Johnson v. Home State Bank – Oral Argument – April 16, 1991

Media for Johnson v. Home State Bank

Audio Transcription for Opinion Announcement – June 10, 1991 in Johnson v. Home State Bank

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William H. Rehnquist:

We’ll hear argument next in No. 90-693, Curtis Johnson v. Home State Bank.

Spectators are admonished not to talk until they leave the courtroom.

The Court remains in session.

You may proceed, Mr. Gilman.

W. Thomas Gilman:

Thank you.

Mr. Chief Justice, and may it please the Court:

This is a bankruptcy case where the Court has been asked to decide whether an in rem liability that survives a chapter 7 discharge is a claim as defined in the bankruptcy code in a subsequently filed chapter 13 bankruptcy.

The court below held that such a liability is not a claim.

We respectfully contend that that decision should be reversed.

The thrust of our argument is that the plain meaning of the bankruptcy code requires a reversal.

The essential factual background in this case is as follows.

Curtis Johnson operates a farm near Belpre, Kansas.

In 1984, he defaulted on his loan to the Home State Bank in Lewis, Kansas.

On March 23, 1984, the bank initiated a State court foreclosure proceeding.

At that time the bank was the owner of the second mortgage on the property at… in question.

Later, the bank acquired the first mortgage, which was previously owned by Travelers Insurance Company.

It’s important to note that the first mortgage which was owned by Travelers Insurance Company and is now owned by the bank has never been foreclosed.

As we stand here today that mortgage is not foreclosed.

Also, it’s important to note that both mortgages contain provisions of assigning oil and gas proceeds in the event of a default.

On October 9, 1984, Mr. and Mrs. Johnson filed a chapter 7 bankruptcy.

They received their discharge in that bankruptcy on April 11, 1985.

William H. Rehnquist:

That’s a liquidation.

W. Thomas Gilman:

That’s correct.

No reaffirmation agreement was entered into between the bank or the Johnsons in the chapter 7 bankruptcy.

About the time of the discharge, the bank obtained relief from stay and continued with its foreclosure action in the State court proceeding.

Anthony M. Kennedy:

But did the… in the chapter 7 proceeding, did the general creditors receive any equity in the property that would be left after the foreclosure if there were some equity?

W. Thomas Gilman:

No, in fact the… in the chapter 7 procedure the bank was what we call undersecured, meaning that there was no equity in this property whatsoever.

The general creditors in the chapter 7 did receive a dividend from other property that was nonexempt, but it wasn’t from the equity in the property that’s at issue in the foreclosure.

William H. Rehnquist:

When you say undersecured, the value of the bank security was not sufficient… would not be sufficient to pay off a face of its note?

W. Thomas Gilman:

That’s correct.

Anthony M. Kennedy:

In that position would the bank be entitled to participate with the general creditors to the extent of the unsecured balance?

W. Thomas Gilman:

Absolutely.

Anthony M. Kennedy:

Was that sort of order made?

W. Thomas Gilman:

It’s made as of a matter of course, and it was in this case, yes.

They participated in the unsecured class of creditors and received a dividend from the… from the nonexempt property along with the rest of the unsecured creditors.

Anthony M. Kennedy:

Based on the appraised value of the property?

W. Thomas Gilman:

No, in this case what it was was oil and gas proceeds that had accrued before the filing of the chapter 7 and were in suspense and were available for the trustee in the chapter 7 proceeding to take charge of as first creditor.

Anthony M. Kennedy:

Those being the only assets available, I take it?

W. Thomas Gilman:

Those were the only… as I recall those were the only assets available for unsecured creditors.

Sandra Day O’Connor:

Mr. Gilman, now the court below did not address the questions of feasibility or good faith–

W. Thomas Gilman:

That’s correct.

Sandra Day O’Connor:

–I take it.

And if we were to agree with you that the code allows these sequential filings, I assume that on remand the question of feasibility and good faith of the chapter 13 filing would be open?

W. Thomas Gilman:

Yes, that’s right, Your Honor.

In fact, I contend that if the Court agrees with me and allows the serial filing that the matter should be remanded to the district court to take up those issues that the bank raised in their appeal from the bankruptcy court to the district court.

The bank obtained their judgment and foreclosure by summary judgment and proceeded with the sheriff’s sale.

The bank was the successful bidder at the sheriff’s sale and purchased the property in that means.

Thereafter, the Johnsons appealed–

Harry A. Blackmun:

Was it the only bidder there?

W. Thomas Gilman:

–Excuse me?

Harry A. Blackmun:

Was it the only bidder?

W. Thomas Gilman:

Yes.

Thereafter the Johnsons appealed the sale procedure in the foreclosure to the Kansas Supreme Court, which reversed the decision regarding the sale and remanded the matter back to the State trial court for another sale.

Before the second sale could be conducted, Curtis Johnson filed the instant chapter 13 bankruptcy that’s at issue here.

That was filed on March 2, 1987, and the only debt scheduled in that bankruptcy were the in rem liabilities that passed through the chapter 7 discharge.

William H. Rehnquist:

What was his purpose in doing that?

W. Thomas Gilman:

In filing the chapter 13?

William H. Rehnquist:

Yes.

W. Thomas Gilman:

His purpose is to try to retain ownership in his farmland.

And what he’s proposing to do in the–

William H. Rehnquist:

To delay the foreclosure, I suppose?

W. Thomas Gilman:

–Well, it’s true that it did delay the foreclosure, but–

William H. Rehnquist:

Wasn’t… wasn’t that one of his purposes?

W. Thomas Gilman:

–No, I think his honest purpose was to try to pay for his land and retain his land.

There was really no specific reason to delay the foreclosure.

Byron R. White:

He would… he would… in the ordinary course of events if the forecloser went forward, he would have a limited time to get it back, wouldn’t he?

W. Thomas Gilman:

That’s correct.

And under–

Byron R. White:

And a shorter time than what his chapter 13 plan called for.

W. Thomas Gilman:

–No question about that.

Byron R. White:

Well–

–But I suppose in a chapter 13 proceeding, if its allowed, the bankrupt can press for a reduction of the interest rate and a stringing out of the payment opportunities and so forth.

W. Thomas Gilman:

That’s one of the purposes of chapter 13 is to string out the payment–

Sandra Day O’Connor:

The so called cram-down provisions–

W. Thomas Gilman:

–Right, and chapter 13–

Sandra Day O’Connor:

–would be available.

W. Thomas Gilman:

–Yes, in chapter 13 it’s… it’s an almost automatic cram-down as opposed to in chapter 11 where you have to do more–

Sandra Day O’Connor:

So the… the foreclosure would just not take place if it were allowed?

W. Thomas Gilman:

–That’s correct.

