This article discusses the recent trend of debtor counsel to include in their client's reorganization plan provisions that violate the Bankruptcy Code—especially provisions that purport to discharge student loan debt that is otherwise nondischargeable. Although plans containing an illegal "discharge by declaration" should never be confirmed, many bankruptcy courts have held that once the plan is confirmed, these illegal provisions are generally enforceable and cannot be challenged collaterally in a subsequent proceeding if a creditor with notice of the plan failed to object to the plan or appeal the confirmation order.² Creditors are therefore advised to closely monitor all plans, disclosure statements and confirmation orders to ensure that their claims are treated in a manner consistent with the Bankruptcy Code.

This article also discusses several bankruptcy decisions resulting in the nullification or vacation of confirmation orders approving such illegal plan provisions on the basis that the plan proponent's attempt
to discharge student loans without initiating an adversary proceeding, as required by the Federal Rules of Bankruptcy Procedure (Bankruptcy Rules), violates the Due Process Clause of the Fifth Amendment to the U.S. Constitution.

Finally, this article addresses whether plan proponents and their attorneys should be sanctioned under Bankruptcy Rule 9011 for seeking to confirm such illegal plan provisions.

Bankruptcy Code's Codification of Res Judicata

In every chapter of the Bankruptcy Code where reorganization plans or debt adjustments are permitted, the Bankruptcy Code has codified the common-law principle of res judicata. See 11 U.S.C. §1141(a) ("the provisions of a confirmed plan bind the debtor...and any creditor...."); 11 U.S.C. §1327(a); 11 U.S.C. §1227(a); 11 U.S.C. §944. As discussed below, these general res judicata provisions often come into conflict with specific provisions found elsewhere in the Bankruptcy Code or the Bankruptcy Rules. As the Ninth Circuit Bankruptcy Appellate Panel (BAP) has noted, "[t]he concept of the preclusive effect of final orders is a basic principle of American [j]urisprudence."³ In accordance with this concept, the U.S. Supreme Court has recognized that "[i]t is for the court of first instance to determine the question of the validity of the law, and until its decision is reversed for error by orderly review, either by itself or by a higher court, its orders based on its decision are to be respected."⁴

Plans Containing Illegal Provisions Are Generally Binding Unless Appealed

Although it seems counterintuitive that a bankruptcy plan provision that violates the Bankruptcy Code could ever be enforced, courts have generally embraced this concept with few exceptions. After surveying the case law on this issue, two principles emerge: First, bankruptcy judges are human. Although one would expect that a judge would never confirm a plan that is inherently unconfirmable, such unconfirmable plans occasionally squeak by without notice. Given the heavy workload of many judges, it should come as no surprise that judges often rely on the parties to protect their own interests and raise objections when appropriate. Second, a party with notice of a plan confirmation proceeding who fails to timely object to an illegal plan, or appeal the confirmation order, generally cannot challenge the legality of the confirmation order in a later proceeding.

Unenforceable Provision Given Preclusive Effect

In Great Lakes Higher Educ. Corp. v. Pardee (In re Pardee), 218 B.R. 916, 925 (BAP 9th Cir. 1998), aff'd., 193 F.3d 1083 (9th Cir. 1999), the debtors filed a chapter 13 plan that expressly discharged post-petition interest on a student loan obligation. The lender, who was served with a copy of the plan and notice of the plan confirmation hearing, failed to object to the discharge provision on the ground that it violated §§1328(a)(2)⁵ and 523(a)(8)⁶ of the Bankruptcy Code, or timely appeal the confirmation order.

