Citifinancial Auto v. Hernandez-Simpson

• Decision Date: 17 May 2007
• Docket Number: No. 06-2527-JAR.,No. 06-2528-JAR.,No. 07-2085-JAR.,No. 06-2531-JAR.,No. 06-2530-JAR.,06-2527-JAR.,06-2528-JAR.,06-2530-JAR.,06-2531-JAR.,07-2085-JAR.
• Citation: 369 B.R. 36
• Parties: CITIFINANCIAL AUTO, Appellant, v. Lisa Lynne HERNANDEZ-SIMPSON, Appellee. Ford Motor Credit Company, Appellant, v. Brett Burgess & Janet Burgess, Appellees. Citifinancial Auto, Appellant, v. Linda Wallace, Appellee. Ford Motor Credit Company, Appellant, v. Christine Parker, Appellee. Ford Motor Credit Company, Appellant, v. Michael D. Scheerer and Guadalupe Scheerer, Appellees.
• Court: U.S. District Court — District of Kansas

Page 36

369 B.R. 36

CITIFINANCIAL AUTO, Appellant, v. Lisa Lynne HERNANDEZ-SIMPSON, Appellee.

Ford Motor Credit Company, Appellant, v. Brett Burgess & Janet Burgess, Appellees.

Citifinancial Auto, Appellant, v. Linda Wallace, Appellee.

Ford Motor Credit Company, Appellant, v. Christine Parker, Appellee.

Ford Motor Credit Company, Appellant, v. Michael D. Scheerer and Guadalupe Scheerer, Appellees.

No. 06-2527-JAR.

No. 06-2528-JAR.

No. 06-2530-JAR.

No. 06-2531-JAR.

No. 07-2085-JAR.

United States District Court, D. Kansas.

May 17, 2007.

Charles R. Hay, Goodell, Stratton, Edmonds & Palmer, Topeka, KS, for Appellant.

David A. Reed, Law Office of David A. Reed, Kansas City, KS, for Appellee.

MEMORANDUM ORDER AND OPINION

ROBINSON, District Judge.

This appeal involves five Chapter 13 bankruptcy cases in which the debtors' plans were confirmed over objection of a creditor, Citifinancial Auto f/k/a TranSouth Financial ("Citifinancial") or Ford Motor Credit Company ("Ford Motor Credit"), that holds a purchase money lien against debtors' vehicles. In each case, the vehicle was purchased within 910 days of the date the bankruptcy was filed. The bankruptcy court ruled that neither Citifinancial nor Ford Motor Credit was entitled to interest on its claim. Citifinancial and Ford Motor Credit appealed from the orders of confirmation, and the cases were consolidated for appeal (Doc. 5).¹ For the reasons explained in detail below, the Orders of the bankruptcy court are reversed, and the cases are remanded for further proceedings consistent with this opinion.

I. Background

A. Citifinancial v. Lisa Lynne Hernandez-Simpson

On October 24, 2004, debtor Lisa Lynne Hernandez-Simpson obtained financing for a 2000 Dodge Durango from Citifinancial, which properly perfected its purchase money security interest ("PMSI") in the vehicle. Hernandez-Simpson concedes that the vehicle was acquired for her personal use within 910 days of the filing of her petition Chapter 13 bankruptcy. At the time of filing, $16,789.68 remained owing on the contract, as reflected in Citifiancial's timely filed proof of claim. Hernandez-Simpson filed an amended Chapter 13 plan in which she proposed to retain the Durango and pay Citifinancial's secured claim in full, with no interest.

Citifinancial objected to the plan, asserting that its claim was subject to treatment under the "hanging paragraph" at the end of § 1325(a) and the present value claims of § 1325(a)(5)(B)(ii), and thus Hernandez-Simpson must pay interest on the amount pursuant to the United States Supreme Court's ruling in Till v. SCS Credit Corp.² (the "Till rate"). The bankruptcy court held a hearing on November 7, 2006, at which time the plan was confirmed over Citifinancial's objection, holding that Till did not apply to Citifinancial's claim and no interest was required.

B. Citifinancial v. Linda Wallace

On October 16, 2004, debtor Linda Wallace obtained financing for a 2000 Buick LeSabre from Citifinancial, which properly perfected its PMSI in the Buick. Wallace concedes that the vehicle was acquired for her personal use within 910 days of filing her Chapter 13 petition. At the time of filing, $14,472.92 remained owing on the contract, as reflected in Citifinancial's timely filed proof of claim. Wallace's Chapter 13 plan proposed to pay Citifinancial's claim in full, with no interest.

Citifinancial objected to the plan, asserting that its claim was subject to treatment under the "hanging paragraph" at the end of § 1325(a) and the present value claims of § 1325(a)(5)(B)(ii), and thus Wallace must pay interest on the amount at the Till rate. The bankruptcy court held a hearing on November 7, 2006, at which time the plan was confirmed over Citifinancial's objection, holding that Till did not apply to Citifinancial's claim and no interest was required.

C. Ford Motor Credit v. Christine Parker

On August 25, 2004, debtor Christine Parker purchased a 2004 Ford Explorer from Shawnee Mission Ford, obtaining financing from Ford Motor Credit, which properly perfected its PMSI in the Explorer. Parker concedes that the vehicle was acquired for her personal use within 910 days of filing her Chapter 13 petition. At the time of filing, $21,523.42 remained owing on the contract, as reflected in Ford Motor Credit's timely filed proof of claim. Parker's Chapter 13 plan proposed to pay Ford Motor Credit's claim in full, with no interest.

