|Johnson v. Home State Bank (90-693), 501 U.S. 78 (1991)|
90-693 -- OPINION
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Wash- ington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
REED JOHNSON, PETITIONER v.HOME STATE BANK
Justice Marshall delivered the opinion of the Court.
The issue in this case is whether a debtor can include a mortgage lien in a Chapter 13 bankruptcy reorganization plan once the personal obligation secured by the mortgaged prop- erty has been discharged in a Chapter 7 proceeding. We hold that the mortgage lien in such a circumstance remains a "claim" against the debtor that can be rescheduled under Chapter 13.
I This case arises from the efforts of respondent Home State Bank (Bank) to foreclose a mortgage on the farm property of petitioner. Petitioner gave the mortgage to secure promis- sory notes to the Bank totaling approximately $470,000. [n.1] When petitioner defaulted on these notes, the Bank initiated foreclosure proceedings in state court. During the pendency of these proceedings, petitioner filed for a liquidation under Chapter 7 of the Bankruptcy Code. Pursuant to 11 U.S.C. 727 the Bankruptcy Court discharged petitioner from per- sonal liability on his promissory notes to the Bank. Not- withstanding the discharge, the Bank's right to proceed against petitioner in rem survived the Chapter 7 liquidation. After the Bankruptcy Court lifted the automatic stay pro- tecting petitioner's estate, see 11 U.S.C. 362 the Bank reinitiated the foreclosure proceedings. [n.2] Ultimately, the state court entered an in rem judgment of approximately $200,000 for the Bank.
Before the foreclosure sale was scheduled to take place, pe- titioner filed the Chapter 13 petition at issue here. In his Chapter 13 plan, petitioner listed the Bank's mortgage in the farm property as a claim against his estate and proposed to pay the Bank four annual installments and a final "balloon payment" equal in total value to the Bank's in rem judgment. Over the Bank's objection, the Bankruptcy Court confirmed the Chapter 13 plan. The Bank appealed to the District Court, arguing that the Code does not allow a debtor to in- clude in a Chapter 13 plan a mortgage used to secure an ob- ligation for which personal liability has been discharged in Chapter 7 proceedings; the Bank argued in the alternative that the Bankruptcy Court had erred in finding that peti- tioner had proposed the plan in good faith and that the plan was feasible. The District Court accepted the first of these arguments and disposed of the case on that ground. See In re Johnson, 96 B. R. 326, 328-330 (Kan. 1989).
The Court of Appeals affirmed. See 904 F. 2d 563 (CA10 1990). Emphasizing that petitioner's personal liability on the promissory notes secured by the mortgage had been dis- charged in the Chapter 7 proceedings, the court reasoned that the Bank no longer had a "claim" against petitioner sub- ject to rescheduling under Chapter 13. See id., at 565, 566. Like the District Court, the Court of Appeals disposed of the case without considering the Bank's contentions that John- son's plan was not in good faith and was not feasible. See id., at 566.
In contrast to the decision of the Tenth Circuit in this case, two other Circuit Courts of Appeals have concluded that a debtor can include a mortgage lien in a Chapter 13 plan even after the debtor's personal liability on the debt secured by the property has been discharged in a Chapter 7 liquidation. See In re Saylors, 869 F. 2d 1434, 1436 (CA11 1989); In re Metz, 820 F. 2d 1495, 1498 (CA9 1987). Having granted cer- tiorari to resolve this conflict, see 498 U. S. --- (1991), we now reverse.
II Chapter 13 of the Bankruptcy Code provides a reorganiza- tion remedy for consumer debtors and proprietors with rela- tively small debts. See generally H. R. Rep. No. 95-595, pp. 116-119 (1977). So long as a debtor meets the eligibility requirements for relief under Chapter 13, see 11 U.S.C. 109(e), [n.3] he may submit for the bankruptcy court's confirma- tion a plan that "modif[ies] the rights of holders of secured claims . . . or . . . unsecured claims," 1322(b)(2), and that "provide[s] for the payment of all or any part of any [allowed] claim," 1322(b)(6). The issue in this case is whether a mortgage lien that secures an obligation for which a debtor's personal liability has been discharged in a Chapter 7 liquida- tion is a "claim" subject to inclusion in an approved Chapter 13 reorganization plan.