After the plan was confirmed, the student loan lender attempted to collect post-petition interest on its nondischargeable student loan claim. The debtors filed a motion to enforce the discharge provision in the confirmed plan and to enjoin the lender from pursuing its collection efforts. The bankruptcy court granted the motion, and the Bankruptcy Appellate Panel (BAP) affirmed. The BAP held that although post-petition interest on a nondischargeable student loan obligation is nondischargeable under §§1328(a)(2) and 523(a)(8), the illegal plan provision was nonetheless enforceable under §1327(a),⁷ which recognizes the concept of finality of confirmation orders. The BAP, citing "overwhelming Ninth Circuit authority [that a confirmation order must be accorded res judicata effect] and the general principle upholding the preclusive effect of final orders," held that the illegal discharge provision could not be challenged in a collateral proceeding.⁸ The BAP also held that a party who fails to object to the plan or appeal the confirmation order is precluded from doing so in a subsequent proceeding.⁹

Judge Christopher M. Klein dissented from the portion of the opinion that affirmed the bankruptcy court's injunction prohibiting the student loan creditor from collecting the illegally discharged student loan debt on the basis that "(1) the chapter 13 plan provision purporting to discharge a nondischargeable debt is unenforceable; and (2) the bankruptcy court exceeded its §105 jurisdiction to issue orders 'necessary or appropriate' to carry out the Bankruptcy Code when it issued an injunction to enforce a chapter 13 plan provision that plainly violates the Bankruptcy Code."¹⁰ First, Judge Klein asserted that the majority erroneously determined that the student loan creditor's defense to the debtor's motion for injunctive relief was a "collateral" attack on the confirmation order. Rather, Judge Klein asserted that the opposition to the motion for injunctive relief was "a direct attack premised on lack of jurisdiction as to which res judicata is not a bar."¹¹ Second, Judge Klein argued that the confirmation order should be reversed because the bankruptcy court did not have jurisdiction to enjoin the collection of student loan debts in disregard of the plain language of §523(a)(8), which bars the discharge of student loans.¹² Finally, Judge Klein asserted that the specific statutory command against the dischargeability of student loan obligations trumped the general res judicata provision of §1327(a).¹³ Judge Klein opined that the "affirmance in this appeal would license ambushes and would function as judicial legislation substituting our judgment for that of Congress by enacting a new exception to the student loan nondischargeability provision at §523(a)(8) and by repealing part of §1328(a)(2)."¹⁴

The Ninth Circuit Court of Appeals affirmed the bankruptcy court on the same grounds articulated by the BAP:

We find no reason to depart from the well-settled policy that confirmation orders are final orders that are given preclusive effect. Regardless of whether the plan should have been confirmed with the discharge provision, the BAP was correct in holding that "the plan is res judicata as to all issues that could have or should have been litigated at the confirmation hearing."¹⁵

Other Bankruptcy Cases

Pardee was neither the first nor last decision in which a bankruptcy court has confirmed plans containing provisions not permitted under the Bankruptcy Code. Many other courts have confirmed bankruptcy plans that should have never been confirmed, or have held that parties who fail to object to a plan provision or appeal a confirmation order are bound by the plan even if adherence with the confirmation order would be inequitable. With few exceptions, a party who fails to timely appeal the confirmation order cannot collaterally challenge the illegal plan provision in a later proceeding.¹⁶ As one court has aptly noted, "[t]o deny preclusive effect to a confirmation order invites...chaos...."¹⁷ Another court has noted:

This court will not knowingly confirm a plan which contains language that attempts to discharge student loan debt independent of an adversary proceeding [footnote omitted]. Inclusion of plan provisions which attempt to circumvent determination by adversary proceeding of dischargeability of student loans through the plan confirmation process is improper, but plans confirmed with such provisions will be binding on the parties if the confirmation order is not appealed or revoked. 11 U.S.C. §1330. However, inclusion of these provisions may be the subject of sanctions.¹⁸

The res judicata effect of confirmed plans applies equally to debtors and creditors. For example, in Knupfer v. Wolfberg (In re Wolfberg), 255 B.R. 879 (BAP 9th Cir. 2000), aff'd., 2002 WL 1334745 (9th Cir. Jun. 14, 2002), the Ninth Circuit BAP held that two chapter 11 debtors who had proposed a plan that provided a 100 percent payout to unsecured creditors primarily from the sale of their residence were precluded by the plan confirmation order from amending their schedules to assert a homestead exemption. Consummation of the debtors' chapter 11 plan, which contemplated the appointment of a post-confirmation trustee to liquidate the debtors' assets if creditors were not paid in full by July 1, 1999, was premised on the debtors' projection that they could sell their residence for $16 million.

