CenPen Corp. v. Hanson

In CenPen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995), the Court held that a creditor may challenge a plans treatment of his secured claim as unsecured even after the plan is confirmed, because Bankruptcy Rule 7001(2) expressly requires initiation of an adversary proceeding to determine the validity, priority or extent of a lien. Id. at 93. The Court then held that if 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. Id. In Cen-Pen, the party seeking post-confirmation reinstatement of its secured lien apparently did not participate in the debtors bankruptcy proceedings at all, and its liens were nowhere mentioned or otherwise acknowledged in the debtors proposed plans. CenPen, 58 F.3d at 94. Under such circumstances, the Court found that a creditors lien could not be avoided simply because a plan had been confirmed because where an adversary proceeding is required to resolve the disputed rights of third parties, the potential defendant has the right to expect that the proper procedures will be followed. Id. at 93.