In this case we must address the effect of a bankruptcy court's confirmation of a Chapter 13 wage earner plan on a creditor's liens. Specifically, appellants contend that liens on their primary residence were avoided because the creditor received notice (by means of a copy of the proposed plan) that the underlying debt was being treated as unsecured but neither objected to confirmation of the plan nor filed a proof of its secured claim. Because we believe that appellants failed to take appropriate steps to avoid the creditor's liens, we hold that those liens survived confirmation. Accordingly, we affirm the judgment of the district court.

From 1969 through 1985, appellants Walter and Loraine Hanson executed four promissory notes secured by deeds of trust on their Newport News residence. In 1985, the Hansons defaulted on the first two notes, thereby placing their residence at risk of foreclosure. In order to forestall foreclosure, the Hansons entered into a financing agreement with a non-party, Charles Carrithers, who was apparently acting on behalf of appellee Cen-Pen Corporation. Pursuant to this agreement, the Hansons executed a note in favor of Carrithers for approximately $58,000 plus interest; the agreement provided that Carrithers succeeded to the rights and remedies under the second and third deeds of trust.

In 1985 and 1986, Mr. and Mrs. Hanson filed separate Chapter 7 bankruptcy petitions and received discharges. In November 1986, Mr. Hanson and the trustee of Mrs. Hanson's bankruptcy estate filed suit in federal district court against Carrithers and Cen-Pen, alleging that the 1985 financing agreement violated the Truth in Lending Act, 15 U.S.C. Sec. 1635, and regulations enacted pursuant thereto. In April 1987, the parties entered a settlement agreement resolving their disputes. According to this agreement, the Hansons were to refinance their outstanding indebtedness to Carrithers and Cen-Pen within 90 days. The settlement agreement included a release provision, which stated in pertinent part:

Except as [to] the obligations created hereunder, or provided herein ... Cen-Pen, and Carrithers ... and the Trustee and the Hansons ... do hereby mutually release and forever discharge ... any claims Cen-Pen [or] Carrithers ... may have against the Hansons or the Trustee in connection with the second Deed of Trust, third Deed of Trust, or the loans.

Cen-Pen, however, believed the Hansons never fulfilled their part of the agreement because they neither obtained alternative financing nor executed any documents to refinance the $58,000 debt through Cen-Pen or Carrithers. Cen-Pen subsequently brought suit in the Circuit Court for the City of Newport News seeking entry of an order requiring the Hansons to execute a note and deed of trust or, alternatively, a determination that Cen-Pen retained valid liens against the Hanson residence.

In September 1992, the Hansons filed a Chapter 13 bankruptcy petition; the state court action was accordingly stayed. The Hansons served a Chapter 13 plan upon their creditors in October. In reliance on the release contained in the settlement agreement, the plan treated Cen-Pen as an unsecured creditor, entitling it to approximately 25 percent of its claim against the Hansons. The plan required creditors to submit proofs of claim and objections to the plan within specified time periods; it further provided that the plan would be automatically confirmed if no such objections were received. Lastly, p B-10(A) provided that "[a]ll claims to be allowed must be filed; to the extent that the holder of a secured claim does not file a proof of claim, the lien of such creditor shall be voided upon the entry of the Order of Discharge...." Cen-Pen did not file an objection to the plan, which was accordingly confirmed.1 All creditors submitting allowable claims were paid pursuant to the plan, and the Hansons received their discharge in December 1993.

On February 2, 1994, Cen-Pen filed a complaint in the bankruptcy court to determine the validity of its liens on the Hanson residence. At a June hearing, Cen-Pen maintained that the release provision in the April 1987 settlement agreement did not destroy its rights under the deeds of trust. The Hansons responded, first, that the settlement agreement plainly released them from any obligations under the deeds of trust, and second, that confirmation of the plan without objection from Cen-Pen invalidated the liens pursuant to Sec. 1327(b) and (c) of the Bankruptcy Code.

The Bankruptcy Court declined to address the effect of the settlement agreement on Cen-Pen's security. It did, however, conclude that even assuming Cen-Pen possessed valid liens as of the date of the Hansons' petition, confirmation of the plan vested the residence in the Hansons free and clear of the liens.

The district court disagreed. It held that confirmation of the plan simply vested in the debtors the same interest in the residence that they had before filing a petition for bankruptcy relief--that is, an interest subject to Cen-Pen's liens. The Hansons appeal.2

On appeal, the Hansons insist that, under the terms of 11 U.S.C. Sec. 1327, confirmation of their Chapter 13 plan voided the liens held by Cen-Pen. Section 1327, entitled "Effect of Confirmation," provides:

(a) The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.

