In LVNV Funding, LLC v. Harling, 852 F.3d 367 (4th Cir. 2017), as amended (Apr. 6, 2017), the Fourth Circuit addressed whether claim objections filed after a Chapter 13 plan had been confirmed are barred by the res judicata effect of the confirmed plan. Here, LVNV Funding filed unsecured proofs of claim that it conceded were barred by the statute of limitations. However, LVNV Funding argued that because the debtors’ Chapter 13 plans were confirmed before the debtors filed their claim objections, the Chapter 13 plans had a res judicata effect on all creditor claims filed prior to the issuance of the confirmation order.
The Fourth Circuit began by noting the generally accepted principle that confirmation orders in bankruptcy do indeed have a preclusive effect on the issues actually litigated or determined at confirmation. However, the Fourth Circuit’s analysis then shifted to how secured and unsecured claims are addressed in Chapter 13 plans. As to secured claims, Bankruptcy Code Section 1325(a)(5) requires the Chapter 13 plan to address the rights of each individual secured creditor, and plan confirmation requires that the holder of such secured claims has accepted the plan. Thus, because the secured creditor’s claim is “bound up” in plan confirmation, res judicata would indeed bar post-confirmation objections to secured claims.
However, the same analysis does not apply to unsecured claims. Unsecured claims are generally treated as a single class in a Chapter 13 plan, and the only determination made as to this “pool” of unsecured claims is whether funds are available to pay the entire class more than they would be paid in a Chapter 7 bankruptcy. Because only the collective amount of the Chapter 13 debtor’s unsecured claims are addressed as a class, not each individual unsecured creditors’ claims, res judicata would not apply because a debtor’s objection to an unsecured claim would not raise the same cause of action as addressed in plan confirmation. See In re Varat Enters., Inc., 81 F.3d 1310, 1314-15 (4th Cir. 1996) (holding that for res judicata to apply, there must be an initial final judgment involving the same parties as are present in a later proceeding that is based upon the same cause of action as in the first proceeding).
Thus, post-confirmation claim objections to secured claims are barred by res judicata, while post-confirmation claim objections to unsecured claims are not barred by res judicata.