In SLW Capital LLC v. Mansaray-Ruffin (In re Mansaray-Ruffin) , the 3rd U.S. Circuit Court of Appeals confirmed that a Chapter 13 debtor may only modify the lien rights of a secured creditor by initiating an adversary proceeding in accordance with Part VII of the Federal Rules of Bankruptcy Procedure. Although the dissent articulated a strong policy argument to allow the debtor to modify lien rights simply through confirmation of a Chapter 13 plan, the majority concluded that the due process provisions of Part VII of the Federal Rules of Bankruptcy Procedure are of such critical importance that only through compliance with those procedures could a debtor seek to modify a secured creditor’s rights.
The Chapter 13 debtor proposed a plan. In connection with that plan, the debtor proposed that it would initiate an adversary proceeding against one of its secured creditors; however, since the secured creditor did not previously file a proof of claim in this case, the debtor would deem the creditor unsecured and pay the creditor a “nominal” unsecured claim. The plan was circulated on notice to all parties, including the secured creditor, and would ultimately be confirmed.
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