The foreclosure is stayed automatically under section 362 by the filing of the chapter 13 petition.

Sandra Day O’Connor:

Do creditors get to express a view under chapter 13–

W. Thomas Gilman:

Oh, yes.

Sandra Day O’Connor:

–as to whether they should go further?

W. Thomas Gilman:

Oh, yes.

And there… this was a heated, contested confirmation of this client.

Anthony M. Kennedy:

And if under chapter 13, the debtor fails to meet his payment schedule, can the bank at that time ask to be relieved… released from the automatic stay?

W. Thomas Gilman:

It’d be… it would be dismissed.

If the creditor… if the debtor did not make his payments under the plan after it was confirmed by the bankruptcy court, the case would be dismissed.

The automatic stay would be lifted, and they would proceed with their foreclosure action and sale.

William H. Rehnquist:

In… under this chapter 13 cram-down provision, is it just the interest of the creditors that are considered or adjusted against one another or is the debtor’s interest, too, considered as to whether the thing should go forward?

W. Thomas Gilman:

In the chapter 13 proceeding, the interests of the debtor take… have a greater weight than the interest of the creditor, in my view.

Byron R. White:

Did you say that the… did you say that the amount of the debts that are listed in a chapter 13 petition may be scaled down by the plan or just strung out?

W. Thomas Gilman:

Well, the amount that’s listed is the amount that’s owed.

The question of whether or not it’s secured or not–

Byron R. White:

Well, just forget it.

This is… suppose it’s not… there’s no secured debt at all.

The… it’s just a straight chapter 13 proceeding.

There’s never been a prior chapter 7 proceeding, just an ordinary 13 proceeding.

Does… may the plan call for payment of 50 percent of the debt scheduled?

W. Thomas Gilman:

–It can call for payment of 0 percent of the unsecured debt scheduled and be confirmed.

Byron R. White:

And does that often happen?

W. Thomas Gilman:

In my experience, this happened a couple of times.

Byron R. White:

Uh-huh, uh-huh.

W. Thomas Gilman:

But–

Byron R. White:

Now, what if… what if… do you think the same can happen when the only debt scheduled is a secured debt?

W. Thomas Gilman:

–That’s normally when it does happen.

Byron R. White:

You mean… you mean that… you… he… let’s assume that… let’s assume that the only thing there is is a claim against property.

There’s no personal debt.

Do you think they would confirm a chapter 13 plan that let him keep the property without paying anything?

W. Thomas Gilman:

No.

It couldn’t be confirmed in that situation.

Byron R. White:

No, of course, it couldn’t.

Could it be scaled down if that’s the only claim?

W. Thomas Gilman:

The debt… no, the debt… the claim would be allowed in the amount of the value of the collateral and you would have to propose in your plan to pay the value of the collateral–

Byron R. White:

The entire… the entire amount.

W. Thomas Gilman:

–The entire value of the collateral.

Byron R. White:

Not the entire amount of the debt?

W. Thomas Gilman:

No, under section 506 of the bankruptcy code, the amount… the amount of the secured debt is tied to the value of the collateral.

And that’s where we come up with the term “undersecured”.

So if the property is worth $100,000, but the bank has a debt against it or a mortgage and… and a note worth $150,000, their secured claim is only $100,000, and in chapter 13 that’s what he’d have to pay.

Byron R. White:

Well, the debt… the debt has actually been discharged in the… it’s just a claim against a property that hasn’t been discharged.

W. Thomas Gilman:

That’s the nut of the issue here.

Byron R. White:

Yes.

W. Thomas Gilman:

The… the debt has been discharged and the question is what is the effect of a discharge on a debt.

And it’s clear under the bankruptcy code that the discharge in a bankruptcy prohibits a creditor from proceeding with in personam rights but that in rem rights pass through the discharge.

Byron R. White:

And why does the in rem right pass through?

I think… because of a specific provision?

W. Thomas Gilman:

Yes, section 5–

Byron R. White:

I mean that… that claim against the property is not discharged.

W. Thomas Gilman:

–That’s correct.

Byron R. White:

Because of a provision in the statute.

W. Thomas Gilman:

That’s correct.

Byron R. White:

Because you have to claim here that the claim against the property is a claim… is a debt.

It’s a… for purposes of 13.

W. Thomas Gilman:

Well, I want to use the terms claim and debt coextensively as we learned in Davenport.

And yes, I do claim that the claim against the property is a debt and a claim.

Byron R. White:

Because otherwise… otherwise the claim against the property would be discharged in chapter 7.

W. Thomas Gilman:

No, a secured debt… a lien passes through a chapter–

Byron R. White:

Well, I… I know but why does it?

Only because it… the statute says specifically that, well… that it won’t be discharged.

W. Thomas Gilman:

–Yes, that’s correct.

Antonin Scalia:

Why do you have to prove that it’s a claim or a debt for purposes of chapter 13?

I must say, reading your brief, I don’t see what the… you set forth statutes’ definitions section.

So what?

What is the operative provision of the statute that uses the word claim or debt?

W. Thomas Gilman:

Well, the reason we have to show that there… that the bank has a claim is because in order to address the claim in the bankruptcy, the claim has to exist.

If they don’t have a claim in the bankruptcy–

Antonin Scalia:

Where… where is the section?

What is the operative section of the statute?

All you set forth in your brief are the definition sections, which are, you know… they’re meaningless.

Antonin Scalia:

Why–

W. Thomas Gilman:

–Well, section–

Antonin Scalia:

–Where does it say that you have to have a claim?

W. Thomas Gilman:

–109 provides that section–

Antonin Scalia:

1… 109?

W. Thomas Gilman:

–Section 109 is the eligibility provisions… is the eligibility statute, and that says that they have to have a certain amount of claims in order to be eligible for a chapter 13 bankruptcy.

But I think the operative provision that you’re asking me about is section 1325 which provides what must be set forth in a chapter 13 plan in order to be confirmed, and the word claim and/or debt is used throughout that statue.

William H. Rehnquist:

Why didn’t your client file under chapter 13 in the first place?

W. Thomas Gilman:

He was not eligible at the time to file a chapter 13 because he had too much debt.

William H. Rehnquist:

So he first got rid of some of the debt under chapter 7?

W. Thomas Gilman:

Essentially that’s correct.

Our… the thrust of our argument is that the plain meaning of the bankruptcy code requires a reversal.

As I mentioned section 101(4) is the definitional provision at issue.

It defines the term “claim” and the phrase that’s key in that definition is “right to payment”.

The rights the bank has are to receive the land as a result of the foreclosure or to receive proceeds from the sale of the land if the bank is not the successful bidder at a foreclosure sale.

And in addition, the bank has the right to receive oil and gas income from the land.

