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Bankruptcy – Foreclosure – Confirmation of Bankruptcy Plan – Condition Precedent

In Re Smith (Lawyers Weekly No. 012-116-16, 8 pp.) (Martha A. Geer, J.) Appealed from Columbus County Superior Court (Gale M. Adams, J.) N.C. App. Unpub.

Holding: Following the dismissal of respondent debtor’s Chapter 11 bankruptcy for failure to meet the terms and conditions of the plan, petitioner creditor attempted to foreclose, claiming that its secured interest in the property was re-established by dismissal of the bankruptcy. The trial court dismissed the foreclosure action based on its determination that the creditor’s lien was void, having been extinguished by the initial confirmation of debtor’s bankruptcy plan.

We reverse and remand, finding that, because the confirmation order contained a condition precedent that was never met by debtor, the creditor has the right to foreclose.

After debtor filed his Chapter 11 bankruptcy petition, creditor filed its proof of claim, asserting a lien on real property that was properly secured by a deed of trust in the amount of $146, 559.52. Debtor filed his amended plan of reorganization, which proposed to treat the debt as secured in the amount of $60,000, with the balance of $86,559.52 treated as an unsecured claim.

The bankruptcy court entered a confirmation order which, by its terms, was subject to the condition of debtor “providing for payment of all allowed claims assertable against [debtor’s] estate as specified in the Plan and in this Order.”

After being unable to conform to the bankruptcy plan, debtor moved to dismiss the bankruptcy. The bankruptcy court sustained the motion, finding that debtor had defaulted under the terms of the confirmed plan. Thereafter, creditor commenced a foreclosure action.

The superior court, in dismissing the foreclosure, determined that the trustee had no right to foreclose because the bankruptcy court confirmed debtor’s amended plan of reorganization, thereby rendering creditor’s lien void. Creditor argues that, because the condition precedent that debtor provide for payment of all allowed claims assertable against his estate was not fulfilled, confirmation never occurred. We agree.

Creditor has filed memoranda of additional authority, consisting of (1) the decision of the bankruptcy court, subsequent to the superior court’s order in this case, specifying that the debtor’s amended plan was not confirmed, (2) the bankruptcy court’s order denying debtor a stay pending appeal of that order, and (3) the order from the United States District Court for the Eastern District of North Carolina affirming the bankruptcy court order. These orders further establish that no confirmation occurred.

Since the bankruptcy court has expressly determined that debtor’s amended plan was not confirmed and the United States District Court has affirmed, we reverse the superior court’s dismissal of creditor’s foreclosure action, concluding that creditor does have a right to foreclose under the deed of trust, since the amended plan was never confirmed.

Reversed and remanded.


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