Unfortunately for the debtors, they did not claim a homestead exemption, presumably because they believed that they would be entitled to any surplus after the creditors' claims were paid in full. However, after the post-confirmation trustee sold the debtors' residence for $10 million, the debtors amended their schedules to claim a homestead exemption in the amount of $125,000. The bankruptcy court allowed the debtors to amend their schedules to claim a homestead exemption over the trustee's objection on the basis that Bankruptcy Rule 1009(a) allows amendment of schedules at any time before the case is closed. However, the BAP reversed, holding that the confirmation order was entitled to res judicata effect, and that the bankruptcy court's interpretation of Bankruptcy Rule 1009(a) was erroneous because the Bankruptcy Rules cannot "abridge, enlarge or modify any substantive right."¹⁹

Thus, Wolfberg is instructive for the fact that all parties whose substantive rights could be impaired under a reorganization plan must carefully review the plan to ensure that their rights are protected. Once a plan is confirmed, a debtor generally cannot be relieved from the unintended consequences of poor draftsmanship, just as a creditor with notice of the plan confirmation hearing generally cannot collaterally attack provisions of a plan that should never have been confirmed in the first place.

Due Process Challenge to Discharge by Declaration

However, courts have begun to devise several theories to relieve creditors from plan confirmation orders that would otherwise be unenforceable but for the creditor's failure to object to the plan or appeal the confirmation order. One such theory is premised on the Due Process Clause of the Fifth Amendment to the U.S. Constitution.

In late October 2003, the Ninth Circuit BAP revisited the issue of whether a chapter 13 plan confirmation order is enforceable when the plan contains an illegal provision purporting to discharge student loan debts when the creditor fails to object to the plan or appeal the confirmation order. See Educ. Credit Mgmt. Corp. v. Repp (In re Repp), 307 B.R. 144 (BAP 9th Cir. 2004). The opening line in Repp, which was authored by Judge Klein (the dissenting Judge in Pardee), aptly describes in military terms²⁰ the tension between courts that apply res judicata to uphold plans that would otherwise be unenforceable and courts that have found such provisions unenforceable on other grounds:

This is the next skirmish in the war over the use of "illegal" chapter 13 plan provisions to discharge student loan debts notwithstanding a statute that excepts such debts from the chapter 13 discharge. The pro-discharge forces won the last "discharge-by-declaration" engagement in [Pardee].²¹

In Repp, the debtors (a husband and wife) sought to discharge student loan debt through their chapter 13 plan. The court confirmed the plan containing the illegal "declaration by discharge" without objection, and the Education Credit Management Corporation (ECMC), the student loan creditor, did not appeal the confirmation order. ECMC, which acquired the student loan debt from Northwest Education Loan Association (NELA), timely filed a proof of claim in the debtors' bankruptcy case. However, ECMC did not object to the plan or appeal the confirmation order because a copy of the plan was mailed to NELA at the postal lockbox where payments were sent. Nearly two years after ECMC filed its proof of claim, the debtors filed a complaint for declaratory relief seeking a determination that the plan was res judicata pursuant to §1327 of the Bankruptcy Code and Pardee. The debtors also alleged that the student loan debt should be discharged for undue hardship under §523(a)(8). ECMC answered and counter-claimed that the confirmation order was null and void because no adversary proceeding was initiated prior to the plan being filed, and sought a declaratory judgment that the discharge by declaration violated its Fifth Amendment due process rights. The bankruptcy court, relying on Pardee, granted the motion, and the creditors appealed.

