In re Penrod
United States Court of Appeals for the Seventh Circuit
50 F.3d 459 (1995)
- Written by Solveig Singleton, JD
Facts
John and Alyce Penrod (debtors), who were hog farmers, borrowed $150,000 from Mutual Guaranty Corporation (Mutual) (creditor). To secure the loan, Mutual held a lien on the Penrods’ hogs. The Penrods filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code (code). Mutual filed a claim for $132,000. The Penrods’ reorganization plan designated Mutual as its sole Class 3 creditor and stated that Class 3 claims would ultimately be paid in full, plus 11 percent interest. The plan did not mention Mutual’s lien. After the plan became effective, the Penrods’ hogs became sick and were slaughtered. The Penrods did not send the proceeds from the sale of the slaughtered hogs to Mutual, as required by Mutual’s original promissory note. Mutual claimed that it had a lien on the proceeds and sued in state court to enforce the lien. The bankruptcy court enjoined Mutual’s suit on grounds that the plan had extinguished Mutual’s lien. Section 1141(c) of the code stated that confirmation of a reorganization plan left the property free and clear of all claims and interests except as provided in the plan. Several key cases held that a lien survived bankruptcy proceedings if the lienholder did not participate in the bankruptcy proceedings.
Rule of Law
Issue
Holding and Reasoning (Posner, C.J.)
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