To put this question in context, we must first say more about the nature of the mortgage interest that survives a Chapter 7 liquidation. A mortgage is an interest in real property that secures a creditor's right to repayment. But unless the debtor and creditor have provided otherwise, the creditor ordinarily is not limited to foreclosure on the mort- gaged property should the debtor default on his obligation; rather, the creditor may in addition sue to establish the debt- or's in personam liability for any deficiency on the debt and may enforce any judgment against the debtor's assets gener- ally. See 3 R. Powell, The Law of Real Property 467 (1990). A defaulting debtor can protect himself from per- sonal liability by obtaining a discharge in a Chapter 7 liquida- tion. See 7 U.S.C. 727. However, such a discharge ex- tinguishes only "the personal liability of the debtor." 11 U.S.C. 524(a)(1). Codifying the rule of Long v. Bullard, 117 U.S. 617 (1886), the Code provides that a creditor's right to foreclose on the mortgage survives or passes through the bankruptcy. See 11 U.S.C. 522(c)(2); Owen v. Owen, 500 U. S. ---, --- (1991); Farrey v. Sanderfoot, 500 U. S. ---, --- (1991); H. R. Rep. No. 95-595, supra, at 361.
Whether this surviving mortgage interest is a "claim" sub- ject to inclusion in a Chapter 13 reorganization plan is a straightforward issue of statutory construction to be resolved by reference to "the text, history, and purpose" of the Bank- ruptcy Code. Farrey v. Sanderfoot, supra, at ---. Under the Code,
" `[C]laim' means --
"(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
"(B) right to an equitable remedy for breach of per- formance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is re- duced to judgment, fixed, contingent, matured, unma- tured, disputed, undisputed, secured, or unsecured." 11 U. S. C. A. 101(5) (Supp. 1991).
We have previously explained that Congress intended by this language to adopt the broadest available definition of "claim." See Pennsylvania Dept. of Public Welfare v. Davenport, 495 U. S. ---, ---, --- (1990); see also Ohio v. Kovacs, 469 U.S. 274, 279 (1985). In Davenport, we concluded that "`right to payment' [means] nothing more nor less than an en- forceable obligation . . . ." 495 U. S., at ---. [n.4]
Applying the teachings of Davenport, we have no trouble concluding that a mortgage interest that survives the dis- charge of a debtor's personal liability is a "claim" within the terms of 101(5). Even after the debtor's personal obliga- tions have been extinguished, the mortgage holder still re- tains a "right to payment" in the form of its right to the pro- ceeds from the sale of the debtor's property. Alternatively, the creditor's surviving right to foreclose on the mortgage can be viewed as a "right to an equitable remedy" for the debtor's default on the underlying obligation. Either way, there can be no doubt that the surviving mortgage interest corresponds to an "enforceable obligation" of the debtor.
The Court of Appeals thus erred in concluding that the dis- charge of petitioner's personal liability on his promissory notes constituted the complete termination of the Bank's claim against petitioner. Rather, a bankruptcy discharge extinguishes only one mode of enforcing a claim -- namely, an action against the debtor in personam -- while leaving intact another -- namely, an action against the debtor in rem. In- deed, but for the codification of the rule of Long v. Bullard, supra, there can be little question that a "discharge" under Chapter 7 would have the effect of extinguishing the in rem component as well as the in personam component of any claim against the debtor. And because only "claims" are dis- charged under the Code, [n.5] the very need to codify Long v. Bullard presupposes that a mortgage interest is otherwise a "claim."
The conclusion that a surviving mortgage interest is a "claim" under 101(5) is consistent with other parts of the Code. Section 502(b)(1), for example, states that the bank- ruptcy court "shall determine the amount of [a disputed] claim . . . and shall allow such claim in such amount, except to the extent that . . . such claim is unenforceable against the debtor and property of the debtor" (emphasis added). In other words, the court must allow the claim if it is enforce- able against either the debtor or his property. Thus, 502(b)(1) contemplates circumstances in which a "claim," like the mortgage lien that passes through a Chapter 7 pro- ceeding, may consist of nothing more than an obligation en- forceable against the debtor's property. Similarly, 102(2) establishes, as a "[r]ul[e] of construction," that the phrase "`claim against the debtor' includes claim against property of the debtor." A fair reading of 102(2) is that a creditor who, like the Bank in this case, has a claim enforceable only against the debtor's property nonetheless has a "claim against the debtor" for purposes of the Code.