The BAP reversed, holding that the plan was void and unenforceable with respect to the student loan discharge because it violated ECMC's due process rights. The court noted that due process requires that notice "must be reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to object. It must be of such a nature as reasonably to convey the required information and afford a reasonable time for response."²² However, the court noted that "the method chosen for notice was calculated to minimize the chance that it would come to the attention of persons in the position to make litigation decisions for the creditor."²³ The court held that because a determination of whether a debtor qualifies for a discharge of student loans based on undue hardship requires the initiation of an adversary proceeding (see Fed. R. Bankr. P. 7001(6)), which must be served on an officer, a managing or general agent, or any other agent authorized to receive service of process (see Fed. R. Bankr. P. 7004(b)(3)),²⁴ the illegal declaration by discharge in the chapter 13 plan did not afford the student loan creditor sufficient notice to satisfy due process. The court noted:

The fact that it was an "illegal" provision connotes two important expectations upon which the student loan creditor is entitled to rely. First, one is entitled to expect that the bankruptcy court will perform its independent duty to confirm only those plans that do not contravene the Bankruptcy Code and rules of procedure [citations omitted]. Second, Rule 7001(6)'s requirement of an adversary proceeding creates the reasonable expectation that a §523(a)(8) dischargeability issue need not be responded to, and will not be addressed by the court, until there has been proper service of a summons and complaint pursuant to Rule 7004.²⁵

Thus, the court, citing the "emerging consensus on the point," held that "[t]he minimal service requirements for chapter 13 plan confirmations cannot be used as a way to stay below the creditor's radar and elude the obligation to demonstrate 'undue hardship' in an adversary proceeding in the usual adversary format. Although stealth may achieve surprise at the tactical level, the strategic problem is that 'below the radar' is also fatally below the due process threshold."²⁶

In his dissent, Judge Ryan noted that because ECMC had actual notice of the confirmation hearing and received a copy of the plan, the case is virtually indistinguishable from Pardee, and thus the bankruptcy court's order should be affirmed.²⁷

Don't Fail to Object to Illegal Plan

Although the facts in Pardee and Repp are virtually indistinguishable, it is important to note that the student loan creditor never raised due process as a possible defense to the enforceability of the plan confirmation order. Although Judge Klein raised due process as an issue in his dissent in Pardee, the majority declined to address the due-process argument because it was not raised at the trial level or on appeal. Thus, Pardee is distinguishable.

In addition, although the Repp majority found that notice of the plan was adequate, the court equated the debtor's failure to follow procedural rules for commencing an adversary proceeding to determine the nondischargeability of the student loan obligation with a violation of the student loan creditor's due process rights. But all that due process requires is that notice "must be reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to object."²⁸ It does not necessarily follow that the debtor's failure to strictly comply with procedural requirements for initiating an adversary proceeding results in a denial of due process. The majority's decision arguably rewards creditors who fail to diligently protect their rights by unwinding plans simply because a creditor did not read the plan. On the other hand, because the proper procedure for initiating an action to discharge student loan debt is the commencement of an adversary proceeding, it is understandable (especially in a chapter 13 context where plans are routinely confirmed with minimal involvement by impacted creditors) that creditors might not take the time to scan such plans for "illegal" provisions that violate the Bankruptcy Code, assuming that the plan proponent would comply with all procedural requirements. Although the Ninth Circuit in Pardee recognized this tension, the decision nevertheless instructs that a creditor's failure to object to an illegal plan or appeal the confirmation order is dispositive.²⁹

No Lienstripping by Ambush

Recently, the Ninth Circuit Court of Appeals rejected a chapter 13 debtor's argument that a secured creditor was precluded from challenging a confirmed chapter 13 plan that purported to "lien strip" a secured claim by paying it over the life of the plan.³⁰ The court noted that a plan confirmation order is not res judicata as to issues that must be brought by an adversary proceeding:³¹

We have recently observed that in the unique bankruptcy context, "the principle of res judicata should be invoked only after careful inquiry because it blocks unexplored paths that may lead to truth...." Latman v. Burdette, 366 F.3d 774, (9th Cir. 2004) (internal quotation marks and citations omitted). Although confirmed plans are res judicata to issues therein, the confirmed plan has no preclusive effect on issues that must be brought by an adversary proceeding, or were not sufficiently evidenced in a plan to provide adequate notice to the creditor. In other words, if chapter 13 plan provisions do not adequately identify a secured creditor's modified claims, to hold that the plan modified the claim "would be to allow lienstripping by ambush." [citations omitted].³²

The court held that "[i]f an issue must be raised through an adversary proceeding, it is not part of the confirmation process, and unless it is actually litigated, confirmation will not have a preclusive effect."³³

In light of the Ninth Circuit's holding in Enewally, Pardee's future remains unclear. Although the Ninth Circuit cited Pardee for the proposition that a plan confirmation order is generally entitled to res judicata effect if not appealed, the court did not attempt to distinguish Pardee when it carved out an apparent exception for plan provisions requiring the commencement of an adversary proceeding.

