In Re:MansarayRuffin

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit

6-24-2008

In Re:MansarayRuffin
Precedential or Non-Precedential: Precedential

Docket No. 05-4790

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________

No. 05-4790
_________

IN RE: JANICA MANSARAY-RUFFIN,

Debtor

SLW CAPITAL, LLC

v.

JANICA MANSARAY-RUFFIN;
WILLIAM C. MILLER

Janica Mansaray-Ruffin,

Appellant
_________

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 04-cv-03703)
District Judge: Honorable Eduardo C. Robreno
 __________

Argued December 13, 2007

Before: RENDELL, GREENBERG, and VAN
ANTWERPEN, Circuit Judges

(Filed: June 24, 2008)

David A. Scholl, Esq. [ARGUED]
Regional Bankruptcy Center
of Southeastern Pennsylvania
6 St. Albans Avenue
Newtown Square, PA 19073-0000

Counsel for Debtor-Appellant
Janica Mansaray-Ruffin

David B. Banks, Esq. [ARGUED]
Banks & Banks
3038 Church Road
Philadelphia, PA 19444-0000

Counsel for Plaintiff-Appellee
SLW CAPITAL, LLC

2
 __________

OPINION OF THE COURT
__________

RENDELL, Circuit Judge.

This appeal requires us to determine whether the debtor
in a Chapter 13 bankruptcy case successfully invalidated a lien
on her property by providing for it as an unsecured claim in her
confirmed plan, without initiating an adversary proceeding as
required by the Federal Rules of Bankruptcy Procedure. We
agree with the lienholder, as well as with the Bankruptcy Court
and the District Court, that the answer to this question is no.
Accordingly, we will AFFIRM.

I.

On November 26, 1996, Janica Mansaray-Ruffin
borrowed $25,600 from United Companies Lending Corporation
(“United”) and, as collateral for that loan, executed a mortgage
in favor of United against her primary residence — 5101 West
Girard Avenue, Philadelphia, PA 19131. The mortgage was
recorded as a first lien against the property. United later
assigned the mortgage to EMC Mortgage Corporation (“EMC”),
and, after the instant appeal was filed, EMC assigned the

3
mortgage to SLW Capital, LLC (“SLW”), making SLW the
proper appellee.

On February 27, 2002, Mansaray-Ruffin’s counsel sent
a letter to EMC, claiming that United had committed a number
of violations of the Truth-in-Lending Act (“TILA”), 15 U.S.C.
§ 1601 et seq., in connection with the initial execution of the
mortgage. Counsel made clear in the letter that, based on these
violations, Mansaray-Ruffin was asserting “a right to rescind the
transaction, pursuant to 15 U.S.C. § 1635 of TILA, which she
hereby exercises.” (App. 30-31.) It does not appear that EMC
ever responded to this letter.

On August 13, 2002, Mansaray-Ruffin filed a voluntary
Chapter 13 bankruptcy petition and a Chapter 13 reorganization
plan with the United States Bankruptcy Court for the Eastern
District of Pennsylvania and, in the accompanying schedules,
listed EMC as a disputed secured creditor. The plan included
the following regarding EMC:

In addition, the Debtors shall file adversary
proceedings seeking to rescind or otherwise avoid
in whole or in part the secured claims arising from
the mortgage[] held against her residential realty
by EMC . . . . However, the Debtor does
anticipate making payments on the first and larger
of these loans directly to EMC outside of the Plan

4
 to protect her interests in the event that the
proceedings are not entirely successful.

(Original Chapter 13 Plan of Debtor.) On August 31, 2002,
EMC was mailed notice of Mansaray-Ruffin’s plan, including
the deadline for filing a proof of claim. EMC did not file a
proof of claim — either before or after the December 31, 2002
bar date.

On February 19, 2003, Mansaray-Ruffin filed an
amended plan, a copy of which she had mailed to EMC the day
before. The amended plan replaced the above-quoted language
with the following:

The Debtor planned to file a further adversary
proceeding to avoid in whole or in part the
secured claim allegedly arising from the first
mortgage held against her residential realty by
[EMC]. However EMC has not filed a proof of
claim in this bankruptcy case. The Debtor will
therefore file a proof of claim in the amount of
$1000 on behalf of EMC, and will resort to an
adversary proceeding against EMC only in the
event that EMC successfully amends that claim
and asserts a larger or a secured claim. The
Debtor has been paying the regular mortgage
payments to EMC outside of the plan in the event
that her challenge of the claim of EMC would not

5
 be entirely successful. However, upon
confirmation of this plan, in which the claim of
EMC will be fixed as an unsecured claim in the
amount of $1000 unless it is able to object to this
claim, the Debtor will cease making payments to
EMC, and EMC will be obliged to satisfy its
mortgage against the Debtor’s home upon the
discharge of its debt as filed or allowed.

(App. 34.) That same day, Mansaray-Ruffin filed an unsecured
proof of claim on behalf of EMC in the amount of $1,000, with
the following notation: “ALLEGED MORTGAGE -
1
RESCINDED.” (App. 32.)

Neither EMC nor any other creditor filed objections to
the plan, and it was confirmed on March 25, 2003. Thereafter,
however, EMC continued to send Mansaray-Ruffin billing
statements, as if the plan’s confirmation had no effect on the
mortgage. Mansaray-Ruffin sent EMC two letters, explaining
her position that, under the terms of the plan, she now owed
EMC a $1,000 unsecured debt (not the approximately $40,000
mortgage-backed balance that EMC was asserting).

1
Although it notes in its brief that the proof of claim filed by
Mansaray-Ruffin was untimely, SLW does not argue that this
should factor into our decision.

6
 In December 2003, EMC commenced an adversary
proceeding in the Bankruptcy Court by filing a “Complaint to
Determine Secured Status Pursuant to 11 U.S.C. § 506.” EMC
sought a determination that, under Federal Rule of Bankruptcy
Procedure 7001(2), a lien could only be invalidated through an
adversary proceeding and that, therefore, its mortgage continued
unaffected by the plan confirmation. Mansaray-Ruffin
countered with a motion to dismiss, contending that the
confirmed plan was final under the Bankruptcy Code and that
EMC had to live with the consequences of not objecting to her
treatment of its claim.

On May 6, 2004, the Bankruptcy Court denied Mansaray-
Ruffin’s motion to dismiss, concluding that “neither the
Debtor’s proof of claim, filed on behalf of EMC, nor the
Debtor’s amended plan, nor both taken together, are sufficient
to avoid EMC’s lien.” (App. 2.) On July 6, 2004, the Court
followed up its denial of the motion to dismiss by issuing an
order that “EMC shall retain its first mortgage lien on the
Debtor’s residence . . . , that said mortgage shall be unaffected
by the Debtor’s confirmed Plan of Reorganization and that said
mortgage shall pass through the bankruptcy unaffected to the
full extent of the outstanding balance due EMC in connection
with the underlying mortgage loan.” (App. 4.)

On September 26, 2005, the District Court affirmed the
Bankruptcy Court’s order without explanation.

7
 II.

The Bankruptcy Court had jurisdiction pursuant to
28 U.S.C. § 1334, the District Court had jurisdiction pursuant to
28 U.S.C. § 158(a), and we now have jurisdiction pursuant to
both 28 U.S.C. § 158(d) and 28 U.S.C. § 1291. In conducting
our review, we use the same standards as the District Court. In
re Am. Classic Voyages Co., 405 F.3d 127, 130 (3d Cir. 2005).
Therefore, since the issues in this case are legal in nature, we
review the decision of the Bankruptcy Court de novo. Id.

III.

A.

We begin with a discussion of the applicable law
governing the procedure for invalidating liens in bankruptcy.
The United States Supreme Court prescribes rules of practice
and procedure for bankruptcy cases. 28 U.S.C. § 2075. The
rules are not to “abridge, enlarge, or modify any substantive
right.” Id. Pursuant to this authority, the Court has promulgated
the Federal Rules of Bankruptcy Procedure.

Federal Rule of Bankruptcy Procedure 7001 sets forth
matters that may only be resolved through an “adversary
proceeding,” including the determination of the “validity,
priority, or extent of a lien or other interest in property.” Fed. R.