(b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.

(c) Except as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.

The Hansons note that Cen-Pen received a copy of the plan, which treated it as an unsecured creditor, but failed to object prior to confirmation. Nor did Cen-Pen file a proof of claim, despite notice in p B-10(A) of the plan that such failure would result in avoidance of its liens. Confirmation of the plan, appellants contend, is res judicata by virtue of Sec. 1327 as to Cen-Pen's present claim that it continues to hold valid liens against the residence.

We disagree. Although at first blush Sec. 1327 appears to support appellants' argument, we are persuaded that other provisions of the Bankruptcy Code and Rules undercut it. To begin with, appellants' argument ignores the general rule that liens pass through bankruptcy unaffected. See, e.g., Dewsnup v. Timm, 502 U.S. 410, 418, 112 S. Ct. 773, 778, 116 L. Ed. 2d 903 (1992). A bankruptcy discharge extinguishes only in personam claims against the debtor(s), but generally has no effect on an in rem claim against the debtor's property. See Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S. Ct. 2150, 2154, 115 L. Ed. 2d 66 (1991). For a debtor to extinguish or modify a lien during the bankruptcy process, some affirmative step must be taken toward that end. See, e.g., Lee Servicing Co. v. Wolf (In re Wolf), 162 B.R. 98, 107 n. 14 (Bankr.D.N.J.1993); In re Glow, 111 B.R. 209, 221 (Bankr.N.D.Ind.1990). Unless the debtor takes appropriate affirmative action to avoid a security interest in property of the estate, that property will remain subject to the security interest following confirmation. In re Honaker, 4 B.R. 415, 417 (Bankr.E.D.Mich.1980). The simple expedient of passing their residence through the bankruptcy estate could not vest in the Hansons a greater interest in the residence than they enjoyed prior to filing their Chapter 13 petition. Id.

Here the Hansons did not take a sufficient "affirmative step" to avoid Cen-Pen's liens. Bankruptcy Rule 7001(2) expressly requires initiation of an adversary proceeding "to determine the validity, priority, or extent of a lien or other interest in property," with one exception not applicable here. The procedural requirements of such an action, which include, inter alia, the filing of a complaint and service of a summons, are set out in the Bankruptcy Rules. Bankruptcy Rule 7004, for instance, governs the procedures for service of process in adversary proceedings. See In re Linkous, 990 F.2d 160, 162 (4th Cir.1993) (adequate notice to affected secured creditor is prerequisite to according preclusive effect to confirmation order under Sec. 1327).

The Hansons' reliance on Sec. 1327 fails to appreciate the import of these Rules. Because confirmation of a Chapter 13 plan is res judicata only as to issues that can be raised in the less formal procedure for contested matters, see In re Beard, 112 B.R. 951, 955-56 (Bankr.N.D.Ind.1990) (contrasting adversary proceedings with contested matters), confirmation generally cannot have preclusive effect as to the validity of a lien, which must be resolved in an adversary proceeding. In other words, "[i]f 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.... [A] secured creditor is not bound by the terms of the confirmed plan with respect to limitations upon the scope or validity of the lien securing its claim." Id. at 956.

Confirmation of the Hansons' Chapter 13 plan thus did not establish that Cen-Pen holds no valid liens as against the Hansons' residence. This is true despite the fact that Cen-Pen neither filed a proof of claim nor objected to confirmation of the plan. Id. Initiation of an adversary proceeding is a prerequisite to challenging "the validity or existence" of a lien against property of the estate in a Chapter 13 proceeding, id., and no such proceeding was initiated here. Where such a 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 955 (citing In re Commercial Western Finance Corp., 761 F.2d 1329, 1336-38 (9th Cir.1985)).

The Hansons point to p B-10(A) as support for their contention that confirmation of their Chapter 13 plan voided Cen-Pen's liens. Paragraph B-10(A), which appeared on page 4 of appellants' proposed plan, provided as follows:

All claims to be allowed must be filed; to the extent that the holder of a secured claim does not file a proof of claim, the lien of such creditor shall be voided upon the entry of the Order of Discharge in this case.

We do not think, however, that the Hansons' inclusion of this boilerplate language in the plan avoided the liens, despite the fact that Cen-Pen did not file a proof of claim.