As Judge Klein noted in Repp, it appears that there is emerging case law outside the Ninth Circuit that relies on the Due Process Clause to defeat illegal plan confirmation orders. Indeed, just one week before Repp was decided, the Sixth Circuit BAP in In re Ruehle, 307 B.R. 28 (BAP 6th Cir. 2004), affirmed the bankruptcy court's motion to vacate a confirmation order because the plan's "discharge by declaration" of the debtor's student loan debt violated the creditor's due process rights as such debts may only be discharged by filing a separate adversary proceeding.³⁴

Availability of Rule 9011 Sanctions for Filing "Illegal" Plan

Although some courts may find that due process is satisfied when the creditor receives actual notice of the confirmation hearing and a copy of the plan, as noted in Judge Ryan's dissent in Repp,³⁵ creditors are not without recourse. For example, several courts have imposed sanctions on debtors or their attorneys who seek to confirm a plan containing an illegal discharge provision (rather than filing an adversary proceeding to determine the dischargeability of student loan obligations based on undue hardship). Bankruptcy Rule 9011(b)(2) authorizes a court to impose sanctions for papers presented to the court that are not warranted by existing law or by a good-faith argument for the extension, modification or reversal of existing law.

As discussed above, the inclusion of a plan provision purporting to discharge student loan debt in a chapter 13 plan directly violates the plain language of §523(a)(8) of the Bankruptcy Code and circumvents the requirement of filing an adversary proceeding to prove undue hardship pursuant to Bankruptcy Rule 7001(6). Courts have denied confirmation of a chapter 13 plan containing illegal discharge provisions, despite the debtor's argument that he or she could not afford to file an adversary proceeding.³⁶ In In re Mammel, 221 B.R. 238, 241 (Bankr. N.D. Iowa 1998), the court reasoned that the Code and the Bankruptcy Rules define the requirements for resolving dischargeability issues in a manner that is best suited to provide due process and procedural safeguards to all parties. Permitting debtors to circumvent the process of determining dischargeability issues would undermine existing law:

In addition, the inclusion of a student loan discharge provision has not been viewed as an exercise of good faith. At least one court has characterized this practice as a "trap for unwary creditors" that "trivializes the entire process and reduces it to a game of chance."³⁷ Another court defined the problem as follows: The court is concerned that counsel for debtors may begin to view this issue as a "can't lose" proposition. If [the attorneys] include the student loan addendum and the plan is confirmed without objection, they can argue that the student loan obligation is discharged under the doctrine of res judicata and the authority of Andersen and Pardee. If an objection is raised, they simply strike the addendum and are no worse off than if they hadn't tried.³⁸

Debtors may attempt to use the illegal discharge provision to avoid payment completely, running contrary to the philosophy of chapter 13, which "allow[s] a debtor in good faith to pay legitimate obligations on a pro rata basis."³⁹ In light of these considerations, courts have recognized a need to deter the inclusion of student loan discharge provisions. Several courts have responded by imposing sanctions under Bankruptcy Rule 9011 against proponents of illegal provisions or their attorneys.⁴⁰

Some debtors have relied on Pardee and Andersen to support their inclusion of a student loan discharge provision in a chapter 13 plan.⁴¹ However, neither Pardee nor Andersen authorized the practice of discharging student loan debt by declaration in violation of the Bankruptcy Code. The Tenth Circuit Court of Appeals in Andersen expressly stated that the discharge provision did not comply with the Code.⁴² Although the courts may have enforced the discharge provisions based on the need for finality of the confirmation orders, the courts also acknowledged those same provisions violated the Code.⁴³ Another court has added that its decision to enforce the confirmation order should not be interpreted as an approval or validation of the plan language at issue.⁴⁴

Similarly, neither Pardee nor Andersen afford protection to plan proponents or their attorneys from Bankruptcy Rule 9011(b) sanctions for filing a plan that contains an illegal "discharge by declaration." Both Andersen and Pardee held that the debtor's discharge was allowed once a confirmation order had been confirmed, regardless of the validity of the discharge provision.