The question of whether that… whether or not that fits in the common term of the word “payment” I don’t think is really up to dispute.

I think it’s common practice and commonly understood that collateral is taken as an alternative source of payment.

Banks typically take collateral to make sure they’re paid in full or in part and… and in case the debtor does not pay the debt.

In fact, this Court has recognized on a couple of occasions that collateral constitutes payment.

In United Savings v. Timbers of Inwood Forest, the Court stated that it is common ground that the interest and property referred to by section 362(d)(1) includes the right of a secured creditor to have the security applied in payment of the debt upon completion of the reorganization.

Similarly, in Long v. Bullard the Court states that on the 9th of February, 1878, Bullard brought suit in the Superior Court of Bib County, Georgia, to subject the property to the payment of his debt.

And finally, even the Kansas Bankers Associate… Association, who filed the amicus on behalf of the bank, admits in their brief… probably unintentionally… that collateral rights constitute a source of payment.

They say at page 13 on the brief that Kansas banks, like other creditors, enter into loan transactions secured by real property with an expectation that debtors will not be allowed to manipulate the bankruptcy code to frustrate the creditor’s contractual right to apply the value of collateral to satisfy the loan obligations.

Other provisions of the bankruptcy code also recognize that rights in collateral constitute a right to payment.

As I mentioned, section 1325 bears directly on this issue.

It provides that in order for a… it provides that a credit or a debtor can propose a plan where he proposes to transfer the property that the secured creditor has a security interest from a mortgage in and satisfaction of the secured claim.

That’s also true with regard to section… or chapter 12, in section 1225(a)(5) and in chapter 11, in section 1129(b)(2)(A)(3) dealing with the indubitable equivalent.

So we believe the plain meaning of the statute requires a reversal.

But I now want to examine the question of whether the plain meaning fits within other provisions of the bankruptcy code.

W. Thomas Gilman:

And we believe it does.

If a… if an in rem right is not a claim in bankruptcy… excuse me… the section… excuse me… section 102(2), in my view would be rendered worthless.

Section 102(2) provides that a claim against the debtor includes a claim against property of the debtor.

In my view that’s a direct statement by Congress that in rem rights constitute a claim in a bankruptcy proceeding.

Byron R. White:

At the–

–Well, is that dischargeable under a chapter 7?

W. Thomas Gilman:

Because in section 524, Congress specifically said that only the in personam rights are dischargeable in chapter 7 or any other chapter of the bankruptcy code.

Byron R. White:

You mean the in personam right to payment?

W. Thomas Gilman:

Yes, I do.

Also, section–

Antonin Scalia:

Mr. Gilman, why would… I don’t understand why Congress would do it that way.

I mean you say your client couldn’t go right ahead with chapter 13 because his debts were too high.

He wouldn’t have qualified under 13, so he goes through 7 first and reduces his debts, and then goes through 13.

Why would Congress want to do that?

I mean, say, you know, they could have just… just had a, you know, a higher debt limit for 13 if they wanted that, couldn’t they?

W. Thomas Gilman:

–Well, what they eventually did was pass chapter 12, Your Honor, for farmers, which is specifically the problem that was being encountered throughout the… especially the Midwest.

Antonin Scalia:

Well, but that wasn’t… we’re just talking about 7 and 13 right now, and it just seems to me quite contrary to what must have been the congressional intent.

If they… if they wanted a higher debt limit for somebody who can qualify under 13, they would have said so.

And it seems to me to be whipsawing the–

W. Thomas Gilman:

But on the other hand–

Antonin Scalia:

–the creditor to proceed under 7 first and lower your debt, and they proceed under 13.

It’s very strange.

W. Thomas Gilman:

–But on the other hand, they didn’t limit it anywhere in the code.

There’s… the only limitation on filing after the chapter 7 in section 109 in the–

Antonin Scalia:

Unless you’re wrong about the meaning of claim.

W. Thomas Gilman:

–Well–

Antonin Scalia:

Maybe that’s how they limited it.

W. Thomas Gilman:

–That’s true, but I… I think that the plain language and also the decision in Davenport requires a holding that an in rem right is a… is a claim.

Byron R. White:

I’m sure… I’m sure it is, but it isn’t discharged in the chapter 7.

And Congress… and Congress… and the reason is that Congress says that that kind of a claim isn’t discharged.

W. Thomas Gilman:

Exactly.

That’s exactly my point.

Byron R. White:

And so they wanted to save that… they wanted to save that kind of a claim.

And yet you say that nevertheless they intended in 13 to take that claim and string it out over 10 years maybe.

W. Thomas Gilman:

No, well, I’m saying that they did not pass anything that would prohibit my client from filing a chapter 13 after he gets a discharge on chapter 7.

Byron R. White:

Well, you can say that… you can say like the court of appeals did for example, that the right to payment they’re talking about is right to payment from the debtor not from property.

W. Thomas Gilman:

But that… but that’s not in the statute, and I think section 102(2) belies that statement.

William H. Rehnquist:

Well, I–

–Well, all… all it says… all 102 says is that claim against the debtor includes claim against property of the debtor.

I don’t see how that belies it right on its face.

W. Thomas Gilman:

Well, if Congress did not mean to include in rem liabilities as claims, then I don’t see what the purpose of section 102(2) was.

William H. Rehnquist:

Well, but I… simply as a matter of language it doesn’t seem to me that your position just automatically establishes itself.

You have to at least look to other parts of the statute.

W. Thomas Gilman:

I agree with that.

And I’d be happy to go into the other parts of the statute that I think help support my reasoning.

The next one I would go to is section 502(b)(1) which states that a claim in a bankruptcy proceeding will be allowed unless the claim is unenforceable against the debtor and property of the debtor, which means that a claim in a bankruptcy will be allowed if a creditor has a claim against the debtor personally or against his property.

That to me seems another… seems to be another clear statement that in rem liabilities should constitute claims in this bankruptcy.

Antonin Scalia:

You say unless it’s unenforceable against the debtor or property of the debtor?

W. Thomas Gilman:

The language of the statute is unless it’s unenforceable against the debtor and property of the debtor.

Antonin Scalia:

Right.

Well, this claim is not enforceable against the debtor and property of the debtor.

It’s enforceable only against property of the debtor.

W. Thomas Gilman:

That’s true, and I believe that the… the way I understand that section is that I… in either case.

Antonin Scalia:

If it meant either, it would have said “or”.

If it means in addition, it says “and”.

W. Thomas Gilman:

It says it will be–

Antonin Scalia:

It has to be… it–

W. Thomas Gilman:

–It says it will be allowed unless the claim is unenforceable.

Antonin Scalia:

–Unless it’s unenforceable against both–

W. Thomas Gilman:

Both.