The legislative background and history of the Code confirm this construction of "claim." Although the pre-1978 Bank- ruptcy Act contained no single definition of "claim," the Act did define "claim" as "includ[ing] all claims of whatever character against a debtor or its property" for purposes of Chapter X corporate reorganizations. See 11 U.S.C. 506(1) (1976 ed.) (emphasis added). It is clear that Con- gress so defined "claim" in order to confirm that creditors with interests enforceable only against the property of the debtor had "claims" for purposes of Chapter X, see S. Rep. No. 1916, 75th Cong., 3d Sess., 25 (1938); H. R. Rep. No. 1409, 75th Cong., 1st Sess., 39 (1937), and such was the established understanding of the lower courts. See gener- ally 6 J. Moore & L. King, Collier on Bankruptcy 2.05, pp. 307-308 (14th ed. 1978) ("[I]t is to be noted that a claim against the debtor's property alone is sufficient" for Chapter X). In fashioning a single definition of "claim" for the 1978 Bankruptcy Code, Congress intended to "adop[t] an even broader definition of claim than [was] found in the [pre-1978 Act's] debtor rehabilitation chapters." H. R. Rep. No. 95- 595, at 309 (emphasis added); accord, S. Rep. No. 95-989, pp. 21-22 (1978); see also Pennsylvania Dept. of Public Welfare v. Davenport, supra, at ---, --- (recognizing that Congress intended broadest available definition of claim). Presuming, as we must, that Congress was familiar with the prevailing understanding of "claim" under Chapter X of the Act, see Cottage Savings Assn. v. Commissioner, 499 U. S. ---, --- (1991); Cannon v. University of Chicago, 441 U.S. 677, 698-699 (1979), we must infer that Congress fully expected that an obligation enforceable only against a debtor's property would be a "claim" under 101(5) of the Code.
The legislative history surrounding 102(2) directly corroborates this inference. The Committee Reports ac- companying 102(2) explain that this rule of construction contemplates, inter alia, "nonrecourse loan agreements where the creditor's only rights are against property of the debtor, and not against the debtor personally." H. R. Rep. No. 95-595, supra, at 315; accord, S. Rep. No. 95-989, supra, at 28. Insofar as the mortgage interest that passes through a Chapter 7 liquidation is enforceable only against the debtor's property, this interest has the same properties as a nonrecourse loan. It is true, as the Court of Appeals noted, that the debtor and creditor in such a case did not con- ceive of their credit agreement as a nonrecourse loan when they entered it. See 904 F. 2d, at 566. However, insofar as Congress did not expressly limit 102(2) to nonrecourse loans but rather chose general language broad enough to encom- pass such obligations, we understand Congress' intent to be that 102(2) extend to all interests having the relevant attributes of nonrecourse obligations regardless of how these interests come into existence.
The Bank resists this analysis. It contends that even if an obligation enforceable only against the debtor's property might normally be treated as a "claim" subject to inclusion in a Chapter 13 plan, such an obligation should not be deemed a claim against the debtor when it is merely the remainder of an obligation for which the debtor's personal liability has been discharged in a Chapter 7 liquidation. Serial filings under Chapter 7 and Chapter 13, respondent maintains, evade the limits that Congress intended to place on these remedies.
We disagree. Congress has expressly prohibited various forms of serial filings. See, e. g., 11 U.S.C. 109(g) (no filings within 180 days of dismissal); 727(a)(8) (no Chapter 7 filing within six years of a Chapter 7 or Chapter 11 filing); 727(a)(9) (limitation on Chapter 7 filing within six years of Chapter 12 or Chapter 13 filing). The absence of a like pro- hibition on serial filings of Chapter 7 and Chapter 13 peti- tions, combined with the evident care with which Congress fashioned these express prohibitions, convinces us that Con- gress did not intend categorically to foreclose the benefit of Chapter 13 reorganization to a debtor who previously has filed for Chapter 7 relief. Cf. United States v. Smith, 499 U. S. ---, --- (1991) (expressly enumerated exceptions presumed to be exclusive).
The Bank's contention also fails to apprehend the signifi- cance of the full range of Code provisions designed to protect Chapter 13 creditors. A bankruptcy court is authorized to confirm a plan only if the court finds, inter alia, that "the plan has been proposed in good faith," 1325(a)(3); that the plan assures unsecured creditors a recovery as adequate as "if the estate of the debtor were liquidated under chapter 7," 1325(a)(4); that secured creditors either have "accepted the plan," obtained the property securing their claims, or "re- tain[ed] the[ir] lien[s]" where the "the value . . . of property to be distributed under the plan . . . is not less than the al- lowed amount of such claim[s]," 1325(a)(5); and that the "the debtor will be able to make all payments under the plan and to comply with the plan," 1325(a)(6). In addition, the bank- ruptcy court retains its broad equitable power to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Code.]" 105(a). Any or all of these provisions may be implicated when a debtor files serially under Chapter 7 and Chapter 13. But given the availability of these provisions, and given Congress' intent that "claim" be construed broadly, we do not believe that Congress intended the bankruptcy courts to use the Code's definition of "claim" to police the Chapter 13 process for abuse.
III The Bank renews here its claim that the Bankruptcy Court erred in finding petitioner's plan to be in good faith for pur- poses of 1325(a)(3) and feasible for purposes of 1325(a)(6) of the Code. Because the District Court and Court of Ap- peals disposed of this case on the ground that the Bank's mortgage interest was not a "claim" subject to inclusion in a Chapter 13 plan, neither court addressed the issues of good faith or feasibility. We also decline to address these issues and instead leave them for consideration on remand.
The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.