8
Bankr. P. 7001(2).2 An adversary proceeding is essentially

2
Rule 7001 provides in its entirety:

An adversary proceeding is governed by the rules
of this Part VII. The following are adversary
proceedings:

(1) a proceeding to recover money or property,
other than a proceeding to compel the debtor to
deliver property to the trustee, or a proceeding
under § 554(b) or § 725 of the Code, Rule 2017,
or Rule 6002;

(2) a proceeding to determine the validity,
priority, or extent of a lien or other interest in
property, other than a proceeding under Rule
4003(d);

(3) a proceeding to obtain approval under
§ 363(h) for the sale of both the interest of the
estate and of a co-owner in property;

(4) a proceeding to object to or revoke a
discharge;

(5) a proceeding to revoke an order of
confirmation of a chapter 11, chapter 12, or
chapter 13 plan;

9
a self-contained trial — still within the original bankruptcy case
— in which a panoply of additional procedures apply. See Fed.
R. Bankr. P. 7001-7087. Many of these procedures derive in
whole or in part from the Federal Rules of Civil Procedure,
giving an adversary proceeding all the trappings of traditional
civil litigation. For example, Federal Rule of Bankruptcy
Procedure 7003 adopts wholesale Federal Rule of Civil
Procedure 3 and thus requires the filing of a complaint to
commence an adversary proceeding. Adopting and modifying
portions of Federal Rule of Civil Procedure 4, Federal Rule of

(6) a proceeding to determine the dischargeability
of a debt;

(7) a proceeding to obtain an injunction or other
equitable relief, except when a chapter 9, chapter
11, chapter 12, or chapter 13 plan provides for the
relief;

(8) a proceeding to subordinate any allowed claim
or interest, except when a chapter 9, chapter 11,
chapter 12, or chapter 13 plan provides for
subordination;

(9) a proceeding to obtain a declaratory judgment
relating to any of the foregoing; or

(10) a proceeding to determine a claim or cause of
action removed under 28 U.S.C. § 1452.

10
Bankruptcy Procedure 7004 requires the service of a summons
and a copy of the complaint. Federal Rule of Bankruptcy
Procedure 7012 provides that the defendant has 30 days to file
an answer after the issuance of the summons and makes Federal
Rule of Civil Procedure 12(b)-(h) applicable in its entirety, thus
allowing, inter alia, all of the 12(b) defenses, motions for a
more definite statement, and judgments on the pleadings.
Moreover, an adversary proceeding offers the parties the same
opportunity for discovery as traditional civil litigation, and the
rules regarding voluntary and involuntary dismissals, default
judgments, and summary judgment are identical as well. See
Fed. R. Bankr. P. 7026-7037, 7041, 7055-7056 (making Fed. R.
Civ. P. 26-37, 41, and 55-56 applicable to adversary
proceedings).

The Rules are binding and courts must abide by them
unless there is an irreconcilable conflict with the Bankruptcy
Code. See In re Am. Classic Voyages Co., 405 F.3d at 132; In
re McKay, 732 F.2d 44, 47-48 (3d Cir. 1984); In re Decker,
595 F.2d 185, 189 (3d Cir. 1979). The three concepts included
in Rule 7001(2) — validity, priority, and extent — all pertain in
some way to “the basis of the lien itself.” Fed. R. Bankr. P.
3012 advisory committee’s note. The “validity” of a lien —
which, unlike “priority” and “extent,” is at the heart of the case
before us — refers to its “legal force.” American Heritage

11
Dictionary of the English Language (4th ed. 2004).3 The debtor
here referred to the concept of commencing an adversary
proceeding against EMC in her original plan and her amended
plan, but none was ever initiated.

B.

Mansaray-Ruffin argues that she has successfully
invalidated EMC’s lien without an adversary proceeding
because (1) she filed an unsecured proof of claim on EMC’s
behalf, (2) she treated EMC’s claim as unsecured in her plan,
(3) EMC failed to object to the treatment of its claim as
unsecured, and (4) the Bankruptcy Code generally makes all
confirmed plans final.

At the outset, it must be noted that bankruptcy has
traditionally afforded special status to liens, allowing them to
pass through bankruptcy unaffected. See, e.g., Long v. Bullard,
117 U.S. 617, 620-21 (1886). As the United States Court of
Appeals for the Fourth Circuit explained:

3
Other courts have defined “validity” similarly in the context
of Rule 7001(2). See, e.g., In re Hudson, 260 B.R. 421, 433
(Bankr. W.D. Mich. 2001) (defining “validity” as “having legal
strength or force” or “enforceable”(internal quotation marks
omitted)); In re Beard, 112 B.R. 951, 955 (Bankr. N.D. Ind.
1990) (defining the “validity” of a lien as “the existence or
legitimacy of the lien itself”).

12
 [T]he general rule [is] that liens pass through
bankruptcy unaffected. A bankruptcy discharge
extinguishes only in personam claims against the
debtor(s), but generally has no effect on an in rem
claim against the debtor's property. For a debtor
to extinguish or modify a lien during the
bankruptcy process, some affirmative step must
be taken toward that end. Unless the debtor takes
appropriate affirmative action to avoid a security
interest in property of the estate, that property will
remain subject to the security interest following
confirmation.

Cen-Pen Corp. v. Hanson, 58 F.3d 89, 92 (4th Cir. 1995)
(citations omitted).

Mansaray-Ruffin maintains that a secured creditor cannot
have its lien “ride through” bankruptcy unaffected if the debtor
files an unsecured claim on its behalf. (Appellant’s Reply
Br. 3.) She therefore proposes that the proof of claim that she
filed was a proper “affirmative action” to invalidate EMC’s lien.
She cites no authority for this proposition and we can find none.
Thus, we conclude that the proof of claim that Mansaray-Ruffin
filed on behalf of EMC did not invalidate EMC’s lien.4

4
In addition, we note that EMC’s failure to file a proof of
claim has no legal significance. Filing a proof of claim is not
mandatory, and a secured creditor’s failure to do so does not

13
 Next, Mansaray-Ruffin argues that the provision in her
confirmed plan treating EMC’s claim as unsecured operated to
invalidate EMC’s mortgage lien. She relies on cases that have
permitted liens to be “stripped,” pursuant to § 506 of the Code,
through the confirmation of a plan. See, e.g., In re Bennett,
312 B.R. 843 (Bankr. W.D. Ky. 2004); In re Dickey, 293 B.R.
360 (Bankr. M.D. Pa. 2003); In re Hudson, 260 B.R. 421
(Bankr. W.D. Mich. 2001); In re Wolf, 162 B.R. 98 (Bankr.
D.N.J. 1993). The problem with Mansaray-Ruffin’s reliance on
these cases is that the concept of “lien stripping” is related to the
valuation of collateral, not the validity of a lien, and, as she has
acknowledged in her brief and at oral argument, she challenges
the validity of the lien itself, not the valuation of the collateral
securing it. Therefore, these cases have no bearing on whether
Mansaray-Ruffin could invalidate EMC’s lien by using a
provision to that effect in her plan.

Mansaray-Ruffin also cites a number of cases in which
a debtor successfully fixed the amount of a secured claim at an
amount less than the creditor asserted by providing for such
lesser amount in her plan. See In re Fesq, 153 F.3d 113 (3d Cir.
1998); In re Holmes, 225 B.R. 789 (Bankr. Colo. 1998). Like
the lien-stripping cases, these cases, too, do not involve a
challenge to the validity of the lien itself and thus have no

result in the loss of its lien. See 11 U.S.C. §§ 501(a), 506(d)(2);
Cen-Pen Corp., 58 F.3d at 93-94.

14
bearing on whether Mansaray-Ruffin could invalidate EMC’s
lien by treating it as an unsecured claim in her plan.

The Bankruptcy Code does state that a plan may include
“any other appropriate provision not inconsistent with” the
Code. 11 U.S.C. § 1322(b)(11). However, we have previously
considered whether a provision in a plan can invalidate a lien —
which would run afoul of the Rules but not any specific
provision of the Code itself — and have ruled that this
“substantive catch-all provision” does not leave courts free to
disregard the Rules. McKay, 732 F.2d at 48. In McKay, two
debtors filed Chapter 13 bankruptcy plans, both of which
provided that “Debtor avoids liens avoidable under 11 U.S.C.
§ 522(f).” Id. at 45. Section 522(f), which is not at issue here,
allows for the avoidance of certain liens to take advantage of
exemptions. Pennsylvania’s Department of Public Welfare
(“DPW”), a creditor of both debtors, objected to the
confirmation of each plan, arguing that § 522(f) lien avoidance
could not be achieved through the confirmation process because
it involved the determination of the “validity, priority, or extent
of a lien” and thus fell under what is now Rule 7001(2). Id. at
46. The bankruptcy court confirmed both plans,
notwithstanding this objection. On appeal, we agreed with
DPW and reversed, “hold[ing] that where a debtor seeks to
avoid a judicial lien pursuant to 11 U.S.C. § 522(f), the
adversary proceedings rules adopted by the Bankruptcy Code
apply, and that the debtor thus bears the burden of filing a
complaint with the bankruptcy court and servicing a copy of it

15
on each creditor whose lien the debtor seeks to avoid.” Id. at 45.
McKay confirms that when an adversary proceeding is required
under Rule 7001(2), courts are not free to disregard the Rule.5

As we have previously explained, “‘[a]s a general matter,
the Code defines the creation, alteration or elimination of
substantive rights but the Bankruptcy Rules define the process
by which these privileges may be effected.’” Fesq, 153 F.3d at
116 (alteration in original) (quoting In re Hanover Indus. Mach.
Co., 61 B.R. 551, 552 (Bankr. E.D. Pa. 1986)). The Rules are
there for a reason.

