Case Summary:
Bank objected to debtors’ treatment of it in a chapter 12 plan on the basis that it held no “claim” against the debtors. The debtors were the assignees of a parcel of real property on which the bank had a mortgage. The bank contended that since it held no claim against the debtors (its only claim being against the prior owner of the property), it was not a “creditor” within the meaning of the bankruptcy code and could not be subjected to a reorganization plan.
Court held that the debtors did hold rights in the property when they filed bankruptcy. As a result, the purported lack of a “debtor-creditor” relationship was not relevant. Given the Supreme Court’s decision in Johnson v. Home State Bank, 501 U.S. 78 (1991), in which the Court held that the debtor’s lack of personal liability upon a mortgage debt did not preclude the reorganization of that debt, the mere fact that the Lyreks were not personally obligated to the bank also did not preclude reorganization of the mortgage debt in this case. A “claim” is a “right to payment,” and the creditor had a right to payment in the form of a right to the proceeds of the sale of the debtors’ property. See 11 U.S.C. § 101(4)(A).
Statute/Rule References:
11 U.S.C. § 101(4)(A) -- Definition of Claim
Key Terms:
Claims -- Definition