Antonin Scalia:

–It has to be unenforceable against both the debtor and against property.

W. Thomas Gilman:

And in this case, it’s enforceable against property of the debtor and therefore the claim will be allowed.

William H. Rehnquist:

Where does this section appear, Mr. Gilman?

W. Thomas Gilman:

Section 502(b)(1).

William H. Rehnquist:

I’m not… I don’t mean where does it appear in the statute.

Where does it appear in the briefs?

W. Thomas Gilman:

I don’t have–

Antonin Scalia:

I… may I say I had this problem with your whole brief.

There… sections are referred to–

–Well, I… Mr. Gilman… I asked Mr. Gilman where it appeared in his briefs, and I think he should answer that question.

Please answer it.

W. Thomas Gilman:

–Can I–

Antonin Scalia:

Yes.

W. Thomas Gilman:

–It should be on page 22.

It’s not set forth verbatim in that–

William H. Rehnquist:

Well, why don’t you set these things forth verbatim, Mr. Gilman, if you’re going to rely on them?

W. Thomas Gilman:

–I assumed that the Court would have available the statutes to look at.

I apologize if that’s an error, too.

William H. Rehnquist:

Go ahead.

W. Thomas Gilman:

Also, in… touching on section 524 which Justice White keeps referring to, I believe that section also supports the notion that a claim… an in rem liability is a claim in a bankruptcy.

That section says that a discharge in a case under this title operates as an injunction against the commencement or continuation of an action, the employment of process, or an act to collect, recover, or offset any such debt as a personal liability of the debtor.

The phrase

“as a personal liability of the debtor. “

modifies the term debt and implies at least that some other type of liability must exist besides a personal liability.

If it’s not a personal liability, it’s my view it has to be an in rem liability.

Also, Congress demonstrated that it knew how to limit the term claim to in personam situations when it wanted to.

In section 303(b) of the bankruptcy code, it sets forth the situations where an involuntary petition can be filed against an individual.

The language of that section makes clear that in order to–

William H. Rehnquist:

Where does that section appear in your brief?

W. Thomas Gilman:

–I don’t believe I cited it in my brief, Your Honor.

W. Thomas Gilman:

I’m sorry.

William H. Rehnquist:

You’re here to argue a particular section of the code that you don’t cite in your brief?

W. Thomas Gilman:

It was cited by the amicus in its brief.

William H. Rehnquist:

Well, I don’t think that’s an adequate substitute.

W. Thomas Gilman:

I apologize, Your Honor.

I was just making my argument if I can.

William H. Rehnquist:

You may proceed, but please don’t ever file another brief like that in this Court that does not… does not quote sections of the statute on which you intend to rely.

W. Thomas Gilman:

I’ll make sure that I don’t, Your Honor.

That section makes clear that a claim or an involuntary action can only be initiated against an individual when there is an in personam claim against that individual.

Also, I believe that recent activity in Congress demonstrates that they continue to support a broad interpretation of the term “claim”.

As the Court will recall last term it entered its decision in Pennsylvania Department of Public Welfare v. Davenport.

In that case, the Court held that restitution obligations imposed in conjunction with criminal penalties constitute claims and are therefore dischargeable in chapter 13 bankruptcies.

Congress reacted to that decision with the Criminal Victims Protection Act of 1990.

It’s important to look at what both Congress did and did not do.

The way Congress reacted to it was by amending section 1328 to provide that restitution obligations are not dischargeable in chapter 13.

Even though the Court in Davenport concentrated heavily on the construction of the word “claim”, Congress did not amend the definition of claim and allowed that definition to remain unchanged even after the decision in Davenport.

And therefore, I believe that Congress, having noted the decision in Davenport, would continue to support a broad construction of the term “claim” which would include an in rem liability.

Lastly, I want to touch on what Justice White, I believe, keeps continuing to hit on, and that is whether this… what we’re proposing to do here is fair.

Is it fair to the creditor for what we are proposing to do?

And we believe it is, because had Curtis Johnson–

Byron R. White:

I don’t know that I even mentioned the word “fair”.

W. Thomas Gilman:

–Well, maybe I’m picking that up from your argument–

Byron R. White:

It may be.

W. Thomas Gilman:

–Had Curtis Johnson been available… had available chapter 12 at the time he had to file his chapter 7, he could have proposed exactly the same treatment that he’s proposing in this case to the bank.

In other words, he could have proposed a plan in chapter 12 which would have provided for no payments to unsecured creditors and would have provided only for the payment of the value of the collateral the bank holds.

And that plan would have been confirmable in a chapter 12 proceeding as long as he demonstrated he was using all of his disposable income.

All we are asking to be able to do in this case is to allow Curtis Johnson to pay the bank the value of its collateral at the bank’s contractual rate of interest over a period of 5 years.

And we don’t believe that is unfair.

If there are no other questions, that’s all I have at this point.

I would reserve the remainder of my time for rebuttal.

William H. Rehnquist:

Very well, Mr. Gilman.

Mr. Rider, we’ll hear now from you.

Calvin Dee Rider:

Mr. Chief Justice, and may it please the Court:

We are asking this Court to affirm the Tenth Circuit decision, because it correctly found that an in rem remedy is not a claim.

We tend to address two areas that exemplify the soundness of the Tenth Circuit decision.

First, the Tenth Circuit took into account the chapter 7 filing and the effect of the discharge.

And second, the Tenth Circuit found that there is no claim, no right to payment, and no nonrecourse loan agreement.

The Tenth Circuit decision can also be affirmed on the alternative ground or alternative issue of good faith.

Now, for many years the status quo between debtors and creditors has been maintained.

In rem rights have been preserved under the act and the bankruptcy codes so that creditors can proceed.

Those creditors’ rights are preserved to proceed against property that’s securing the debts that are being discharged in the 7… chapter 7.

Now, recently some courts have judicially created a chapter 20 bankruptcy, which for… in this instance chapter 20 is the filing of a chapter 13 after receiving the discharge in a 7.

These other courts have gone beyond the confines and intent of the code.

What the Tenth Circuit decision is… does is bring this back within the purpose, spirit, and intent of the bankruptcy code.

If an in rem remedy is a claim for purposes of the bankruptcy code, then every mortgage, home loan, farm loan, commercial loan would be improperly affected and impaired.

Secured parties will lose their bargained for State law contractual rights to realize on their security their collateral that is securing the… the debts that are being discharged in the chapter 7.

Upon a default, the secured party would have no right.

If bankruptcy is filed, there would be really no reason to lift the automatic stay because creditors could not proceed against the property which secured the debt because that right to proceed, that in rem remedy, would be a dischargeable claim or debt in bankruptcy.

We submit to this Court that Congress didn’t intend to destroy or impair in this way a secured party’s rights in a collateral.