It is appropriate that the Rules permit lien invalidation to
occur only through litigation in an adversary proceeding — and
not through a provision in a plan — for the invalidation of a lien
on the property of the debtor held by a specific creditor is a
matter of particularly great consequence, in terms of the
applicable legal principles and the practical result. As discussed
above, an adversary proceeding provides the lienholder with
“greater procedural protection,” Tenn. Student Assistance Corp.
v. Hood, 541 U.S. 440, 451 (2004), requiring a complaint and a

5
The Bankruptcy Rules have been amended and now provide
that lien avoidance pursuant to § 522(f) can be achieved by
motion and no longer requires an adversary proceeding. See
Fed. R. Bankr. P. 4003(d), 7001(2), 9014; McKay, 732 F.2d at
47 & n.8. This change, however, has no effect on McKay’s
relevance here.

16
summons, providing for an answer and discovery, and generally
concluding only after trial or a dispositive motion.

In contrast, the Rules establish less exacting requirements
for the confirmation of a bankruptcy plan, a process which
entails virtually none of the procedural safeguards of an
adversary proceeding. Under Federal Rule of Bankruptcy
Procedure 2002, “parties in interest,” including creditors, must
receive notice by mail at least 25 days before both the deadline
for filing objections to the plan and the date of the required
confirmation hearing. Crucially, plan confirmation does not
require the filing of a complaint or the service of a summons.
Moreover, in the Chapter 13 context, the notice sent need not
even include a full copy of the proposed plan; rather, a summary
of the plan can suffice. Fed. R. Bankr. P. 3015(d). Therefore,
as the United States Court of Appeals for the Tenth Circuit
recently put it, confirmation “does not require specific notice of
a plan provision’s effect on a particular creditor, nor does it
require notice to be served in any particular manner or upon any
particular person.” In re Mersmann, 505 F.3d 1033, 1043
(10th Cir. 2007). In addition, an objection to the confirmation
of a Chapter 13 plan is a “contested matter,” governed by
Federal Rule of Bankruptcy Procedure 9014. Fed. R. Bankr. P.
3015(f). Contested matters are more informal than adversary
proceedings, are initiated by motion (not by a complaint), and,
unless the court directs otherwise, do not require a responsive
pleading. Fed. R. Bankr. P. 9014; In re Indian Palms Assocs.,
61 F.3d 197, 204 n.11 (3d Cir. 1995).

17
 Mansaray-Ruffin also contends that by failing to object
to the plan after receiving a copy of it in the mail, EMC waived
its right to challenge the plan’s invalidation of its lien. While
there is visceral appeal to this argument, it does not withstand
scrutiny. In order for us to credit Mansaray-Ruffin’s position,
we would have to find that EMC’s failure to object somehow
constituted a waiver of Rule 7001 and all of the procedural
protections that go with it (i.e., Rules 7002-7087). This, we
cannot do. By way of analogy, if a plaintiff were to attempt to
“commence” a civil litigation by filing a motion with the district
court and mailing a copy of it to the defendant, and the
defendant were to fail to file a pleading in response, we surely
would not uphold the entry of a default judgment on behalf of
the plaintiff. In that situation, the plaintiff has the affirmative
duty to file a complaint and to serve a summons with a copy of
the complaint on the defendant. See Fed. R. Civ. P. 3-4. This
duty is not lessened or negated by the defendant’s inaction.
Similarly, EMC’s failure to object to the plan did not do away
with Mansaray-Ruffin’s duty to file a complaint and serve EMC
pursuant to Rules 7001, 7003, and 7004. EMC had the legal
right to do nothing and insist upon being served with a summons
and a complaint in order for its lien to be invalidated.

The only issue that remains is whether, because
Mansaray-Ruffin’s plan treating EMC’s lien as invalid has been
confirmed, it should be deemed final and controlling
notwithstanding her failure to follow the Rules.

18
 The Bankruptcy Code does provide that the terms of a
confirmed plan are binding. 11 U.S.C. § 1327.6 In In re
Szostek, we explained that, “[u]nder § 1327, a confirmation
order is res judicata as to all issues decided or which could have
been decided at the hearing on confirmation.” 886 F.2d 1405,
1408 (3d Cir. 1989). In that case, a secured creditor sought the
revocation of the debtor’s confirmed Chapter 13 plan because
the plan failed to provide for the full recovery of the present

6
This Code section, titled “Effect of Confirmation,” provides:

(a) 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.

(b) Except as otherwise provided in the plan or
the order confirming the plan, the confirmation of
a plan vests all of the property of the estate in the
debtor.

(c) Except as otherwise provided in the plan or in
the order confirming the plan, the property vesting
in the debtor under subsection (b) of this section
is free and clear of any claim or interest of any
creditor provided for by the plan.

11 U.S.C. § 1327.

19
value of its claim. In finding for the debtor, we invoked § 1327
and the “well settled law that a confirmed plan is final.” Id. at
1408-10. Quoting from our opinion in In re Penn Central
Transportation Co., 771 F.2d 762, 767 (3d Cir. 1985), we
emphasized our view that:

the purpose of bankruptcy law and the provisions
for reorganization could not be realized if the
discharge of debtors were not complete and
absolute; that if courts should relax provisions of
the law and facilitate the assertion of old claims
against discharged and reorganized debtors, the
policy of the law would be defeated; that creditors
would not participate in reorganization if they
could not feel that the plan was final, and that it
would be unjust and unfair to those who had
accepted and acted upon a reorganization plan if
the court were thereafter to reopen the plan and
change the conditions which constituted the basis
of its earlier acceptance.

Szostek, 886 F.2d at 1409 (internal quotation marks omitted).

However, in Szostek, the secured creditor argued that the
plan provision setting forth the amount to which it was entitled
violated the Code, namely, 11 U.S.C. § 1325(a)(5), because the
provision failed to require the payment of interest necessary for
the secured creditor to receive the present value of the claim.

20
We examined whether this Code provision was mandatory,
stating that “[i]f the provisions of § 1325(a)(5) are mandatory,
as [the creditor] contends, then a plan cannot be confirmed if it
does not meet the requirements of that section.” Id. at 1411.
We concluded that this provision was not mandatory. Id. at
1412. Thus, while Szostek does note the importance of finality,
it recognizes that the policy of finality must yield to the principle
that a plan cannot violate a mandatory provision of the Code.

We hold that the adversary proceeding Rule at issue here
is mandatory and establishes a right to specific process that must
be afforded. Its mandatory nature is grounded in principles of
due process that trump “finality.” See In re Linkous, 990 F.2d
160, 162 (4th Cir. 1993) (“[W]e cannot defer to [a Chapter 13
confirmation] order on res judicata grounds if it would result in
a denial of due process in violation of the Fifth Amendment of
the United States Constitution.”).

The level of process due to a party prior to the
deprivation of a property interest, such as a lien, is highly
dependent on the context. As the Supreme Court has repeatedly
emphasized, “‘[t]he very nature of due process negates any
concept of inflexible procedures universally applicable to every
imaginable situation.’” Lujan v. G & G Fire Sprinklers, Inc.,
532 U.S. 189, 196 (2001) (quoting Cafeteria & Rest. Workers
Union, Local 473 v. McElroy, 367 U.S. 886, 895 (1961)). Thus,
process that may be constitutionally sufficient in one setting may
be insufficient in another.

21
 Highlighting the contextual nature of the calculus, the
Court famously explained almost sixty years ago that “[m]any
controversies have raged about the cryptic and abstract words of
the Due Process Clause but there can be no doubt that at a
minimum they require that deprivation of life, liberty or property
by adjudication be preceded by notice and opportunity for
hearing appropriate to the nature of the case.” Mullane v.
Central Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950)
(emphasis added); see also id. at 314 (“An elementary and
fundamental requirement of due process in any proceeding
which is to be accorded finality is notice reasonably calculated,
under all the circumstances, to apprise interested parties of the
pendency of the action and afford them an opportunity to present
their objections.” (emphasis added)); id. at 314-15 (“[I]f with
due regard for the practicalities and peculiarities of the case
these conditions are reasonably met the constitutional
requirements are satisfied.” (emphasis added)).7

Accordingly, we have refused to treat confirmed
bankruptcy plans as res judicata with respect to the claims of

7
For example, it is well established that notice of bankruptcy
proceedings by publication is generally sufficient to protect the
procedural due process rights of unknown creditors, but not
those of known creditors. See Tulsa Prof’l Collection Servs.,
Inc. v. Pope, 485 U.S. 478, 488-90 (1988); City of New York
v. N.Y., N.H. & H.R. Co., 344 U.S. 293, 296 (1953); Chemetron
Corp. v. Jones, 72 F.3d 341, 346 (3d Cir. 1995).