Several sections of the Code support this view. Section 506(d)3 voids a lien that secures a claim against the debtor which is not an allowed secured claim, unless the claim is not treated as an allowed secured claim simply because the creditor has elected not to file a proof of claim. 11 U.S.C. Sec. 506(d)(2). Subsection (2) was intended "to make clear that the failure of the secured creditor to file a proof of claim is not a basis for avoiding the lien of the secured creditor." In re Tarnow, 749 F.2d 464, 467 (7th Cir.1984) (quoting S.Rep. No. 65, 98th Cong., 1st Sess. 79 (1983)); see also In re Levine, 45 B.R. 333, 337 (N.D.Ill.1984).

We also note that 11 U.S.C. Sec. 501 provides for filing proofs of claim but it clearly does not make such a filing mandatory. In re Thomas, 883 F.2d 991, 996 (11th Cir.1989); cert. denied sub nom. Thomas v. Southtrust Bank of Alabama, 497 U.S. 1007, 110 S. Ct. 3245, 111 L. Ed. 2d 756 (1990). The language in p B-10(A) of the Hansons' plan attempts to circumvent the clear import of this section. Because an unchallenged lien survives the bankruptcy discharge of a debtor, however, a creditor with a loan secured by a lien on the debtor's property is free to ignore the bankruptcy proceeding and look solely to the lien for satisfaction of the debt. See Tarnow, 749 F.2d at 465 (citing cases); Washington v. Nissan Motor Acceptance Corp. (In re Washington), 158 B.R. 722, 723-24 (Bankr.S.D.Ohio 1993) (language in plan cancelling liens of secured creditors who do not file proofs of claim cannot override Sec. 506(d)(2)). In sum, the simple fact that Cen-Pen did not file a proof of claim cannot, without more, result in avoidance of its liens.

Moreover, the fact that Cen-Pen was listed as an unsecured creditor in the bankruptcy schedules does not suffice to avoid its liens. In re Simmons, 765 F.2d 547, 554-56 (5th Cir.1985). "Even where confirmed without objection, a plan will not eliminate a lien simply by failing or refusing to acknowledge it or by calling the creditor unsecured." Beard, 112 B.R. at 954. The Hansons should not be entitled to eliminate otherwise valid liens on their residence simply by characterizing Cen-Pen's claims in the plan as unsecured. Simmons, 765 F.2d at 556. Nor does the combination of Cen-Pen's treatment as an unsecured creditor plus its failure to file a proof of claim avoid its liens. See, e.g., In re Willey, 24 B.R. 369, 371 (Bankr.E.D.Mich.1982).

The Hansons insist, however, that p B-10, together with the listing of Cen-Pen as an unsecured creditor, "provided for" Cen-Pen's claim sufficiently to satisfy Sec. 1327(c) and vest title to the residence in the Hansons free and clear of Cen-Pen's liens. We believe, to the contrary, that Sec. 1327(c) does not permit the result appellants seek. As a general matter, a plan "provides for" a claim or interest when it acknowledges the claim or interest and makes explicit provision for its treatment. In re Work, 58 B.R. 868, 871 (Bankr.D.Or.1986). If a Chapter 13 plan does not address a creditor's lien (for instance, by expressly providing for payment of an allowed secured claim and cancellation of the lien), that lien passes through the bankruptcy process intact, absent the initiation of an adversary proceeding, as discussed above. Wolf, 162 B.R. at 106, 108 n. 16. Several courts have held that a plan "provides for" the lien held by a secured creditor only when it provides for payment to the creditor in an amount equal to its security. In re Bradshaw, 65 B.R. 556, 559 (Bankr.M.D.N.C.1986); In re Hines, 20 B.R. 44, 49 (Bankr.S.D.Ohio 1982).

Bradshaw expressly rejected the argument, similar to the one the Hansons press here, that inclusion of a creditor in a plan "on the condition that the creditor timely file[ ] a proof of claim even if the creditor never file[s] and never receive[s] any payment on its claim" amounts to "provision for" the creditor. Bradshaw, 65 B.R. at 559. We think that decision soundly reasoned. The Hansons' plan nowhere mentioned or otherwise acknowledged Cen-Pen's liens, and certainly did not "provide for" treatment of the liens or full payment of the underlying claim. Because listing Cen-Pen as an unsecured creditor would have entitled it only to approximately 25 percent of its claim, the plan did not "provide for" Cen-Pen's claim and its liens survived the Chapter 13 confirmation.4III.

For the foregoing reasons, the judgment of the district court is affirmed.

AFFIRMED.