In an analogous situation, the U.S. Supreme Court in Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), held that if an exemption is claimed by a debtor and there is no timely objection, then it is deemed allowed regardless of the validity of the exemption. However, allowance of the exemption does not make an invalid exemption valid. The Court noted that Bankruptcy Rule 9011 sanctions were available to deter improper exemptions.⁴⁵ Relying on Taylor, at least one court concluded that the res judicata effect of confirmation orders "provides no protection from the imposition of sanctions under Bankruptcy Rule 9011(b)."⁴⁶

Conclusion

There is a split of authority as to whether a plan confirmation order that confirms a plan containing an "illegal" provision that violates the Code precludes a party with notice of the plan from challenging the illegal plan provision in a collateral proceeding. The general rule is that although a plan containing such an illegal provision should never have been confirmed in the first place, it is binding on all parties with notice of the plan who fail to object to the plan or appeal the confirmation order.

Nevertheless, some courts have begun to devise legal and equitable theories to vacate or nullify confirmation orders approving such illegal plans. For example, some courts have held that a plan containing an illegal "discharge by declaration" violates a creditor's due-process rights because the plan proponent failed to follow the proper procedure for initiating an adversary proceeding to determine the dischargeability of the debt.

Unfortunately, there is uncertainty even within circuits as to whether service of the plan and disclosure statement satisfies a creditor's due process rights notwithstanding the plan proponent's failure to comply with the procedural rules for discharging student loan debt. Until this uncertainty is resolved, creditors are advised to read all plans and disclosure statements and timely object when appropriate, lest they waive their right to later challenge the enforceability of a plan containing an illegal provision in a collateral proceeding.

Fortunately, creditors who do not diligently monitor a bankruptcy case are not without recourse. Any party in interest may seek sanctions against the proponent of an illegal plan under Bankruptcy Rule 9011 if the plan proponent and/or his attorney files a plan that does not comply with the Code. In particular, debtor's counsel should think twice before attempting to discharge student loan obligations in a chapter 13 plan without initiating an adversary proceeding, lest they find themselves pleading with the court as to why sanctions should not be imposed under Rule 9011.

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Footnotes

¹ Mr. Owens serves as senior counsel in the Los Angeles office of Foley & Lardner LLP, where he specializes in bankruptcy law, creditors' rights and commercial litigation. The author wishes to thank Michael Gelfond (associate, Hooper, Lundy & Bookman Inc.) and Conway Cho (Loyola Law School, Los Angeles (Class of 2006)) for their research assistance. Return to article

² See Great Lakes Higher Educ. Corp. v. Pardee (In re Pardee), 218 B.R. 916, 925 (BAP 9th Cir. 1998), aff'd., 193 F.3d 1083 (9th Cir. 1999). Return to article

³ Pardee, 218 B.R. at 923. Return to article

⁴ Celotex Corp. v. Edwards, 514 U.S. 300, 313, 115 S.Ct. 1493, 1501, 131 L.Ed.2d 403, 413 (1995) (citations and internal quotations marks omitted). Return to article

⁵ Section 1328(a)(2) of the Bankruptcy Code provides, in pertinent part, "the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under §502 of this title, except any debt...(2) of the kind specified in paragraph...(8)...of §523(a) of this title." Return to article

⁶ Section 523(a)(8) of the Bankruptcy Code provides in pertinent part "any debt...(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents." Return to article

⁷ Section 1327(a) of the Bankruptcy Code provides that "the provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted or has rejected the plan." Return to article

