Citizens State Bank v. Adam R. Schiller

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United States Bankruptcy Appellate Panel For the Eighth Circuit ___________________________ No. 21-6001 ___________________________ In re: Adam R. Schiller, doing business as Schiller Farms Debtor —————————— Citizens State Bank Norwood Young America Creditor – Appellant v. Adam R. Schiller Debtor – Appellee Kyle Carlson Trustee – Appellee ____________ Appeal from United States Bankruptcy Court for the District of Minnesota – Fergus Falls ____________ Submitted: June 22, 2021 Filed: July 15, 2021 ____________ Before NAIL, Chief Judge, SCHERMER and SALADINO, Bankruptcy Judges. ____________ NAIL, Chief Judge. Citizens State Bank Norwood Young America ("Bank") appeals the bankruptcy court's January 26, 2021 order confirming Debtor Adam R. Schiller's chapter 12 plan. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(b). We vacate the bankruptcy court's order and remand for further proceedings consistent with this opinion. BACKGROUND Debtor filed a petition for relief under chapter 12 of the bankruptcy code. Debtor listed Bank as a secured creditor on his schedules. The United States Trustee appointed Kyle Carlson ("Trustee") to serve as trustee. With his petition, Debtor filed a motion to obtain secured credit. Bank objected. Bank's "primary objection" was Debtor's motion failed to recognize a lien Bank asserted against Debtor's 2020 crop. The bankruptcy court ultimately granted Debtor's motion. Meanwhile, the bankruptcy clerk notified creditors of the need to file proofs of claim and the deadline for doing so. Bank did not file a proof of claim. After failing to obtain confirmation of two earlier plans, Debtor filed his second modified plan ("plan"). Bank objected. Bank alleged Debtor's plan failed "to provide distributions on account of at least $3,431.31" of Bank's secured claim. Bank also alleged Debtor's plan was not filed in good faith, because it purported to disallow Bank's unsecured claim. Bank believed it did not need to have filed a proof of claim to share in any distribution to unsecured creditors, for reasons discussed below. Finally, Bank alleged Debtor's plan failed to contribute all of Debtor's disposable income. -2- At a telephonic hearing, the bankruptcy court overruled Bank's objection and confirmed Debtor's plan. The bankruptcy court accepted Debtor's valuation of Bank's collateral and thus the amount of Bank's secured claim as set forth in Debtor's plan. The bankruptcy court did so without receiving evidence, reasoning the difference between Bank's valuation and Debtor's valuation was "minor" and did not warrant an evidentiary hearing. Bank timely appealed. STANDARD OF REVIEW This appeal presents three issues: (1) whether the bankruptcy court erred in determining the value of the collateral securing Bank's claim without holding an evidentiary hearing; (2) whether the bankruptcy court erred in disallowing Bank's unsecured claim; and (3) whether the bankruptcy court erred in finding Debtor's plan satisfied the confirmation requirements set forth in 11 U.S.C. § 1225(a)(5)(B) and (b)(1)(B). The first two issues implicate the bankruptcy court's conclusions of law, which we review de novo. Islamov v. Ungar (In re Ungar), 633 F.3d 675, 678-79 (8th Cir. 2011). The last issue implicates the bankruptcy court's findings of fact, which we …

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