The debtor filed a Chapter 13 petition listing a bank as a secured creditor based on a perfected security interest on a camper. Although the debtor attempted to surrender the collateral, the bank declined and instead filed its proof of claim as unsecured. The trustee objected, asserting that the court should treat the claim as a secured one due to the existence of the security interest and requested that the court either disallow the unsecured designation or reclassify and bifurcate the claim based on the collateral’s value. The trustee further argued that the bank failed to comply with applicable state law governing secured creditors’ liquidation and valuation obligations. Following the trustee’s filing of the objection, the court considered the disputed issues as a contested matter without requiring an adversary proceeding.
In In re Noah, No. 24-30129-pes, 2025 WL 3641360, 2025 Bankr. LEXIS 3251 (Bankr. N.D. Ind. Dec. 12, 2025) (unpublished opinion), the court overruled the trustee’s objection, holding that a secured creditor may waive its rights as a secured creditor and elect to file a general unsecured claim. The court explained that, under established bankruptcy principles, a secured creditor retains multiple choices for its claim: it may rely on its collateral, file a secured claim, pursue a deficiency claim as an unsecured claim, or waive its security interest entirely and file as a general unsecured creditor. The court determined that the bank elected for the latter option and, by doing so, waived its right to assert secured status. The court further rejected the trustee’s argument that the existence of a perfected security interest compelled secured treatment and permitted the creditor, not the trustee, to control how it asserted the claim. The court also addressed the trustee’s attempt to reclassify and bifurcate the claim. In bankruptcy contested matters, the court distinguished between a permissible objection to the amount of a claim and an impermissible attempt to alter its character without an adversary proceeding. The court held that the trustee’s requested relief required a determination of “the validity, priority, or extent of a lien” that could only occur in an adversary proceeding. Those determinations, pursuant to Bankruptcy Rule 7001, must advance through an adversary proceeding rather than in a contested matter. Accordingly, because the bank chose unsecured treatment and no party filed an adversary proceeding, the court allowed the claim as filed and rejected the trustee’s objection.
By Landon Womack [email protected]
Edited By Noah Coggan [email protected]
Edited By Taylor O’Brien [email protected]