22
creditors who did not receive notice that was sufficient under the
circumstances — even where adherence to the plain language of
the relevant statute would have made the confirmed plan binding
on all creditors. Jones v. Chemetron Corp., 212 F.3d 199,
209-10 (3d Cir. 2000) (finding that despite 11 U.S.C. § 1141,
the analog to § 1327 in the Chapter 11 context, “[u]nder
fundamental notions of procedural due process, a claimant who
has no appropriate notice of a bankruptcy reorganization cannot
have his claim extinguished in a settlement thereto” (citing, inter
alia, Mullane, 339 U.S. at 314-19)); In re Harbor Tank Storage
Co., 385 F.2d 111, 114-15 (3d Cir. 1967).

In addition, we have indicated that a creditor’s actual
knowledge regarding the bankruptcy proceedings does not
eliminate our due process concerns. Harbor Tank Storage,
385 F.2d at 114-16. In Harbor Tank Storage, a known creditor
filed a claim after the debtor’s bankruptcy plan had already been
confirmed under Chapter X of the now-superseded Bankruptcy
Act. Id. at 112. The creditor argued that it should be permitted
to file a post-confirmation claim because, although the debtor
had published notice of the bankruptcy proceedings and the
important dates in the local newspaper, the debtor had not
mailed the creditor the various notices required by the statute.
Id. The debtor countered that the creditor’s claim should be
barred because the statute made confirmed plans “‘binding upon
. . . all creditors’” and because the creditor had actually known
about the bankruptcy proceeding and had done nothing to
protect its interests until after confirmation. Id. at 114-15

23
(quoting 11 U.S.C. § 624(1) (repealed by Pub. L. No. 95-598, 92
Stat. 2549 (1978))). According to the debtor, the creditor
“should have independently checked on the progress of the
proceedings, and should have filed his claim without waiting for
notice to do so.” Id. at 115.

We agreed with the creditor on due process grounds,
explaining that “the fact that a creditor knows of the initiation of
reorganization proceedings does not of itself place a burden on
the creditor to file an appearance or claim in the proceeding
before receiving notice to do so.” Id. We went on to state
unequivocally that “a creditor has every right to assume that he
will be sent all the notices to which he is entitled under the Act.”
Id. at 115. Thus, we made clear that there are statutory
procedural requirements that bear directly on the level of
process due to a party in a particular situation.

A number of our sister courts of appeals have concluded,
based on these due process principles, that, despite any statutory
prescription of finality or any knowledge that the creditor may
have, a confirmed plan has no preclusive effect on issues that
must be raised in an adversary proceeding, if no such proceeding
has been brought.

In re Banks, 299 F.3d 296 (4th Cir. 2002), involved a
controversial debtor tactic that has come to be known as
“discharge by declaration.” Federal Rule of Bankruptcy
Procedure 7001(6) requires an adversary proceeding in order to

24
discharge student loan debt. Further, under 11 U.S.C.
§ 523(a)(8), student loans may not be discharged in a Chapter 13
bankruptcy unless the debtor establishes that continuing liability
for the loan would cause him or her “undue hardship.” In
Banks, a Chapter 13 debtor sought to discharge a portion of his
student loan debt by including a provision to that effect in his
plan and did not initiate an adversary proceeding. 299 F.3d at
298-99. The plan was confirmed without objection, or even an
appearance at the confirmation hearing, by the creditor, and the
creditor did not appeal the confirmation order. Id. at 299.
Further, the creditor did not dispute that it received a copy of the
proposed plan, a hearing notice, and the confirmation order. Id.
Five years after plan confirmation, the bankruptcy court issued
a discharge order. Id. When the debtor then received a
statement from the creditor that still included the student loan
debt, he sought a declaration from the bankruptcy court that the
confirmed plan’s treatment of the disputed debt was final. Id.
The bankruptcy court agreed with the debtor. Id.

The United States Court of Appeals for the Fourth Circuit,
however, ruled in the creditor’s favor, finding that the debtor’s
failure to initiate an adversary proceeding — complete with the
complaint, summons, and service of process required by Rules
7003 and 7004 — overrode § 1327’s finality provision. Id. at
302-03. The court explained: “We agree a bankruptcy court
confirmation order generally is afforded a preclusive effect. But
we cannot defer to such an order if it would result in a denial of
due process in violation of the Fifth Amendment to the United

25
States Constitution.” Id. at 302 (footnote omitted). In
concluding that such a denial would result in the situation before
it, the court held that “[w]here the Bankruptcy Code and
Bankruptcy Rules specify the notice required prior to entry of an
order, due process generally entitles a party to receive the notice
specified before an order binding the party will be afforded
preclusive effect.” Id., quoted with approval in Baldwin v.
Credit Based Asset Servicing & Securitization, 516 F.3d 734, 737
(8th Cir. 2008).

In In re Ruehle, 412 F.3d 679, 684 (6th Cir. 2005), another
Chapter 13 discharge-by-declaration case, the United States
Court of Appeals for the Sixth Circuit followed Banks’s lead in
ruling that discharging student loan debt through a provision in
a confirmed plan, and without the adversary proceeding required
by Rule 7001(6), violates the creditor’s due process rights. It did
not matter that the creditor did not raise its due process challenge
until four years after the plan’s confirmation because, the court
explained, “[e]very person and entity is entitled to the prescribed
level of notice for the process to be due and only thereafter may
the coercive power of the government be used against them.”
Id. at 682, 684-85 (internal quotation marks omitted). Because
the debtor failed to commence an adversary proceeding and serve
the creditor with a summons and a complaint, the discharge of
the disputed debt in the plan could not be given effect. Id. at
684-85.

26
 In In re Hanson, 397 F.3d 482 (7th Cir. 2005), the court
faced a slightly different situation. There, the debtor’s plan did
not provide for the discharge of his student loan debt, but the
discharge order erroneously approved by the bankruptcy court
did. Id. at 483-84. As in Banks and Ruehle, Rule 7001(6) was
ignored and no adversary proceeding was ever initiated. Id. at
485. Six years after the discharge order, the creditor filed a
motion in the bankruptcy court to void it. Id. at 483. The
bankruptcy court granted the motion, id., and the United States
Court of Appeals for the Seventh Circuit agreed, concluding that
student loan creditors have the due process right not “to act until
the service of a summons for an adversary proceeding apprises
them that their property rights may be affected,” id. at 486-87.
Invoking both Banks and Mullane, it reasoned: “Although we
recognize the strong policy favoring finality of confirmation
orders, due process entitles creditors to the heightened notice
provided for by the Bankruptcy Code and Rules, and the dictates
of due process trump policy arguments about finality.” Id. at 486.

In a context that did not implicate Rule 7001, the United
States Court of Appeals for the Ninth Circuit has also endorsed
the notion that, where an adversary proceeding is required, the
preclusive effect of a confirmation order is limited. In re
Enewally, 368 F.3d 1165, 1173 (9th Cir. 2004). In Enewally, a
creditor held a lien on a property owned by joint chapter 13
debtors and, even though Rule 7001 did not require it, the debtors
filed an adversary complaint against the creditor, seeking to
modify the lien amount based on the value of the collateral. Id.

27
at 1167-68. While the adversary proceeding was pending, the
bankruptcy court confirmed the debtor’s plan. Id. at 1168.
When, in the still-pending adversary proceeding, the creditor
later challenged the debtors’ modification of its lien, the debtors
argued that § 1327 precluded the creditor from doing so. Id. at
1172. The Court of Appeals for the Ninth Circuit disagreed on
due process grounds and explained:

Here, during plan confirmation and modification,
the bankruptcy court specifically reserved the
question at issue because it had been raised via an
adversary proceeding. “[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.” Thus a Chapter 13 plan
confirmed while an adversary proceeding was
pending would not have res judicata effect on the
adversary proceeding.

Id. at 1173 (quoting Cen-Pen Corp., 58 F.3d at 93-94).

Before it could be deprived of its property interest in its
lien, EMC had the constitutional right to a level of process that
was “appropriate to the nature of the case.” See Mullane,
339 U.S. at 313. As we emphasized above, our determination
regarding the process due in any particular case depends on the
context. A crucial piece of the context here is the existence of a

28
binding Federal Rule of Bankruptcy Procedure directly on point
that makes clear that a lien may only be invalidated through an
adversary proceeding. Just as a procedural prescription in the
statute guided us in determining the process due to the creditor
in Harbor Tank Storage, 385 F.2d at 114-15, a procedural
prescription in the Rules guides us here. In Harbor Tank
Storage, we found that a creditor had the due process right “to
assume that he w[ould] be sent all the notices to which he [wa]s
entitled under the Act” before his claim could be barred. Id. at
115. Similarly, we now conclude that EMC had the due process
right to assume that, unless Mansaray-Ruffin commenced the
adversary proceeding required by the Rules and served it with a
complaint and a summons, its lien could not be invalidated.
Whatever actual knowledge EMC may have had regarding the
plan’s treatment of its lien did not eliminate this right and neither
did the provisions of § 1327.