⁸ Pardee, 218 B.R. at 926. Return to article

⁹ Id. at 922-26. Return to article

¹⁰ Id. at 927. Return to article

¹¹ Id. at 932. Return to article

¹² Id. at 935-36. Return to article

¹³ Id. at 936-41. Return to article

¹⁴ Id. at 927. Return to article

¹⁵ Pardee, 193 F.3d at 1086 (citing Pardee, 218 B.R. at 925). Return to article

¹⁶ See, e.g., Stratosphere Litig. L.L.C. v. Grand Casinos Inc., 298 F.3d 1137, 1143 (9th Cir. 2002) (holding that confirmation order barred successor trustee from collaterally challenging illegal plan provision that discharged the liabilities of third parties); Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253, 1254 (10th Cir. 1999) (holding that confirmation order was res judicata on the issue of undue hardship even though plan provision purporting to discharge student loan without proof of undue hardship was inconsistent with the Bankruptcy Code because creditor failed to timely challenge the plan language); In re K.D. Co., 254 B.R. 480, 490-91 (BAP 10th Cir. 2000) (chapter 11 provision allowing unpaid administrative claimants to seek disgorgement from certain identified professionals rather than from all administrative claimants was binding and enforceable on professionals even though plan provision was inconsistent with the Bankruptcy Code because professionals had notice of the confirmation hearing and failed to timely object to the plan or appeal the confirmation order.); Factors Funding Co. v. Fili (In re Fili), 257 B.R. 370, 372-74 (BAP 1st Cir. 2001) (affirming bankruptcy court's disallowance of proof of claim filed before the claims bar date, but after chapter 13 plan was confirmed on res judicata grounds because plan unambiguously provided that claim would be disallowed in total and discharged); Lawrence v. Educ. Credit Mgmt. Corp., 251 B.R. 467, 472-73 (E.D. Va. 2000) (student loan creditor with notice of a chapter 13 plan provision waived right to object to plan where creditor never objected to plan and accepted payment from chapter 13 trustee); Khabbaz v. Sallie Mae Servicing Corp. (In re El Khabbaz), 264 B.R. 204, 208 (Bankr. N.D. Iowa 2001) (recognizing that "a majority of courts enforce offending plan provisions even though acknowledging the provision may be contrary to the Code") (citations omitted); In re Taylor, 280 B.R. 711, 714 (Bankr. S.D. Ala. 2001) (creditor that failed to object to treatment of its claim in chapter 13 plan and amended plans or appeal the confirmation order could not object to treatment of its claim more than four years after entry of the confirmation order even if treatment was not authorized under the Bankruptcy Code); Patton v. U.S. Dep't. of Educ. (In re Patton), 261 B.R. 44, 48 (Bankr. E.D. Wash. 2001) (precluding post-confirmation challenge of student loan discharge for undue hardship, although noting that inclusion of illegal discharge provision may be grounds for sanctions); Educ. Credit Mgmt. Corp. v. York (In re York), 250 B.R. 842, 844 (Bankr. D. Del. 2000) (holding that confirmation order is res judicata on discharge of post-petition student loan interest). Cf. In re Vincent, 293 B.R. 467, 470 (Bankr. E.D. Ark. 2003) (noting that although creditor who failed to object to plan that purported to discharge interest on secured claim would normally be bound by confirmation order, debtor was nevertheless required to pay amended claim in full, and debtor's obligation would not be discharged, where debtor had been barred from objecting to amended claim as discovery sanction). Return to article

¹⁷ In re Ramey, 301 B.R. 534, 545 (Bankr. E.D. Ark. 2003) (holding that order confirming chapter 13 plan that provided for treatment of secured claim as mere unsecured claim was entitled to res judicata effect and prevented creditor from belatedly asserting that its claim should have been treated as a secured claim). Return to article

¹⁸ Patton, 261 B.R. at 48 (citations omitted). Return to article

¹⁹ Wolfberg, 255 B.R. at 883. Return to article

²⁰ It is perhaps not surprising that this opinion is peppered with military references given that Judge Klein (and Judge John E. Ryan, who wrote the majority opinion in Pardee and the dissent in Repp) served in the U.S. Armed Forces during the Vietnam War. Return to article