I respectfully dissent. In my view, the bankruptcy court correctly decided that under the facts in this case the confirmation of the Hansons' Chapter 13 plan vested the residence in the Hansons free and clear of encumbrances.

The debtor believed that Cen-Pen was an unsecured creditor; Cen-Pen believed to the contrary. In their Chapter 13 plan, the Hansons listed Cen-Pen as an unsecured creditor and stated that all unsecured creditors would receive twenty-six percent of their claim. They also listed all of the secured creditors and the amounts of their claims. Cen-Pen was not on this list. The plan they submitted stated in plain, simple language that "[a]ll claims to be allowed must be filed; to the extent that the holder of a secured claim does not file a proof of claim, the lien of such creditor shall be voided upon the entry of the Order of Discharge." Chapter 13 Plan, paragraph B-10(A) (emphasis added). This language placed the validity of Cen-Pen's lien in question. Cen-Pen received a copy of the plan. For whatever reason, probably simple negligence, Cen-Pen neither filed a proof of claim as a secured creditor nor filed an objection to being considered as an unsecured creditor. If it had done either, the bankruptcy court would have determined whether or not the claim was a secured one, and its decision would have been determinative of the issue. At oral argument, Cen-Pen's attorney conceded that her predecessor had been remiss in failing to come forward at the time the plan was circulated.

The bankruptcy statute is clear. It reads as follows:

(a) The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.

(b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.

(c) Except as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.

11 U.S.C. Sec. 1327. Cen-Pen had its chance to object to the plan and failed to do so. It must now live with the consequences of that failure. The debtors did all they were required to do in this case, and no debtor in similar circumstances should be expected to do more to comply with the straightforward requirements of section 1327.

If this were a case where a secured creditor had neglected to file a proof of claim and there was no language in the plan that clearly set forth the consequences of such a failure, we would have a different case. The Hansons' plan made clear, however, that the consequences to Cen-Pen of failing to file a claim as a secured creditor would result in it being treated as an unsecured creditor. Cen-Pen should live with its decision to ignore the unmistakable consequences of inaction.

In my view neither In re Simmons, 765 F.2d 547 (5th Cir.1985), nor In re Tarnow, 749 F.2d 464 (7th Cir.1984), dictate the result reached here. In Simmons, the creditor filed a claim as a secured creditor. Thus it was the duty of the bankruptcy court to determine whether the creditor had a lien on Simmons' homestead. Here Cen-Pen neither filed a claim as a secured creditor nor filed an exception to the plan that designated it as an unsecured creditor and specifically provided that it would be considered as an unsecured creditor absent an objection. In Tarnow a commodity corporation filed a late claim against the bankrupt estate claiming that it was a secured creditor. In Tarnow there was no Chapter 13 plan putting the corporation on notice that its lien would be extinguished unless it filed a claim or a challenge. The question in Tarnow was whether a lien is lost if there is a late filing, and the court said no. Here there was no filing, and the plan made it clear that the debtors did not consider Cen-Pen to be a secured creditor.

The essence of my disagreement with the majority opinion is whether the language in the Hansons' Chapter 13 plan was adequately specific to "provide for," and therefore void at confirmation, Cen-Pen's lien. I cannot agree that the unambiguous recitations in the plan did not constitute the affirmative step needed to void the lien. Cen-Pen was placed on notice of the consequences of confirmation, and the Hansons acted in good faith in listing Cen-Pen as an unsecured creditor. Nevertheless, the majority appears to hold that the Hansons should have initiated an adversary proceeding to adjudicate a matter that they, in good faith, believed to be uncontested. I agree with the reasoning in In re Wolf, 162 B.R. 98 (Bkrtcy.D.N.J.1993), which holds that "[a]n adversary proceeding is not required to modify a secured creditor's rights in Chapter 13." Id. at 106.

I recognize that the Hansons still have an opportunity to contest the validity of Cen-Pen's lien in state court and that the Hansons may be able to establish in state court that Cen-Pen does not have a security interest in their home, but I believe that requiring them to now litigate the lien's validity in state court after complying in good faith with the express provisions of the Bankruptcy Code undercuts Congress's determinations, first, that a bankruptcy proceeding should be the forum for the comprehensive disposition of claims against the bankrupt estate and, second, that parties opting to sit on their rights will lose their ability to later enforce such claims.

The majority opinion lays down a bright-line rule. If it were within our province to lay down the rule the majority espouses for future cases, I would certainly join in the opinion because I believe that the rule is one that both debtors and creditors can live with; but it is for Congress, not us, to adopt the position the majority embraces. Thus, I respectfully dissent.