We wish to make clear, however, that we do not hold that
the failure to adhere to every Rule of Bankruptcy Procedure
implicates due process. Rather, we hold only that, where the
Rules require an adversary proceeding — which entails a
fundamentally different, and heightened, level of procedural
protections — to resolve a particular issue, a creditor has the due
process right not to have that issue resolved without one. This

29
conclusion fits comfortably with the precedents we have
discussed from our sister circuit courts.8

In arguing that the Code’s policy of finality should
control, Mansaray-Ruffin relies on our opinion in In re Fesq, 153
F.3d 113 (3d Cir. 1998). She maintains that because SLW is
seeking to nullify a central part of the confirmed plan, it is
effectively asking us to revoke the Bankruptcy Court’s order of
confirmation, which, according to Fesq, is impermissible absent
fraud. Id. at 120. In Fesq, the creditor held a $70,000 judgment
lien on the debtor’s home. Id. at 114. The debtor’s Chapter 13
bankruptcy plan provided for full satisfaction of the creditor’s
secured claim with a single payment of $7,050. The plan was
confirmed without objection from the creditor. Id. The creditor
then moved to revoke the confirmation order, blaming its failure
to file an objection on a computer glitch that caused its attorney
to think that the deadline for filing objections was two months
later than it actually was. Id. at 114-15. We denied the creditor’s

8
Our dissenting colleague criticizes our failure to provide
guidance as to whether EMC delayed too long — nine months
— after confirmation before filing its adversary proceeding. We
note that, although Mansaray-Ruffin complains of this delay, she
has not briefed this issue or pointed to authority to support the
proposition that nine months was too long and/or should have
barred EMC’s claim. Moreover, Banks, Hanson, and Ruehle all
involved inaction by creditors for much longer time periods after
plan confirmation.

30
motion because, under 11 U.S.C. § 1330(a), a confirmed Chapter
13 plan can only be revoked on account of fraud. Id. at 120. We
emphasized the fact that “Congress established finality as an
important goal of bankruptcy law,” and we explained that our
holding was consistent with that goal. Id. at 119-20.

Fesq, however, never directly confronted the issue of
whether an adversary proceeding was necessary. Further, Fesq
is distinguishable from our case in two key ways. First, quite
simply, SLW is not seeking the revocation of the Bankruptcy
Court’s confirmation order. Rather, it is asking us to declare that
the confirmed plan did not invalidate the lien that it now holds.
Second, and even more importantly, Fesq did not involve a
determination as to the validity of the creditor’s lien or any other
matter for which Rule 7001 requires an adversary proceeding.
Rather, it involved the fixing of the amount of the secured claim,
which, like the modification of a claim to comport with the value
of the collateral in the lien-stripping cases discussed above, is not
the same as lien invalidation. Thus, Fesq does not implicate the
due process concerns that animate our decision in this case, and
it does not control either our reasoning or conclusion regarding
the issues before us.

31
 IV.

In light of the foregoing, we conclude that the District
Court properly held that EMC’s lien was not invalidated and
passed through Mansaray-Ruffin’s bankruptcy unaffected.
Accordingly, we will AFFIRM.

32
Re: In re Mansaray-Ruffin, No. 05-4790

GREENBERG, Circuit Judge, dissenting.

I dissent because it is clear that due process was met with
respect to the elimination of EMC’s lien notwithstanding
Mansaray-Ruffin’s violation of the Federal Rules of Bankruptcy
Procedure to obtain that relief. I have reached this conclusion
even though I agree with the majority that her Chapter 13
reorganization plan included a provision dealing with EMC’s
mortgage adopted in violation of the Rules because she did not
file an adversary proceeding to avoid EMC’s lien. The basis for
my conclusion is that notwithstanding the Rules violation EMC
had adequate notice of the impairment of its lien and an
opportunity to object to that adverse treatment and, accordingly,
that it received the constitutionally required due process to which
it was entitled. Therefore, once the Bankruptcy Court confirmed
the plan, the confirmation order bound EMC and precluded it
from obtaining relief in the post-confirmation adversary
proceeding that we now consider.

It is clear that Mansaray-Ruffin’s plan included a
provision adopted in violation of the Bankruptcy Rules. Rule
7001(2) provides that “a proceeding to determine the validity,
priority, or extent of a lien or other interest in property” is an
adversary proceeding. Fed. R. Bankr. P. 7001(2). We have
determined that under Rule 7001(2) a debtor must initiate an
adversary proceeding to avoid a lien. See In re McKay, 732 F.2d

33
44, 45 (3d Cir. 1984) (“[W]here a debtor seeks to avoid a judicial
lien pursuant to 11 U.S.C. § 522(f), the adversary proceedings
rules adopted by the Bankruptcy Code apply . . . .”). Mansaray-
Ruffin did not initiate an adversary proceeding to avoid EMC’s
lien but, instead, provided in her plan that EMC’s claim would be
fixed as an unsecured $1,000 claim upon the plan’s confirmation.
Because the proceedings leading to the approval of her plan did
not comply with Rule 7001, if EMC had objected unsuccessfully
to the confirmation of her plan during the confirmation hearing
and then appealed from the confirmation order, I have no doubt
but that I would have voted to reverse the order confirming the
plan. Thus, the proceedings at the confirmation hearing could
not substitute for an adversary proceeding at which Mansaray-
Ruffin could challenge the validity of the lien and I do not
suggest that they could do so.

EMC, of course, did not object to confirmation of the plan
or appeal from the confirmation order. Instead of taking those
opportunities to protect its lien, EMC, quite inexplicably, though
on adequate notice that its lien was being eliminated, sat idle in
the face of the adoption of the plan. Though I recognize that an
attorney for EMC examining the plan might have believed that
the plan lawfully could not adversely affect EMC’s lien, I cannot
understand why the attorney then would not have taken the
uncomplicated step of objecting to the plan inasmuch as 11
U.S.C. § 1327(a) provides that “the provisions of a confirmed
plan bind the debtor and each creditor.” After all, our experience
teaches us that attorneys ordinarily are careful to protect their

34
clients’ interests and an attorney could not be certain that in the
light of section 1327(a) a plan would not be given preclusive
effect even with respect to the elimination of EMC’s lien.9 But
instead of objecting, almost nine months after confirmation EMC
filed the adversary proceeding leading to this appeal seeking to
collaterally attack the confirmed plan. Accordingly, a situation
that should not have raised any significant procedural problems
instead presents the divisive issue of whether the Bankruptcy
Court’s confirmation order binds EMC and precludes EMC from
collaterally attacking the plan, even though the plan violated the
Bankruptcy Rules.

The Bankruptcy Code provides for the binding effect of
confirmed plans. Under the Code:

(a) 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.

(b) Except as otherwise provided in the plan or the
order confirming the plan, the confirmation of a

9
Actually, as I point out below, it is possible that EMC was
acting perfectly rationally in not objecting to the plan even
though the plan eliminated its lien. See infra n.6.

35
 plan vests all of the property of the estate in the
debtor.

(c) Except as otherwise provided in the plan or in
the order confirming the plan, the property vesting
in the debtor under subsection (b) of this section is
free and clear of any claim or interest of any
creditor provided for by the plan.

11 U.S.C. § 1327.

In In re Szostek, 886 F.2d 1405 (3d Cir. 1989), we
determined that under section 1327 a confirmed plan binds
creditors even when the plan violates the Bankruptcy Code and
includes unauthorized provisions. In Szostek the debtors filed a
plan that proposed payments to a secured creditor but did not
propose to pay interest, i.e., present value, on the claim. Id. at
1406. The creditor in Szostek did not timely object to the plan
and did not appeal from the confirmation order. Id. at 1407-08.
Instead, four months after confirmation, the creditor mounted a
post-confirmation challenge to the plan, arguing that the plan
violated a provision of the Code by not paying the present value
of his claim. Id. at 1408. Though the creditor was correct with
respect to the Code violation the bankruptcy court nevertheless
found that the plan was not revocable. Id. On appeal, the district
court reversed that aspect of the bankruptcy court’s ruling and
vacated the plan confirmation order. Id. The debtors then
appealed to this Court.

36
 The issue before us was whether under section 1327 the
confirmation order bound the creditor even though the debtors’
plan did not provide for the present value of the creditor’s claim
as required by 11 U.S.C. § 1325(a)(5)(B)(ii). Id. Significantly,
in considering this issue we recognized that

the purpose of bankruptcy law and the provisions
for reorganization could not be realized if the
discharge of debtors were not complete and
absolute; that if courts should relax provisions of
the law and facilitate the assertion of old claims
against discharged and reorganized debtors, the
policy of the law would be defeated; that creditors
would not participate in reorganization if they
could not feel that the plan was final, and that it
would be unjust and unfair to those who had
accepted and acted upon a reorganization plan if
the court were thereafter to reopen the plan and
change the conditions which constituted the basis
of its earlier acceptance.

