the rate at which the claim is to be paid, not to change the amount of the claim itself. In re Nolan, 232 F.3d 528 (6th Cir. 2000); In re Smith, 259 B.R. 323 (Bankr.S.D.Ill. 2001); In re Goos, 253 B.R. 416 (Bankr.W.D.Mich. 2000); In re Meeks, 237 B.R. 856 (Bankr.M.D.Fla. 1999). In Smith, Judge Kenneth Meyers found support for this result in the Seventh Circuit's narrow interpretation of § 1329(a) in In re Witkowski, 16 F.3d 739 (7th Cir. 1994). Permitting a creditor to bifurcate a claim a second time under § 506(a) transgresses the res judicata effect of confirmation under § 1327(a) and unfairly compromises the interests of the secured creditor as of the date the petition is filed. In re Dunlap, 215 B.R. 867 (Bankr.E.D.Ark. 1997).
This Court concludes that the better reasoned view is that expressed by the courts in Nolan and Smith, that a debtor is precluded from reclassifying a secured claim, or any portion thereof, as an unsecured claim after surrendering collateral to a secured creditor. As set forth above, FMCC is entitled to be paid $10,900 as a secured creditor, through the plan, less the amount it receives under § 1329(a)(3) from its disposition of the Explorer upon its surrender. A separate Order will be entered.
This Opinion constitutes this Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
ORDER
For the reasons stated in an OPINION filed this day, IT IS HEREBY ORDERED that the Motion for leave to file an amended plan is DENIED. The DEBTORS are given twenty-one (21) days within which to file an amended motion to modify their confirmed plan which conforms with this Opinion.