In this–

David H. Souter:

Theoretically is your position as simple as this.

That chapter 7 in effect extinguishes the personal obligation.

The result of that is that the previous in rem remedy becomes legally an interest in property owned by somebody else.

Is it as simple as that?

Calvin Dee Rider:

–The–

David H. Souter:

That’s why it’s not a claim anymore.

Calvin Dee Rider:

–To a point, Justice Souter.

The in rem remedy passes through the chapter 7 and it’s a right… the interest in property belongs to the creditor… to the mortgagee.

And the mortgagee is simply trying to realize on its own property interest–

David H. Souter:

That’s it.

David H. Souter:

In other words, it’s the… the so-called in rem remedy is reduced simply to an interest in property which can be realized upon just as if the mortgagee had received an undivided interest as a common owner.

It could go ahead and realize upon its property in that case.

Calvin Dee Rider:

–Yes, the mortgagee can proceed and realize upon that property.

Sure.

David H. Souter:

Okay.

Calvin Dee Rider:

This Court has long recognized the history in the… in its xx case and Louisville v. Radford case that the bankruptcy–

John Paul Stevens:

May I… may I just interrupt here to… I want to be sure I understand Justice Souter’s suggestion.

Is it an interest in property in a different sense than it was before the chapter 7 discharge?

Calvin Dee Rider:

–Before the chapter 7 discharge… excuse me, Justice Stevens, are you talking about the interest in property?

The bank’s interest in property?

John Paul Stevens:

The in rem claim of the first mortgagee to… which gives him right to foreclose, have the property sold, and you get the property.

Is it a different sort of interest in property than it was before the chapter 7 discharge?

Calvin Dee Rider:

Before the chapter 7 discharge, the estate… the chapter 7 estate… either had the property or–

John Paul Stevens:

Right.

Calvin Dee Rider:

–in this instance, the debtor–

John Paul Stevens:

The debtor property is subject to the first mortgage land.

Calvin Dee Rider:

–Yes, and the… or the debtor would hold the property and the debtor would have the property.

And yes, upon that discharge, all the debtor has left is… is an interest in the property at a redemption right.

John Paul Stevens:

And… but who has possession of the property?

Calvin Dee Rider:

The… upon the discharge, the debtor has possession of the property.

John Paul Stevens:

The same possession he had before the discharge?

Calvin Dee Rider:

Yes.

John Paul Stevens:

And how did… how did… I don’t quite understand your response to Justice Souter.

How is the interest in property that exists after the chapter 7 discharge any different from the interest in property that the bank possessed immediately before the discharge.

Calvin Dee Rider:

Well, the bank… the bank has that in rem… in rem right before the chapter–

John Paul Stevens:

Right.

Calvin Dee Rider:

–I may have misunderstood Justice Souter’s question.

The bank has that in rem remedy before the chapter 7 filing–

John Paul Stevens:

Right.

Calvin Dee Rider:

–and still has that in rem remedy after the chapter 7 discharge.

John Paul Stevens:

And it no longer has a personal claim, correct?

Calvin Dee Rider:

That’s correct.

Antonin Scalia:

Mr. Rider, what… is it the case that if this is a claim or a debt under chapter 13 it would necessarily be one under chapter 7 so that it would automatically have been discharged?

Is that the position you’re taking?

Calvin Dee Rider:

That… that is one of our positions.

That’s correct, Justice Scalia.

Antonin Scalia:

The only thing that prevents this from… from being discharged in chapter 7 is the fact that it’s not a claim?

Calvin Dee Rider:

It is not a claim, and the long recognized history that these mortgage liens passed through–

Byron R. White:

That’s because of a specific provision, isn’t it?

They… the secured debts.

The security interest is not discharged.

Calvin Dee Rider:

–That is correct.

Byron R. White:

The claim against the property is not discharged.

Calvin Dee Rider:

The in rem remedy against the property is not discharged.

Antonin Scalia:

Well, which is correct?

I mean they both can’t be correct.

Your answer to me is no, then?

It is not the case that the only reason this survives chapter 7 is because it’s not a claim.

It survives chapter 7 because there’s a statutory provision that says it survives chapter 7, is that right?

Calvin Dee Rider:

That is correct.

Antonin Scalia:

All right.

Calvin Dee Rider:

In the Bullard case and this Court’s case of… in Louisville v. Radford, it’s been long recognized that the bankruptcy does not destroy a mortgage even on exempt property.

And what we’re… what we’re asking here is essentially what Justice Stevens stated in the unanimous view of the… of this Court in Butner v. United States that the mortgagee should be afforded in Federal bankruptcy court the same protection it would have under State law if no bankruptcy had ensued.

Now, in this case, Johnson filed the chapter 7 liquidation, received the discharge, received the benefits of that chapter 7 bankruptcy, freedom from unsecured debt and fresh start, but wanted to hold on and not give up the property even after the… even after the lifting of the stay, which was about the same time as the discharge.

The discharge… the automatic stay was lifted so the bank could proceed in rem against the property.

But they were prevented from doing so by the subsequent filing of 7.

It’s our position that the purpose of the chapter 7 was never completed or satisfied.

The bank was never able to attempt to realize or to realize on that property.

William H. Rehnquist:

Well, you’re dealing with a very complicated, intricate statute as you know.

Your opponent says that in at least one other case where Congress wished to prohibit the use of one kind of chapter proceeding after another, it has specifically said so.

William H. Rehnquist:

It did not say so here.

It did not specifically prohibit use of the 13 after 7.

What’s your response to that?

Calvin Dee Rider:

Mr. Chief Justice, our response is that there… the specific prohibition is not there, but there are other code provisions, specifically one I’ve cited in my brief, code section 706 that allows a one-time conversion from a chapter 7 to a 13.

If the debtor finds it… finds himself or herself in a chapter 7 with some nondischargeable debts that are… or debts that can’t be discharged in a 7, the debtor has that one-time right to convert to a 13 if they meet the debt limits of the chapter that they’re going to… the chapter… which is chapter 13.

And this–

William H. Rehnquist:

xxx 6(d), quoted on page 21 of your brief.

A case may not be converted to a case under another chapter this title unless the debtor may be a debtor under such chapter.

Calvin Dee Rider:

–Yes, that is correct.

William H. Rehnquist:

And you say if you’re not allowed to convert a fortiori you should not be able to start afresh in that section?

Calvin Dee Rider:

Congress contemplated a debtor moving into… filing a 7, if he can’t… if there’s nondischargeable debts, they can move on.

What the petitioner… the debtor is attempting to do in this case is what was specifically prohibited by section 706.

And also cannot do that because… the debtor cannot do that because of the debt limit that they had.