Id. at 1409 (quoting In re Penn Central Transportation Co., 771
F.2d 762, 767 (3d Cir. 1985)). We further stated that “if a
creditor ignores the bankruptcy proceedings, he does so at his
peril.” Id. at 1410 (citing In re Gregory, 705 F.2d 1118, 1123
(9th Cir. 1983)). We also noted the “general rule” that “the
acceptance of the plan by a secured creditor can be inferred by
the absence of an objection.” Id. at 1413. We concluded that

37
“once the . . . plan was confirmed, it became final under § 1327
and, absent a showing of fraud under § 1330(a), it could not be
challenged . . . for failure to pay [the creditor] the present value
of its claim.” Id.

In an opinion citing Szostek another court set forth its
meaning perfectly:

[The secured creditor] was not free blithely to
forego its full and fair opportunity to object to the
plan’s plain terms. Even if issues relating to [the
debtor’s] liability to [the creditor] could not be
finally resolved through a plan confirmation
contest, . . . [the secured creditor] ignored the plan
confirmation process, and its opportunity to object
to confirmation, at its peril.

In re Fili, 257 B.R. 370, 372 (1st Cir. BAP 2001).

Thus, Szostek stands for the rule that “plans that would
not be confirmable due to provisions that do not conform to
applicable law will nonetheless be given effect if an objection is
not raised prior to entry of the confirmation order.” In re Bryant,
323 B.R. 635, 639 (Bankr. E.D. Pa. 2005). This principle is
tempered only by considerations of procedural due process
which, of course, concern the notice given creditors of the
confirmation proceedings and their opportunity to object to the
terms of the plan. Under the Fifth Amendment “[n]o person shall

38
. . . be deprived of life, liberty, or property, without due process
of law . . . .” U.S. Const. amend. V. The fundamental
requirements of due process are notice and an opportunity to
respond. Martin v. Brown, 63 F.3d 1252, 1262 (3d Cir. 1995).
In Mullane v. Central Hanover Bank & Trust Co. the Supreme
Court stated 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 present their
objections . . . .” 339 U.S. 306, 314, 70 S.Ct. 652, 657 (1950).

A creditor with a secured claim has a property interest and
thus is entitled to due process protection before the interest may
be impaired. See Mennonite Bd. of Missions v. Adams, 462 U.S.
791, 795-800, 103 S.Ct. 2706, 2709-12 (1983); see also Jones v.
Chemetron Corp., 212 F.3d 199, 209-10 (3d Cir. 2000) (holding
that a confirmation order does not discharge a claim when the
claimant did not have notice of the proceedings). Accordingly,
a debtor’s plan that proposes to adversely affect a creditor’s
secured claim will bind the creditor only if it was given notice of
the proposed adverse action and had an opportunity to be heard
on the appropriateness of that action. See In re Linkous, 990
F.2d 160, 162 (4th Cir. 1993).

In this case the conclusion is inescapable that the
requirements of due process were met prior to the impairment of
EMC’s lien notwithstanding Mansaray-Ruffin’s violation of the
Bankruptcy Rules in achieving relief from the lien. She mailed
notice to EMC of her plan, which stated that upon confirmation

39
EMC’s claim would be fixed as an unsecured claim of $1,000.
After receiving this notice, EMC had multiple opportunities to be
heard on the appropriateness of Mansaray-Ruffin’s proposed
action. For instance, after Mansaray-Ruffin filed a proof of
claim on behalf of EMC that stated that EMC’s claim was for
$1,000 and was unsecured, EMC could have objected to the
proof of claim and presented its position to the Bankruptcy Court
at a hearing. See 11 U.S.C. § 502. EMC also could have
appeared at the plan confirmation hearing and objected to the
plan’s treatment of its property interest. See 11 U.S.C. § 1324(a).
After confirmation, if its objections had been overruled, EMC
could have appealed from the confirmation order to the District
Court and then, if necessary, to this Court. See 28 U.S.C. § 158.
Moreover, if EMC believed that the confirmation order had been
procured by fraud, it could have sought revocation of the order
within 180 days after the date of the entry.10 See 11 U.S.C. §
1330.

I realize that sometimes a person will receive a notice
buried in a very large and complex document and therefore
understandably may overlook the notice. It might be that in such
a case a court would hold that the notice, though delivered, was

10
I see no basis at all for a suggestion if it had been made that
Mansaray-Ruffin or her attorney was guilty of fraud. Quite to
the contrary their conduct was completely transparent. In fact,
they practically begged EMC to object to the treatment of its lien
by her plan.

40
inadequate. But that was not the situation here as the amended
plan of which EMC had notice was less than two complete pages
in length and included the following paragraph:

4. The Debtor planned to file a further
adversary proceeding to avoid in whole or in part
the secured claim allegedly arising from the first
mortgage held against her residential realty by
EMC Mortgage Corp. (“EMC”). However, EMC
has not filed a proof of claim in this bankruptcy
case. The Debtor will therefore file an unsecured
proof of claim in the amount of $1000 on behalf of
EMC, and will resort to an adversary proceeding
against EMC only in the event that EMC
successfully amends that claim and asserts a larger
or a secured claim. The Debtor has been paying
the regular mortgage payments to EMC outside of
the plan in the event that her challenge of the claim
of EMC would not be entirely successful.
However, upon confirmation of this plan, in which
the claim of EMC will be fixed as an unsecured
claim in the amount of $1000 unless it is able to
object to this claim, the Debtor will cease making
payments to EMC, and EMC will be obliged to
satisfy its mortgage against the Debtor’s home
upon the discharge of its debt as filed or allowed.

41
App. at 34. I have quoted the plan in full as an appendix to this
opinion.

But instead of availing itself of its various opportunities
to be heard on the appropriateness of the plan’s proposed action
with respect to its lien, EMC did not take any action until almost
nine months after the Bankruptcy Court confirmed the plan when
it brought the adversary complaint leading to this appeal.
Significantly, EMC has not contended in these proceedings that
it was not aware of the plan and the plan’s treatment of its lien
nor has it given any explanation for its nine-month delay in
challenging the plan. In these circumstances, EMC clearly was
afforded due process. Because EMC received due process before
its lien was impaired, the confirmed plan binds EMC and
precludes it from succeeding in this adversary proceeding even
though the proceedings leading to the impairment of its lien did
not comply with the Bankruptcy Rules. The critical issue is
whether the procedural Rules for adoption of a plan were
satisfied and they were.

I understand that my view of this case could encourage a
debtor to place what the debtor believed was an unlawful lien-
avoidance provision into his or her plan in the hope that an
unwary creditor would be caught off-guard and not object to
prevent the plan’s confirmation. After all, a debtor might believe
that the creditor would not pay proper attention to the unlawful
provision of the plan. On the other hand is it really too much to
expect a creditor receiving a plan filed on behalf of one of its

42
debtors to examine the plan to see whether, if confirmed, it will
adversely affect its lien?

In any event the controlling consideration must be that
Congress by providing for the finality of confirmation orders
requires that unauthorized provisions in plans be enforced.
Clearly, unless and until Congress amends section 1327 to
provide that confirmed plans that include unlawful lien-
avoidance provisions will not be accorded preclusive effect or,
alternatively, expands the basis for post-confirmation objections
beyond the narrow fraud grounds in section 1330, we must
continue to enforce plans with such provisions as written and
why should that not be so? 11 A creditor always can protect itself

11
In Gay v. Creditinform, 511 F.3d 369, 395 (3d Cir. 2007),
a case in which we applied the Federal Arbitration Act as
Congress wrote it and upheld a contractual provision providing
for arbitration even though other courts had found arbitration
provisions in similar cases before them to be unconscionable,
we indicated with respect to the other cases that “their reasoning
if applied logically could result in a significant narrowing of the
application of the FAA.” We therefore were of the view that
whether or not the narrowing “might be a desirable result” it was
“not our function to do so” and that “[i]f the reach of the FAA
is to be confined then Congress and not the courts should be the
body to do so.” Inasmuch as there was not a due process notice
violation in the proceedings resulting in the confirmation of the
amended plan we should take the Gay approach here and hold
that if there is to be a modification of section 1327 so that a

43
from an unlawful deprivation of its lien because its property
interest cannot be deprived without due process which requires
notice and an opportunity to be heard and such protections are
adequate to protect against the unconstitutional deprivation of
property. EMC has only itself to blame for the loss of its lien.

I realize that the majority contends that EMC did not
receive due process because Mansaray-Ruffin violated the
Bankruptcy Rules by not initiating an adversary proceeding to
avoid its lien. Thus, according to the majority, “EMC had the
due process right to assume that, unless Mansaray-Ruffin
commenced the adversary proceeding required by the Rules and
served it with a complaint and a summons, its lien could not be
invalidated.”

While I certainly respect the majority’s view, I
nevertheless dissent because I see no escape from a conclusion
that the majority is equating the requirements of constitutional
due process to the requirements of the Bankruptcy Rules; thus, it
effectively is using the Rules as a proxy for due process in this
case. But this linking is unjustified as a nonconstitutionally
prescribed proxy can be both over- and under-inclusive with
respect to satisfying constitutional requirements. See, e.g.,
United States v. Smith, 522 F.3d 305, 312 (3d Cir. 2008) (stating
that a police officer’s impoundment of a car pursuant to

confirmed plan does not always bind “each creditor” then
Congress and not the courts should made the modification.

