In re Shaffer

I held the hearing on this narrow issue, before requiring the parties to address the merits of the dispute, because if DeFeo had timely, actual notice, as the Debtor alleged, the First Line of Cases would not be applicable and the Claim would have to be disallowed on the simple ground that it was untimely filed. See 11 U.S.C. §502(b)(9).

Without repeating the analysis set out by the courts following the Second Line of Cases, in essence, my conclusions are that: (1) the Code and Rules address the problem of late-filed claims in chapter 13 cases by mandating their disallowance (upon objection), but permitting the claims to pass through the case not subject to the discharge and (2) that this treatment does not amount to a denial of constitutional due process of law.
At bottom, the treatment of late filed claims in chapter 13 cases amounts to nothing more than delaying a creditor's right to invoke its remedies under applicable nonbankruptcy law until the expiration of the automatic stay, 11 U.S.C. §362(a). Viewed in this light, it is impossible to conclude that the lack of notice of the claim filing deadline rises to a constitutional dimension sufficient to mandate allowance of a late filed proof of claim contrary to the express requirements of the Federal Rules of Bankruptcy Procedure. Indeed, it is a fundamental bankruptcy principle that Code provisions that delay the exercise of the creditor's remedies are not, per se unconstitutional, even with respect to the property of rights of secured creditors. See Wright v. Vinton Branch of Mountain Trust Bank, 300 U.S. 440, 46970 (1937). And, unsecured creditors do not enjoy the same level of protection as secured creditors do under the Constitution. See generally Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 589 (1935) ("Under the bankruptcy power Congress may discharge the debtor's personal obligation, because, unlike the states, it is not prohibited from impairing the obligations of contracts").
I acknowledge that there may be cases in which the loss of the right to participate in the distribution from a chapter 13 estate could be more valuable than the right to continue collection efforts postbankruptcy. However, in many chapter 13 cases, the opposite will be true because the distribution to unsecured creditors is nominal, making nondischargeability more beneficial to the creditor who did not receive notice of the deadline for filing claims. In any event, this was the policy choice that Congress made.

I make one final observation for the benefit of the parties.
While the issue of dischargeability, technically, is not before me and would require the filing of an adversary proceeding, see Fed. R. Bankr. P. 7001(6), in light of my ruling in this contested matter, it appears likely that DeFeo's disputed claim is nondischargeable in this chapter 13 case. See 11 U.S.C. §1328(a)(2) (incorporating 11 U.S.C. §523(a)(3)). As a result, after the automatic stay terminates, see 11 U.S.C. §362(c), (d), DeFeo may be able assert his claim against the Debtor in state court where the Debtor may raise all of her defenses. Thus, the main consequence of my ruling is to pass the parties' dispute through the bankruptcy case, leaving its resolution on the merits to another day in another forum.
I am aware that the Debtor may have preferred to have this court decide the dispute on the merits (and take the risk that allowance of the Claim, at least as a priority claim, might prevent her from completing her chapter 13 plan and obtaining a chapter 13 discharge). However, disallowance of the claim, as the rules of court mandate, deprives this court of subject matter jurisdiction to resolve the dispute. Once the claim has been disallowed, the merits the Claim will have no impact on the administration of the bankruptcy case. See, e.g., In re Shuman, 277 B.R. 638, 647 (Bankr. E.D. Pa. 2001) ("Typically, litigation which is related to a bankruptcy case is litigation which will affect in some manner the property to be administered by the bankruptcy trustee or the amount or priority of claims to be repaid"). This result is rooted in the Debtor's failure to list DeFeo as a creditor and give him notice at the outset of the bankruptcy case.