The debtor had approximately five times the amount of debt that a chapter 13 would allow.

Antonin Scalia:

I don’t under… are they two separate arguments?

Calvin Dee Rider:

It’s the same one.

The debtor would have had the opportunity.

Antonin Scalia:

He couldn’t have been a debtor under chapter… under the other title… under chapter 13 within the meaning of 706(d) only because his debt would have been too high.

Calvin Dee Rider:

That’s… that is–

Antonin Scalia:

There is no other reason he couldn’t have been a debtor under that, right?

Calvin Dee Rider:

–Under the chapter 13.

Antonin Scalia:

Okay.

Calvin Dee Rider:

That’s correct.

And also, as a further question, even if… as a further answer to your question, Justice Scalia, even if the debtor was… could meet the eligibility requirement of chapter 13 we submit that the provisions of 706 indicate congressional intent that the conversion method be used rather than the discharge in 7 of the debt, and then moving on to the 13.

John Paul Stevens:

Mr. Rider, can I ask you… this may be an unrealistic hypothetical, but I’m trying to think this crazy case through.

Supposing a father or some friend was willing to pledge a piece of property, a security for another person’s loans… his son’s loan that developed the property… but the father did not personally undertake any personal responsibility for… just said if you can’t… some… set it up in some fancy way that the property would be security, but if you couldn’t… if the primary debtor didn’t pay off the debt, you could have recourse against the pledged property.

And… there… nobody could pay.

Would the father in that situation be eligible for chapter 13 relief?

Calvin Dee Rider:

The father could still file a 13… can still… would still be able to schedule debts in a 13.

But in that case, if the property… if there was no right to payment… if the creditor has no right to payment, that property could not be scheduled.

John Paul Stevens:

Well, the… his right to payment would be strictly by selling the property and collecting the proceeds.

It’s security for… security for the son’s loan is what I’m trying to think of.

Sometimes you do… you know somebody will put up security for someone else’s loan.

And I was just wondering, wouldn’t there be the kind of debt your opponent argues for here?

Wouldn’t you have a claim against that property, even though you didn’t have an in personam claim against the owner of the property?

Calvin Dee Rider:

Justice Stevens–

John Paul Stevens:

I guess your position is no?

Calvin Dee Rider:

–No, no, that… that is correct.

Our position is no, Justice Stevens, that you still must have a right to payment from that debt or you still must have a claim and that… while that debtor could file a chapter 13, he could not schedule that specific property in the… in his chapter 13.

The Tenth Circuit recognized the effect of the chapter 7 discharge.

First as we discussed the effect of the discharged lowered the amount of unsecured debts.

Secondly, under 727(b) a discharge is a discharge of all debts and any liability of a claim except those specific debts that are enumerated in section 5.3 that are nondischargeable.

The debtor comes out of a chapter 7 with a fresh start, no claims, no debts, no obligations.

But petitioner is saying that somehow a debt or a claim escaped or survived the chapter 7 discharge.

We submit that that is inconsistent that, upon the discharge of all debts, that that creates a debt.

Or upon the discharge of any liability of a claim, that creates a claim.

But yet what we have here is an in rem remedy, a remedy of the bank, the right to foreclose.

It’s not a… and if it is a in rem… if an in rem remedy is a claim or a debt, it could be discharged in 7.

We submit that that was never the intent of Congress.

The in rem remedy in this case arose… as I believe I discussed with Justice Stevens… arose before the chapter 7 bankruptcy.

The in rem remedy was a pre-petition remedy, along with the debt that was discharged.

Those were together before the chapter 7.

On section 101(9) defines creditor as a claim against the debtor that arose at the time of or before the order for relief, which the order for relief is the petition.

A creditor is someone that has a claim against the debtor before the filing of the petition.

Now, if we were a creditor and we were in chapter 7 because of discharged debts… if we were a creditor in that chapter 7, according to the discharge provisions, again, of 727(b), it provides a discharge of all debts and claims that arose before the order for relief, before the filing of the petition.

Now, all of those occurred before the 7.

If an in rem remedy is a claim, it’s discharged in the 7.

Antonin Scalia:

Mr. Rider, what do you do about the provision that a claim against a debtor includes a claim against property of the debtor?

What… what is your explanation of that?

Calvin Dee Rider:

First–

Antonin Scalia:

This is a claim against property of the debtor, right?

Calvin Dee Rider:

–This–

Antonin Scalia:

And therefore, that seems to me… it seems by that paragraph 2 to be a claim against the debtor.

Calvin Dee Rider:

–It is our contention, Justice Scalia, this isn’t a claim against property of the… of the debtor.

To have a claim against property of the debtor in section 102(2), you must still have a claim, a claim against the debtor.

You must still have a right to payment… either a right to payment or a right to an equitable remedy for breach of performance, if such breach gives rise to a right to payment–

Antonin Scalia:

Even though the claim… the claim need not be against the debtor, but the claim… the owner… the property in question must be the property of the debtor, but you’re saying the… you must have a claim against somebody, even if not the debtor.

Calvin Dee Rider:

–You must still… the strict language of the code talks about a claim against the debtor including a claim against property of the debtor.

And it is our belief and our contention that you must still have that claim.

We don’t have a claim under 101(4)(a), a right to payment.

We are not seeking to pursue a nonexistent claim against the debtor.

What we have is a right to an equitable remedy.

Antonin Scalia:

Give me an example of where there is a claim against property of the debtor without a claim against the debtor.

Calvin Dee Rider:

I believe in… you may have an example where a… for instance a farmer.

A farmer would come into the bank, take a loan, pledge property, and also pledge additional security.

Here is my property.

I’m just pledging this property with no personal liability… enter into a so-called nonrecourse loan agreement with the bank where it’s just this property.

The bank still… would still hold a claim, and they would hold a claim against property of the debtor.

The claim against property of the debtor wasn’t defined in the code… or in the pre-code, in the act It’s a difficult concept.

One thing that we have considered is also in this case is this property of the debtor, upon the commencement of a case, all interests of the debtor go into the estate.

David H. Souter:

Well, Mr. Gilman, in your answer when he pledges the property on a nonrecourse basis, he still couldn’t realize against that property if he did not have the antecedent or the independent debt, right?

Equity wouldn’t let him do it.

Calvin Dee Rider:

I’m sorry, Justice Souter, I’m not sure–

David H. Souter:

No, I’m saying he gets a pledge of the property.

He can’t enforce against that pledge without having the antecedent debt.

Calvin Dee Rider:

–The–

David H. Souter:

If the… let me put it this way.

If the debtor comes along and pays him 100 percent of the debt, no court is going to let him sell the property.

That’s all I’m saying.

Isn’t that correct?

Calvin Dee Rider:

–That’s correct.