Ford Motor Credit objected to the plan, asserting that its claim was subject to treatment under the "hanging paragraph" at the end of § 1325(a) and the present value claims of § 1325(a)(5)(B)(ii), and thus Parker must pay interest on the amount at the Till rate. The bankruptcy court held a hearing on November 7, 2006, at which time the plan was confirmed over Ford Motor Credit's objection, holding that Till did not apply to Ford Motor Credit's claim and no interest was required. 4

D. Ford Motor Credit v. Michael and Guadalupe Scheerer

On August 9, 2004, debtors Michael and Guadalupe Scheerer purchased a 2004 Ford F-150 from Extreme Ford in Overland Park, Kansas, obtaining financing from Ford Motor Credit, which properly perfected its PMSI in the F-150. The Scheerers concede that the vehicle was acquired for their personal use within 910 days of filing their Chapter 13 petition. At the time of filing, $23,031.22 remained owing on the contract, as reflected in Ford Motor Credit's timely filed proof of claim. The Scheerers' Chapter 13 plan proposed to pay Ford Motor Credit's claim in full, with no interest.

Ford Motor Credit objected to the plan, asserting that its claim was subject to treatment under the "hanging paragraph" at the end of § 1325(a) and the present value claims of § 1325(a)(5)(B)(ii), and thus the Scheerers must pay interest on the amount at the Till rate. The bankruptcy court held a hearing on December 5, 2006, at which time the bankruptcy court overruled Ford Motor Credit's objections, holding that Till did not apply to Ford Motor Credit's claim and no interest was required. The plan was later confirmed at a January 16, 2007 hearing.

E. Ford Motor Credit v. Brett Burgess and Janet Burgess

On May 8, 2004, debtors Brett and Janice Burgess purchased a 2004 Ford Taurus from Shawnee Mission Ford, obtaining financing from Ford Motor Credit for the purchase. Ford Motor Credit properly perfected its PMSI in the Taurus. To obtain financing for the Taurus, the Burgesses traded in an older vehicle on which $7,895.85 was still owing. This trade-in balance was added to the contract along with a service contract and "gap insurance" that insured the vehicle from the time of purchase until the Burgesses were able to purchase full auto insurance. The total amount financed was $24,500.98 to be paid at 8.99% interest over 60 months, at $510.38 per month.

The Burgesses concede that the Taurus was acquired for their personal use within 910 days of the filing of their Chapter 13 bankruptcy petition. At the time of filing, $17,178.63 remained owing on the contract, as reflected in Ford Motor Credit's timely filed proof of claim. The Burgess' Chapter 13 plan proposed to bifurcate the claim pursuant to 11 U.S.C. § 506 and pay Ford Motor Credit $9,925.00 as a secured claim, reflecting the contract balance with the trade-in value deducted and paid as an unsecured claim. The trade-in value would then be paid as an unsecured claim, which would likely mean that Ford Motor Credit would not receive any payment for the trade-in.

Ford Motor Credit objected to bifurcation of its claim under the plan, asserting that its entire claim was a PMSI subject to treatment under the hanging paragraph at the end of § 1325(a) and the present value requirements of § 1325(a)(5)(B)(ii), and thus debtors must pay interest on the entire claim at the Till rate. A hearing was held on November 7, 2006, at which time the bankruptcy court overruled Ford Motor Credit's objections, but found that the plan as originally proposed could not be confirmed. The bankruptcy court made an oral ruling that the portion of Ford Motor Credit's claim that represented the amount of debtors' trade-in was not part of the PMSI and, as such, was an unsecured claim. The bankruptcy court further held that although the claim was not subject to § 506 bifurcation and valuation, Till did not apply to Ford Motor Credit's claim, and no interest was required on the PMSI portion, which must be paid in full, with accrued interest to the petition date, but without post-petition interest.

The bankruptcy court requested counsel for the Burgesses to prepare a supplemental order of confirmation reflecting its rulings and invited Ford Motor Credit to file an amended proof of claim. Instead, a standard confirmation order was prepared by the Chapter 13 Trustee and filed on November 14, 2006, and a Notice of Appeal was filed before the Supplemental Order of Confirmation was filed.

II. Appellate Jurisdiction

The parties have opted to have the appeal heard by this Court.³ These appeals were timely filed by Citifinancial and Ford Motor Credit, and the bankruptcy court's Orders are "final" within the meaning of 28 U.S.C. § 158(a)(1).⁴

III. Standard of Review

On appeal from the bankruptcy court, the district court sits as an appellate court.⁵ The standards generally governing review of the bankruptcy court's decision are well-settled: findings of fact are not to be set aside unless clearly erroneous; conclusions of law are reviewed de novo.⁶ The bankruptcy court's interpretation of a statute is a question of law.⁷

IV. Analysis

At issue in these five cases is whether a bankruptcy court may confirm, over a secured creditor's objections, a Chapter 13 plan that provides that the debtor may retain a vehicle secured by a PMSI purchased within 910 days of the bankruptcy filing without paying interest on the claim. Ford Motor Credit raises an additional issue with respect to the nature and extent of its PMSI in the Burgess case. The Court...