44
standardized procedures will most likely, but not always, satisfy
the Fourth Amendment’s “reasonableness” requirement, and that
conversely, an impoundment that is contrary to a standardized
procedure or in absence of a standardized procedure is not a per
se Fourth Amendment violation). Therefore there may be
situations, and this case certainly is one of them, where due
process has been met notwithstanding a debtor’s violation of the
Bankruptcy Rules.

Through the Bankruptcy Code and Rules Congress and the
courts have imposed stricter procedural requirements on debtors
who seek to invalidate liens than due process of law requires. By
raising these standards above the floor set by the Fifth
Amendment’s due process clause, Congress and the courts have
recognized that the invalidation of a lien “is a matter of
particularly great consequence . . . .” Thus, under the Rules, a
debtor must initiate an adversary proceeding, with all of its
procedural trappings, to invalidate a lien.

But these procedures are not proxies for the constitutional
due process required to invalidate a lien. From a constitutional
perspective, it makes no difference whether a debtor’s plan seeks
to extinguish a creditor’s lien rights or simply reduce the value of
the creditor’s secured claim. Just because Congress has decided
to require more process than the Fifth Amendment requires to
deprive a creditor of a lien does not mean that the Constitution
requires that enhanced process. Instead, as I stated above, all that
the Constitution requires to deprive a person of property is notice

45
and an opportunity for a hearing. And in this case, those
requirements clearly were met and the majority fairly cannot say
that they were not met.

46
 In reaching my result I have taken particular note of the
majority’s reference, “[b]y way of analogy,” to a situation in
which a plaintiff seeks to commence a civil action with a motion
filed with the court and mailed to a defendant. The majority
indicates that we would not permit a default judgment to be
entered on the basis of that procedure. I completely agree not
because due process of law precluded entry of the judgment but
rather because its entry would violate procedural rules.

In any event, the majority’s hypothetical situation is not
in any way analogous to that here. Mansaray-Ruffin seeks
merely to uphold a confirmed plan and there is not the slightest
suggestion in the record that the Code’s procedural notice
requirements for the confirmation of her plan were not satisfied.
Nothing could be clearer than the Code’s provision that the
“confirmed plan bind[s] the debtor and each creditor.” Section
1327(a). A proper analogy to the majority’s hypothetical
situation would be if Mansaray-Ruffin had been seeking to
enforce an order from a procedurally defective adversary
proceeding but she surely is doing no such thing as she never
brought an adversary proceeding to avoid the lien. I reiterate she
is seeking to enforce an order of confirmation. My point is not
complex and is that we are not concerned with the due process
aspect of the nonexistent adversary proceeding; rather we are
concerned with the proceedings leading to confirmation of the
plan.

47
 Our case law compels a conclusion that due process was
met in this case. In In re Fesq, the debtor filed a Chapter 13 plan
that provided for a single lump sum payment of $7,050 in full
satisfaction of a $69,166.59 judgment that was a lien on the
debtor’s house. 153 F.3d 113, 114 (3d Cir. 1998). The creditor
did not file an objection to the plan and the bankruptcy court
confirmed it. Id. The debtor then filed a motion to vacate the
creditor’s lien, and the creditor filed a cross-motion to vacate the
confirmation order. Id. The bankruptcy court granted the
debtor’s motion and denied the creditor’s motion. Id. at 115.
The creditor appealed from the order denying its motion to vacate
and the district court affirmed. Id. On appeal, in affirming we
based our decision on the language of section 1330(a), which
states that “[o]n request of a party in interest at any time within
180 days after the date of the entry of an order of confirmation .
. . , and after notice and a hearing, the court may revoke such
order if such order was procured by fraud.” We noted Szostek’s
recognition that finality is an important goal of bankruptcy law
and stated that “[r]evoking a confirmation order is a measure that
upsets the legitimate expectations of both debtors and creditors.
Interpreting Section 1330(a) as a limiting provision permits such
disruption in only a very narrow category of egregious cases.”
Fesq, 153 F.3d at 120 (footnote omitted). Accordingly, we held
that “fraud is the only ground for relief available for revocation
of a Chapter 13 confirmation order.” Id. Because the creditor in
Fesq did not assert that the confirmation order was procured by
fraud, we affirmed the judgment that granted the debtor’s motion

48
to vacate the lien and denied the creditor’s motion to revoke the
confirmation order. Id.

The majority contends that this case is distinguishable
from Fesq because “Fesq did not involve a determination as to
the validity of the creditor’s lien or any other matter for which
Rule 7001 requires an adversary proceeding” and thus “Fesq does
not implicate the due process concerns that animate our decision
in this case . . . .” But the majority’s conclusion cannot be
correct: in Fesq we affirmed a ruling which both denied the
creditor’s motion to revoke the confirmation order and granted
the debtor’s motion to invalidate the creditor’s lien. Fesq, 153
F.3d at 114-15. Thus, the result in that case is identical to the
one that we should reach in this case. The same due process
concerns were present in Fesq as here and yet we found there that
the debtor’s plan bound the creditor.

Moreover, even if the majority is correct that Fesq did not
involve the invalidation of a lien but instead involved only the
modification of the amount of a secured claim, this distinction is
immaterial in a due process inquiry. In either situation, a
debtor’s plan adversely affects a creditor’s property interest, the
distinction being only of degree. I ask what, under the majority’s
proposed distinction, would be the proper result if Mansaray-
Ruffin had stated in her plan that she valued EMC’s secured
claim at $1? Apparently the majority would find that Mansaray-
Ruffin’s confirmed plan bound EMC and that the lien would be
satisfied upon payment of the $1. After all, in such a situation,

49
Mansaray-Ruffin would not be providing in her plan that the lien
would be avoided upon confirmation. And yet, the ultimate
outcome in both the hypothetical scenario and this case would be
the same: in both situations, EMC effectively would lose its lien
in exchange for a fraction of its claim amount. I cannot
understand how the majority can acknowledge that due process
is satisfied in the hypothetical situation but not this case, when
the procedures and outcome in both situations are identical.12

The majority also contends that Fesq is distinguishable
because “quite simply, [the creditor] is not seeking the revocation
of the Bankruptcy Court’s confirmation order. Rather, it is
asking us to declare that the confirmed plan did not invalidate the
lien that it now holds.” I disagree with the majority’s assessment
of this case. Although styled as an adversary proceeding to
determine the status of the lien, EMC’s case most certainly seeks
to revoke the Bankruptcy Court’s confirmation order to the extent

12
The majority does not dispute my understanding of its
opinion and apparently would have permitted Mansaray-Ruffin
to substantially dilute the lien by fixing its amount at one dollar
in her plan. One need not be a prophet to foresee that hereafter
in this Circuit debtors in bankruptcy proceedings seeking to
invalidate liens in some cases effectively will eliminate them
without filing adversary proceedings simply by reducing their
value in their plans to a nominal amount in the hope that
somnolent creditors such as EMC will not object to the
reduction.

50
that the order confirmed that Mansaray-Ruffin’s plan avoided the
lien. The majority’s action, stepping in after the confirmation
and finding that the lien survived the Bankruptcy Court’s order,
clearly annuls the order with respect to the lien. Thus, this case
is not distinguishable from Fesq on that basis.

Furthermore, the majority’s view will open the door to
many post-confirmation challenges that attempt to undermine the
provisions of confirmed plans without explicitly seeking
“revocation” of those plans, a result that is not desirable because
it will work against the important interest in finality that we
recognized in Szostek. I ask what time constraints under the
majority’s ruling will limit a creditor from bringing such a post-
confirmation challenge? EMC waited almost nine months after
confirmation before it got around to bringing the adversary
complaint in this case. How long could EMC have delayed
before the majority would have concluded that it was too late for
it to bring this adversary proceeding? The majority provides no
guidance on this aspect of its decision.13

13
The majority indicates that notwithstanding my concern
regarding its “failure to provide guidance as to whether EMC
delayed too long – nine months – after confirmation before
filing its adversary proceeding,” Mansaray-Ruffin, though
complaining of the delay, “has not briefed this issue or pointed
to authority to support the proposition that nine months was too
long and/or should have barred EMC’s claim.” I disagree with
the majority because clearly Mansaray-Ruffin’s briefs recite:

51
 EMC took no action of any kind in the case until
the filing of a complaint in the Bankruptcy Court
(Adversary Case No. 03-1297) on December 19,
2003. The Complaint did not seek to revoke the
order confirming the Plan . . . . Indeed, it could
not do so because (1) it was presently well past
the 180-day time-period for seeking to revoke
confirmation of a plan, even though EMC was
informed of the presence and content of the
confirmation order well within that time-period;
and (2) [EMC] did not and could not allege the
requisite fraud in procuring this order.