David H. Souter:

All right.

Then isn’t the kind of the ultimate answer to the problem that’s being put to you the one which you gave to me and I think gave to Justice Stevens.

In the situation that we’ve got, the chapter 7 proceeding extinguishes the antecedent debt… it distinguishes the personal obligation, and therefore, it distinguishes the claim against property as that term is used.

Something has got to be left.

And what’s left is a pure property interest owned by the bank.

Isn’t that your position?

Calvin Dee Rider:

I believe that is our position that we have the property interest to pursue against our collateral–

David H. Souter:

And it’s a property interest, pure and simple.

It’s not a claim.

Calvin Dee Rider:

–That’s correct.

David H. Souter:

Whereas in the pledge situation, it’s not just a property interest, pure and simple, because the right to realize upon it is still dependent upon the relationship of debtor and creditor, which is independent of it.

Calvin Dee Rider:

In the nonrecourse loan agreement?

David H. Souter:

Yes.

Calvin Dee Rider:

Yes, in that case.

David H. Souter:

Okay.

Calvin Dee Rider:

In this case, we do not… to further answer Justice Scalia’s question, we do not have a right to payment, and in the second definition of claim… the right to an equitable remedy for breach of performance if such breach gives rise to a right to payment.

Now, normally in Kansas, a right to an equitable… or excuse me… foreclosure in Kansas is an equitable remedy.

And that equitable remedy normally gives rise to a right to payment, but because of the discharge, we have no right to payment.

There is nothing, as in section 101(4)(b), nothing for the debtor to breach that would give rise to the right to payment.

And even if there was a breach, that breach would not give rise to a right to payment, because every… all rights to payments have been… have been discharged in the chapter 7 bankruptcy.

Now, we recognize, as this Court did in Davenport, that claims are to be construed to contain all legal obligations of the debtor.

First, we don’t believe that this is a legal obligation of the debtor… not an enforceable obligation.

Anthony M. Kennedy:

Well, the amount of the bank’s claim against the property, I take it, must always be calculated by reference to the antecedent debt.

There would be provisions for interest I take it and attorneys’ fees, all of which can only be calculated by reference to the documents that created the original debt.

Calvin Dee Rider:

That is correct.

Anthony M. Kennedy:

And so it’s somewhat artificial to say that the bank has simply a claim… or an interest in the property, because that interest must be defined by reference at least to an antecedent document.

Calvin Dee Rider:

That’s… we must look at the document to determine what was there even… but… even though all of that has been discharged and there’s no personal liability on it.

David H. Souter:

Is it fair to… I’m sorry… I didn’t want to interrupt your answer.

Calvin Dee Rider:

In this case what we’re saying is that the claim… Congress, in this specific instance, limited the definition of claim in 101(4)(b), where Congress stated in the legislative history that rights to an equitable remedy for breach of performance with respect to which such breach does not give rise to a right to payment, are not claims.

Calvin Dee Rider:

And therefore, they would not be susceptible to discharge and bankruptcy.

The definition of claim is specifically limited there and we’re… to the specific instance and circumstances that we have in this case.

David H. Souter:

May… may I just follow up on Justice Kennedy’s question?

Is it correct to say this… that the identification of this property interest is dependent upon two valuations.

One is the extent of the antecedent debt plus interest and so on, collection costs… whatever the agreement originally provided.

And number two, is subject to the limitation of the actual value of the property so that a debtor after chapter 7… a creditor after chapter 7, that is… could have an interest in the value of the property defined by… the extent of which is defined by the antecedent debt, provided that that does not exceed the value of the property… the value of the property always being the ultimate limit.

Is that correct?

Calvin Dee Rider:

To… to an extent, Justice Souter.

The value that a… that value that a creditor seeks after the… after the discharge or the creditor seeks during the foreclosure is the value of the entire judgment.

David H. Souter:

In fact, maybe that… maybe my question reflects a confusion.

Is the… is the extent of his interest, i.e., the value that may be ultimately realized out of the property… is that determined in the chapter 7 proceeding so that… so that that’s all behind him at that point?

Calvin Dee Rider:

The value of the property?

David H. Souter:

Yes, in chapter 7 does the… does the bankruptcy court in effect say, look, you own a piece of property… you own this property to the extent of $10,000.

Is that what they… is that the result of chapter 7?

Calvin Dee Rider:

Yes.

David H. Souter:

So he knows the extent… the dollar amount at least… of his interest once chapter 7 is over.

Calvin Dee Rider:

That is correct.

David H. Souter:

Okay.

Calvin Dee Rider:

But then you move on to the chapter 13 and that value is determined again.

William H. Rehnquist:

What happens to the equity of redemption in the chapter 7 proceeding?

Calvin Dee Rider:

In the chapter 7, if… if the… if the… if the debtor retains the property, Chief Justice… Mr. Chief Justice, then the debtor retains that right of redemption.

It’s our position that a right of redemption is not a right to payment.

That’s an interest of the debtor and property, which isn’t necessarily property of the debtor, but it’s an interest of the debtor and property.

A right of redemption… and this debtor still has that right of redemption–

William H. Rehnquist:

So he retains that after the conclusion of the chapter 7?

Calvin Dee Rider:

–He still… even… this plan is set to conclude in less than a year.

It’s a 5-year plan.

The banks only received the one payment during that plan.

And it will conclude next March.

The debtor still has that right of redemption.

William H. Rehnquist:

No, I asked you if he still had it at the conclusion of the chapter 7 proceeding.

Are you telling me about the chapter 13 proceeding or the chapter 7?

Calvin Dee Rider:

Both, Your Honor.

He… he had it at the conclusion of the chapter 7.

And essentially that’s what the debtor is doing is extending that right of redemption period.

That’s the only interest he has.

William H. Rehnquist:

But he does retain that after chapter 7?

Calvin Dee Rider:

Yes.

But it is our contention that the right of redemption, it’s a right of the debtor.

It’s not a right to payment.

We cannot require this debtor… we cannot enforce this debtor to redeem that property.

And furthermore, the redemption is something that… when the debtor redeems, the debtor redeems at one time… redeems the full judgment–

William H. Rehnquist:

It’s a right to regain title to the property.

Calvin Dee Rider:

–Exactly.

And they must pay the judgment, the cost, the interest, the property taxes upon the right to redeem… not as a debtor in chapter 13 is scheduling value… value of land.

And that… the redemption must be paid within that 6 months, not 5 years.

Or in this case it’s been approximately 7.

John Paul Stevens:

Can you help me with one other thing that I just really don’t understand?

This is a case involving an undersecured claim.

And say the property is thought to have a value of $50,000 when the chapter 7 proceeding is ended.

And then you go into the chapter 13, and it’s ultimately sold for more than that.

