A recent case from the United States Bankruptcy Court for the Northern District of Indiana is a strong reminder to secured creditors of the importance of filing a proof of claim.

In In re Ramirez Flores, 22-10010 (Bankr. N.D. Ind. 2023), the debtors filed a petition for bankruptcy relief under Chapter 13, and their filed plan contemplated paying one secured creditor, who held a lien on the debtors’ vehicle, in full. However, the creditor failed to file a proof of claim and failed to object to the plan despite receiving notice of the bankruptcy and related deadlines. Several months after the claims’ deadlines passed, the trustee filed a motion to modify the plan to pay the secured creditor nothing, which effectively redirected payments intended for the secured creditor to other creditors in the bankruptcy. The secured creditors also failed to object to the trustee’s motion; instead, the secured creditor filed a motion for relief from the automatic stay.

The Court categorized the secured creditor's predicament as a “self-inflicted wound.” As the Judge notes, confirmation is a significant event in any Chapter 13 case, and a confirmed plan binds the debtor and creditors, foreclosing litigation of any issue that was necessarily determined by the confirmation order. And secured creditors cannot absent themselves “from the bankruptcy process in chapter 13, then hope to obtain easy relief from the automatic stay after confirmation.” The Judge ultimately denied the secured creditor’s motion for stay relief, leaving the creditor to deal with its lien outside of bankruptcy and after the bankruptcy proceedings have concluded.

As the Court states, “not filing a claim has consequences,” including not being paid under a plan and not benefitting from the bankruptcy process. While not all courts agree with the position taken by the Northern District of Indiana, the best way to protect your interests and ensure proper treatment under a Chapter 13 plan is to file a claim and actively participate in the bankruptcy.