Appellant’s Br. at 7-8 (citations omitted).
....
From the time that she sent the letter of February
27, 2002, to EMC indicating that she rescinded
the loan at issue until December 19, 2003, when
the Proceeding at issue was filed, EMC failed to
respond to any of the Debtor’s statements that she
considered the loan to be rescinded and the
mortgage loan securing it invalid. . . . The
Proceeding at issue, [was] filed almost nine
months after confirmation and after the contents
of the Plan had been reiterated twice in letters to
EMC over six months before . . . .
Id. at 13-14.
....

52
 The majority relies on In re McKay, 732 F.2d 44, for the
proposition that Mansaray-Ruffin’s plan does not bind EMC
because she did not initiate a separate adversary proceeding to
challenge EMC’s lien. In this regard in In re McKay we reversed

The Appellee . . . cannot dispute that . . . it did not
object to the confirmed plan, which was sent to it
and set forth very precisely the exact treatment of
the underlying claim in the plan; and that it
received correspondence thereafter again
describing its plan treatment which it did not in
any way contest until it filed the proceeding at
issue almost nine months after confirmation.

Appellant’s Rep. Br. at 1.

Clearly Mansaray-Ruffin has briefed the delay argument and
supported it with authority as her 180-day reference was to
11 U.S.C. § 1330 dealing with the period of revocation of a
confirmation order for fraud. Obviously, the nine-month delay
was very important for, as I point out above, EMC in effect was
seeking to revoke the confirmation order to the extent that the
order confirmed that Mansaray-Ruffin’s plan avoided the lien.
Thus, at the time that EMC brought these adversary proceedings
its complaint could not have been amended to be a de jure action
to revoke confirmation of the amended plan and EMC was
attempting to do indirectly what it could no longer do directly.

53
a bankruptcy court’s orders confirming the debtors’ plans that
included provisions avoiding liens against them because the
debtors had not initiated adversary proceedings to avoid the liens.
Id. at 48.

But McKay is distinguishable from this case and is no
support at all for the majority’s result and in no way is
inconsistent with this dissent. In McKay, the creditor objected to
the treatment of its liens and timely appealed the orders
confirming the debtors’ plans, precisely what EMC did not do.
Therefore, the preclusive effect afforded confirmed plans under
11 U.S.C. § 1327 did not apply and the interest in finality that we
articulated in Szostek was absent. In this case, by contrast, EMC
did not object or appeal from the confirmation order. Thus,
section 1327 applies to bind EMC and the need for finality – i.e.,
the need to protect the integrity of a confirmed plan against
post-confirmation challenges – outweighs any reason to permit
EMC to raise a post-confirmation collateral attack on Mansaray-
Ruffin’s plan.

In sum, I conclude that because due process requirements
were met, Mansaray-Ruffin’s confirmed plan binds EMC even
though the plan included a provision adopted in violation of the
Bankruptcy Rules. My approach to the due process issue in this
case gives proper effect to section 1327, promotes the important
goal of finality of bankruptcy confirmation orders, and
encourages creditors to be active participants in the bankruptcy
process. Moreover, it is faithful to the reasoning in In re Szostek

54
that we set forth almost 19 years ago that “although prior to
confirmation the bankruptcy court and trustee do have a
responsibility to verify that a Chapter 13 plan complies with the
Bankruptcy Code provisions, after the plan is confirmed the
policy favoring the finality of confirmation is stronger than the
bankruptcy court’s and trustee’s obligations to verify a plan’s
compliance with the Code.” 886 F.2d at 1406. For the foregoing
reasons, I would reverse the District Court’s order affirming the
Bankruptcy Court’s decision finding that EMC’s lien survived
the bankruptcy process.14

14
I make one more point with respect to this particular
adversary proceeding and Mansaray-Ruffin’s bankruptcy
proceedings in general. As of now EMC’s lien remains valid
but because it did not object to the provision of her amended
plan providing for the satisfaction of its lien until it brought
these proceedings Mansaray-Ruffin previously had no reason to
seek to rescind or otherwise avoid the lien in whole or in part as
she had indicated that she contemplated doing in her original
plan. It is beyond the scope of this case before us to decide
whether she might now be able to bring the adversary
proceeding she originally anticipated bringing but if fairness
means anything she should have the opportunity to do so as
EMC by its conduct in not objecting to the amended plan led her
to believe that it acquiesced in the elimination of its lien.
Indeed, even though I think that it is likely that EMC merely was
negligent in not challenging the amended plan it is conceivable
that to avoid the challenge that Mansaray-Ruffin originally
contemplated bringing to avoid its lien, when EMC saw in the

55
 Appendix

AMENDED CHAPTER 13 PLAN OF THE DEBTOR

1. If the Debtor’s estate were liquidated under Chapter 7
of the Bankruptcy Code, unsecured creditors would not receive
any payments. Those creditors will not receive less under the
terms of this plan.

2. The Debtor shall submit to the supervision and control
of the Trustee payments in the amount of $10 monthly for the
first 10 months of the plan, through July, 2003, and thereafter
$50 monthly for the final 26 months of the plan.

amended plan that Mansaray-Ruffin would bring her adversary
proceeding only if EMC amended the $1000 claim she would
file on its behalf and did not assert a “larger or a secured claim”
it brilliantly did not object to the treatment of its lien in the
amended plan and instead bided its time in contemplation of
bringing these proceedings. I point out in this regard this
scenario is not farfetched as according to the amended plan
Mansaray-Ruffin did prosecute an adversary proceeding against
another creditor in which she successfully avoided the creditor’s
claim. Thus, EMC could not laugh off Mansaray-Ruffin’s threat
to bring an adversary proceeding to avoid its lien on the basis of
the Truth in Lending Act, 15 U.S.C. §§ 1601 to 1667F,
preferring instead to litigate the Truth in Lending Act issue, if
necessary, in a state court foreclosure action.

56
 3. The Debtor has prosecuted an adversary proceeding
which avoided the totally undersecured claim of AFBA-IB
Bankcard Center.

4. The Debtor planned to file a further adversary
proceeding to avoid in whole or in part the secured claim
allegedly arising from the first mortgage held against her
residential realty by EMC Mortgage Corp. (“EMC”). However,
EMC has not filed a proof of claim in this bankruptcy case. The
Debtor will therefore file an unsecured proof of claim in the
amount of $1000 on behalf of EMC, and will resort to an
adversary proceeding against EMC only in the event that EMC
successfully amends that claim and asserts a larger or a secured
claim. The Debtor has been paying the regular mortgage
payments to EMC outside of the plan in the event that her
challenge of the claim of EMC would not be entirely successful.
However, upon confirmation of this plan, in which the claim of
EMC will be fixed as an unsecured claim in the amount of $1000
unless it is able to object to this claim, the Debtor will cease
making payments to EMC, and EMC will be obliged to satisfy its
mortgage against the Debtor’s home upon the discharge of its
debt as filed or allowed.

5. The Debtor will avoid any judicial lien held against her
residential realty by Sherran Gray.

57
 6. The Debtor shall make arrangements to pay the various
claims of the City of Philadelphia (“the City”) directly to the City
outside the plan.

7. The claims of the Debtor’s creditors are classified in
this Plan as follows:

A. Class One: Administrative claims.
These claims include any unpaid attorney’s fees
and the Trustee’s fees.

B. Class Two: The claim of EMC. This
claim shall be dealt with as described in paragraph
4 of the plan and treated as an unsecured claim.

C. Class Three: The claim of AFBA. As
noted in paragraph 3, this claim will be treated as
an unsecured claim, because it is entirely
undersecured and any security interest of this
claimant has been avoided.

D. Class Four: The secured claim of
Sherran Gray. As noted in paragraph 5, this claim
will not be paid, because it either has been or can
be avoided.

58
 E. Class Five: The secured claims of the
City & School District of Philadelphia (“the City”)
for real estate taxes, water and sewer, and a
statutory municipal lien. The Debtor shall make
an agreement with the City outside of the plan to
liquidate these claims.

(F). Class Six: All other unsecured claims
against the Debtor, in addition to the Class Two
and Class Three claims, which are timely filed or
ultimately allowed.

7.[15] The payments received by the Trustee from the
Debtor shall be distributed first to allowed Class One claimants
until they are paid in full; secondly, to any arrearages allowed to
the Class Two claimant, and thirdly to Class Six claimants pro
rata.

8. Title of the property of the estate shall revest in the
Debtor upon confirmation of the Plan, and the Debtor shall have
the sole right to the use and possession of same.

9. Upon application, the Debtor may alter the amount and
timing of payments under this plan.

15
In her plan Mansaray-Ruffin erroneously numbered two
consecutive paragraphs “7.”

59
 10. The automatic stay shall remain in full force and
effect until this case is closed.

11. Upon completion of this or any other duty confirmed
plan, as amended, all claims of all creditors listed except the
Class Five claims, including the Class Two, Three, and Four
claims, shall be discharged, and any liens which those claimants
have or had shall be void and shall be so marked on any court
records.

___________

60