A new case came down this week that looks into the Res Judicata effect of the confirmed Chapter 13 plan. After a trial court awarded the Judgment Creditor attorney fees and costs, the Debtor filed a Chapter 13 bankruptcy and shortly thereafter confirmed her plan. After filing for bankruptcy but before confirmation, the Debtor appealed the decision awarding attorney fees and costs. The Debtor never objected to the claim of attorney fees or costs during confirmation.
In Edwards v. Broadwater (2013 DJDAR 15911), the Court found that “nothing in federal bankruptcy law prevents the debtor from, outside the bankruptcy proceeding, challenging the trial courts authority to impose the obligation in the first instance”.
Seems reasonable enough. One should be able to challenge the underlying obligation. In fact, the schedules list whether or not the claim is contingent and if the debt is readily ascertainable. The District Court took this one step further by reviewing the res judicata effect of a confirmed plan under both §1327 and §1329. The court then took the logical step by stating the “res judicata principles do not prevent the bankruptcy court from modifying the confirmed plan”. Anyone who would take the Chapter 13 case knows and is readily familiar with the modification of the plan procedure. It is a rare case where the Debtor does not need to modify for one unfortunate reason or another.
In Enewally the same court reasoned that once a plan is confirmed “it is binding on all parties and all questions that could of been raised pertaining to the plan are entitled to res judicata effect.” However, the same Court described the res judicata effect as “limited” with later Courts distinguishing the decision as the plan having the “limited preclusive effect” for those issues that are properly “within the scope of the confirmation hearing” (In re Summerville).
Once the Court was satisfied with the ability to modify a plan as Congress intended under §1329 and therefore, the plan only having a limited “res judicata” effect on disputed claims where the plan is only binding to treatment and possibly not actually the underlying claim consistent with §1327. “The rigid application of res judicata principles is inapplicable because it conflicts with a plainly stated Congressional purpose permitting a Debtor to amend a confirmation plan (In re Witkowski).
A interesting case with a logical conclusion – there is nothing in federal bankruptcy law that prevents the debtor from challenging the underlying obligations. …even where a plan has been confirmed.