Does the bank get the excess over the $50,000 that it was thought to have as long as it’s under the amount of the original note?

Calvin Dee Rider:

No, the bank… the… if I understand your question, the property is increasing in value?

John Paul Stevens:

No, the property… the… there’s a $100,000 note secured by a property.

At the time of the chapter 7 proceeding is thought to have a value of only about $50,000.

So you then extinguish the personal liability, and the bank has an in rem claim for at least $50,000 against the property.

They then go into either foreclosure or chapter 13 and they sell it for $60,000.

They just underestimate it’s actual… who gets the 10?

Calvin Dee Rider:

I… in that specific instance, Justice Stevens, that’s something that I’m not exactly clear on.

I know the bank has the right to that value, but I do not believe that they would have the value… have the right to what’s left, because there would be nothing–

John Paul Stevens:

Is there some kind of a dollar figure set on the value of the property in the chapter 7 proceeding?

Calvin Dee Rider:

–Yes.

John Paul Stevens:

And that’s their… that’s the extent of the in rem claim is that figure, then?

Calvin Dee Rider:

Yes.

John Paul Stevens:

So if it produces more, we don’t know what happens to the… to the–

Calvin Dee Rider:

That’s right.

John Paul Stevens:

–They cannot recover against the property up to the full amount of their claim?

Calvin Dee Rider:

Oh, yes, yes, I’m sorry.

Yes, yes.

Antonin Scalia:

Up to the full amount of their claim.

Calvin Dee Rider:

Yes.

Antonin Scalia:

No matter what the property… you know, if it’s sold 2 years later and it’s gone up in the interim, they can get the full amount of their claim.

That’s how I understand it works, isn’t it?

Calvin Dee Rider:

The full… the full amount–

Antonin Scalia:

Of their claim.

Calvin Dee Rider:

–Yes, of their claim.

That’s right.

Antonin Scalia:

No more than that, but up to there.

Calvin Dee Rider:

That’s correct.

The full amount of their undersecured claim.

I thought that Justice Stevens was talking about under… unsecured in the chapter 7.

John Paul Stevens:

Well, I… in my hypothetical if you sell the property for 60, the bank gets the full 60.

Is that… that’s what Justice Scalia is assuming.

And that… you agree with that?

Calvin Dee Rider:

If the value of their claim is… their allowed claim, yes.

John Paul Stevens:

But the original value… the original in personam claim was worth $100,000 in my hypothetical, which has been discharged in the chapter 7 proceeding.

And they’ve left with an in rem claim against the property.

And is the value of that claim still $100,000 if the property produces that much at a sale?

Calvin Dee Rider:

From what I… what I’ve discussed with Justice Scalia, the value… the value of their allowed… the bank is entitled to the value of their allowed claim.

John Paul Stevens:

In the original proceeding?

Calvin Dee Rider:

Yes.

John Paul Stevens:

Oh, okay.

So that’s–

–And would the… would the claim be allowed ordinarily in the… in the amount of 100,000 if that was the amount of the bank’s note?

Calvin Dee Rider:

Well, the… if that’s the amount… the bank is allowed the… only the amount of their secured claim… their allowed secured claim.

William H. Rehnquist:

Well, supposing I have… supposing there’s a note for $100,000 which I have given you.

And I’ve given you a mortgage on my farm, and I go into chapter 7 and you file a claim, did… what happens?

Calvin Dee Rider:

I’m sorry.

I’m not clear on that, Mr. Chief Justice.

William H. Rehnquist:

Yes, I think both Justice Scalia, Justice Stevens, and I are trying to get an answer from you which seems to be very difficult to get out of you.

Can you–

Calvin Dee Rider:

I apologize for that.

William H. Rehnquist:

–The debtor has a… has a… has executed a note for $100,000.

He’s given a mortgage to secure that note on a farm.

He goes into chapter 7 bankruptcy.

The creditor makes a claim based on the note and the mortgage.

Is that claim allowed in the amount that the… let’s say the mortgage will not pay the full 100,000.

It will only pay 50,000.

Is the claim allowed for 100,000, because that’s the amount of the note?

Calvin Dee Rider:

No, in fact in this case, what was… our claim was much more.

Our claim was something for 500,000, and it… and it was only allowed for a… approximately 270,000 was the allowed amount of the claim.

William H. Rehnquist:

Well, did the amount for which it was allowed have anything to do with the value of the security?

Calvin Dee Rider:

The… yes, it… yes, it did.

Thank you, Your Honor.

I have no further questions.

William H. Rehnquist:

Thank you, Mr. Rider.

Mr. Gilman, do you have rebuttal?

You have 2 minutes remaining.

W. Thomas Gilman:

Thank you, Mr. Chief Justice.

I just want to clear up a couple little points here.

W. Thomas Gilman:

One, the amount of the… the amount the bank can receive when they go through the foreclosure depends on the amount of the mortgage document, irrespective of the… well, irrespective of the note after the chapter 7 discharge.

John Paul Stevens:

And even though the in personam claim has been discharged?

W. Thomas Gilman:

Right.

So in this case what happened was the amount of the note was for roughly $350,000, but the bank never increased the amount of the mortgage from the original $100,000, and so therefore, their in rem amount is determined by the $100,000 mortgage amount.

The remainder of the… of the promissory note has been discharged in bankruptcy.

That’s in the foreclosure.

In the… in the bankruptcy proceeding, the amount of the claim is determined both by the amount on the mortgage, which is $100,000, and the amount of the value of the property so that if the property was worth $110,000, they would be oversecured but their claim would only be allowed for $100,000.

If it was worth $90,000, even though they had a–

John Paul Stevens:

And the 10 would go back to the debtor?

W. Thomas Gilman:

–The 10 would be equity for the unsecured creditors.

John Paul Stevens:

All right.

But it’s determined not by the value of the property at the time of this… of the section 7 proceeding, but the value of the note secured by the property.

W. Thomas Gilman:

The value of the mortgage.

John Paul Stevens:

Well, okay… all right, the value of the mortgage.

W. Thomas Gilman:

But–

John Paul Stevens:

But then in your chapter 13 proceeding, you use the value of the property as you… as what you have to pay off over a period of time.

W. Thomas Gilman:

–You use both the value of the property and the… and the amount of the mortgage.

In other words, if the mortgage amount is more than the value of the property, then it… the amount of the claim in the 13 will be the value of the property.

On the other hand, if the mortgage amount is less than the value of the property, then the amount of the claim will be just the mortgage amount.

I wanted to touch also on Justice Souter’s–

William H. Rehnquist:

Thank you, Mr. Gilman.

Your time has expired.

W. Thomas Gilman:

–Oh, I’m sorry.

William H. Rehnquist:

The case is submitted.