²¹ Repp, 307 B.R. at 146. Return to article

²² Id. at 149. Return to article

²³ Id. Return to article

²⁴ Id. at 150. Return to article

²⁵ Id. at 152-53. Return to article

²⁶ Id. at 154. Return to article

²⁷ Id. at 154-56. Return to article

²⁸ Id. at 149. Return to article

²⁹ At the time that this article is written, it is unclear whether Pardee is still the law in the Ninth Circuit. It is undeniable that Repp takes the wind out of Pardee's sails. Any student loan creditor that falls asleep at the switch can look to Repp as a basis for challenging confirmation orders that confirm plans containing illegal plan provisions on res judicata grounds. Return to article

³⁰ Enewally v. Wash. Mut. Bank (In re Enewally), 368 F.3d 1165 (9th Cir. 2004). Return to article

³¹ Id. at 1172-1173. Return to article

³² Id. Return to article

³³ Id. at 1173 (quoting Cen-Pen Corp. v. Hanson, 58 F.3d 89, 93 (4th Cir. 1995) (quoting In re Beard, 112 B.R. 951, 956 (Bankr. N.D. Ind. 1990))). Return to article

³⁴ See, also, Hanson v. Educ. Credit Mgmt. Corp. (In re Hanson), 308 B.R. 903 (W.D. Wis. 2004) (recognizing a growing number of cases holding that due process requirements for the discharge of a student loan are satisfied only by the initiation of an adversary proceeding). Return to article

³⁵ Repp, 307 B.R. at 154. Return to article

³⁶ In re Webber, 251 B.R. 554, 557-58 (Bankr. D. Ariz. 2000) (denying confirmation order of a chapter 13 plan because the inclusion of a student loan discharge provision violated Bankruptcy Rule 7001(6)). Return to article

³⁷ Mammel, 249 B.R. at 243. Return to article

³⁸ In re Evans, 242 B.R. 407, 411-12 (Bankr. S.D. Ohio 1999) (citations omitted). Return to article

³⁹ Mammel, 249 B.R. at 243. Return to article

⁴⁰ See, e.g., Evans, 242 B.R. at 412-13 (holding that debtor's attorney was required to show cause why the inclusion of the student loan discharge provision in the debtor's chapter 13 plan did not violate Rule 9011(b) so as to subject him to sanctions and denying the chapter 13 plan confirmation); In re Hensley, 249 B.R. at 323-24 (Bankr. W.D. Okla. 2000) (holding that bankruptcy counsel's intentional inclusion of the student loan discharge language was both unethical and sanctionable conduct pursuant to Rule 9011, but deferring sanctions on condition that counsel strike the offending provisions from the confirmed plan); In re Lemons, 285 B.R. 327, 333 (Bankr. W.D. Okla. 2002) (holding that inclusion of language terminating the accrual of interest and discharging expenses and penalties related to the student loan debt warranted the imposition of sanctions); In re Wright, 279 B.R. 886, 889 (Bankr. D. Kan. 2002) (holding that, absent a good-faith basis, the inclusion of a student loan discharge provision in the hope that it will trap the unwary student loan creditor should result in the imposition of sanctions); Patton, 261 B.R. at 48 (noting the inclusion of undue hardship student loan discharge provisions in chapter 13 plans may be grounds for sanctions, even after the plans were confirmed and the provisions were found to be binding on the parties). Return to article

⁴¹ See Evans, 242 B.R. at 412; Hensley, 249 B.R. at 323-24. Return to article

⁴² Andersen, 179 F.3d at 1259. Return to article

⁴³ Andersen, 179 F.3d at 1259; Pardee, 193 F.3d at 1086 (citing Andersen, 179 F.3d at 1259). Return to article

⁴⁴ Patton, 261 B.R. at 48. Return to article

⁴⁵ Taylor, 503 U.S. at 644, 112 S.Ct. at 1648, 118 L.Ed.2d at 288. Return to article

⁴⁶ See Hensley, 249 B.R. at 323. Return to article