Drive Financial Services, L.P. v. Jordan

• Decision Date: 12 March 2008
• Docket Number: No. 07-40265.,No. 07-40266.,07-40265.,07-40266.
• Citation: 521 F.3d 343
• Parties: DRIVE FINANCIAL SERVICES, L.P., Appellant, v. Bobby J. JORDAN and Freda L. Jordan, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

521 F.3d 343

DRIVE FINANCIAL SERVICES, L.P., Appellant, v. Bobby J. JORDAN and Freda L. Jordan, Appellees.

No. 07-40265.

No. 07-40266.

United States Court of Appeals, Fifth Circuit.

March 12, 2008.

Vincent P. Slusher, James Seth Moore (argued), Beirne, Maynard & Parsons, Dallas, TX, for Appellant.

William Henry Lively, Jr. (argued), Tyler, TX, for Appellees.

Before GARWOOD, GARZA and BENAVIDES, Circuit Judges.

GARWOOD, Circuit Judge:

Appellant Drive Financial Services, L.P. ("Drive Financial") directly appeals the bankruptcy court's October 18 and October 23, 2006 orders amending and confirming the Chapter 13 bankruptcy plan submitted by debtors-appellees Bobby and Freda Jordan (the "Jordans"), which provided for interest on Drive Financial's secured claim on the Jordans' pickup truck at a "prime-plus" interest rate. For the following reasons, we affirm.

FACTS AND PROCEEDINGS BELOW

The facts of this case are not in dispute. On July 20, 2003, the Jordans purchased a 2003 Chevrolet Silverado pickup truck (the "Truck"). In order to finance the Truck, the Jordans entered into a Texas Vehicle Retail Installment Contract with Drive Financial. The contract provided Drive Financial with a properly perfected, first-priority, purchase-money security interest in the Truck. The contract provided for an interest rate of 17.95%.

On or about December 22, 2005, the Jordans filed for protection under Chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court, Eastern District of Texas.¹ When the Jordans drafted their Chapter 13 plan, they elected to retain possession of the Truck and to pay Drive Financial's secured claim in installments with an interest rate of six percent. On January 10, 2006, Drive Financial filed an objection to the Jordans' Chapter 13 plan on the grounds that the proper interest rate to apply to its secured claim was the contract rate of 17.95%. The bankruptcy court held a hearing on Drive Financial's objection on March 8, 2006. At this hearing the bankruptcy court ordered additional briefing on the applicability of the decision in Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004), to the determination of the interest rate the Jordans were to pay on Drive Financial's secured claim.

In its October 18, 2006 "Order Regarding Confirmation of Debtor's Chapter 13 Plan," the bankruptcy court held that the Supreme Court decision in Till was binding precedent, so it calculated the Jordans' interest rate using the "prime-plus" approach adopted by the plurality of the Court in Till.² According to the parties' stipulation,³ the bankruptcy court modified the interest rate payable on Drive Financial's claim in the Jordans' Chapter 13 plan to 7.5%. On October 23, 2006, the bankruptcy court confirmed the Jordans' Chapter 13 plan as modified by its October 18 order.

On December 15, 2006, Drive Financial timely filed a "Petition for Certification of Circumstances for Direct Appeal to the Court of Appeals" with respect to each bankruptcy court order in the United States District Court for the Eastern District of Texas. The district court entered orders granting the petitions on January 18, 2007. Drive Financial then petitioned this court to hear this direct appeal under 28 U.S.C. § 158(d)(2). Those petitions were granted by this court on March 20, 2007.⁴

JURISDICTION

Appellants have directly appealed to this court the October 18 and October 23 orders of the bankruptcy court pursuant to 28 U.S.C. § 158(d)(2). This statute was enacted as part of BAPCPA in order to provide for direct review of bankruptcy court judgments, orders, or decrees by the applicable court of appeals in cases where the bankruptcy court or the district court certify that there is no controlling Supreme Court or circuit court decision, the case involves a matter of public importance, there are conflicting precedents, or an immediate appeal may materially advance the progress of the bankruptcy proceeding. 28 U.S.C. § 158(d)(2). If this certification is made, the applicable court of appeals has jurisdiction if it authorizes the direct appeal of the bankruptcy court's judgment, order, or decree. Id.

In this case, Judge Schneider of the United States District Court for the Eastern District of Texas certified that this case met the criteria for direct appeal set forth in section 158(d)(2) on January 18, 2007. A motions panel of this court granted Drive Financial's petitions for direct appeal on March 20, 2007. Since all of the requirements of section 158(d)(2) are met in this case, this court has jurisdiction over this direct appeal from the bankruptcy court.

DISCUSSION

The central question in this case is what is the proper rate of interest to be paid on a secured claim that is paid in installments pursuant to a Chapter 13 plan. The Bankruptcy Code states that a Chapter 13 plan should only be confirmed if, for each allowed secured claim: 1) the holder of that claim accepts the plan; 2) the holder of the claim retains the lien securing the claim and the Chapter 13 plan provides that the value, as of the date of the plan, of property (generally cash) to be distributed under the plan to the holder of the claim is not less than the allowed amount of such claim;⁵ or 3) the debtor surrenders the property securing the claim. See 11 U.S.C. § 1325(a)(5). In this case, Drive Financial did not accept the plan and the Jordans are not surrendering the Truck, so in order for the plan to be confirmed, the Jordans' plan must provide for distribution to Drive Financial of property that has no less value than the amount of Drive Financial's secured claim.⁶ The Bankruptcy Code's reference to paying value is generally understood to incorporate the principle of the time value of money, so payments made pursuant to a Chapter 13 plan must incorporate an interest rate to account for the fact that a dollar paid today is worth more than a dollar paid tomorrow. Till, 124 S.Ct. at 1966 (Thomas, J., concurring in judgment). The Bankruptcy Code, however, provides little guidance as to how the interest rate should be set, so we look to past precedent to determine whether the bankruptcy court applied the correct interest rate to Drive Financial's secured claim.

I. Standard of Review

When directly reviewing an order of the bankruptcy court, we apply the same standard of review that would have been used by the district court. Findings of fact are reviewed for clear error, and conclusions of law are reviewed de novo. FED. R. BANKR.P. 8013.

II. Does BAPCPA's Hanging Paragraph Supercede Till?

The Supreme Court recently addressed what rate of interest needed to be paid to an objecting secured creditor whose claim was paid in installments under a Chapter 13 plan. See Till, 124 S.Ct. at 1962 (Stevens, J., plurality) (holding that the primeplus approach should be used to determine the proper interest rate). After Till, Congress enacted BAPCPA, which made significant changes to the Bankruptcy Code. So before examining Till, we must determine whether it has been superceded by any provisions of BAPCPA.

BAPCPA added an unnumbered paragraph following section 1325(a)(9). This paragraph is commonly referred to as the "hanging paragraph." The hanging paragraph provides that section 506 of the Bankruptcy Code, 11 U.S.C. § 506, shall not apply if:

"the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day [sic] preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor...."

11 U.S.C. § 1325(a). Section 506 permits a debtor to bifurcate a secured creditor's claim into a secured and an unsecured portion if the value of the collateral is less than the amount of the claim. The portion of the claim that is greater than the value of the collateral is unsecured and the portion equal to the value is secured. This bifurcation process is known as "stripping down" a secured creditor's lien, and it is commonly used by debtors in conjunction with the cram down option to retain depreciated collateral on significantly better terms.⁷ The hanging paragraph prevents this bifurcation for secured claims that meet its criteria, so the entire claim remains secured, regardless of the value of the collateral.⁸

Drive Financial argues that since the hanging paragraph makes section 506 inapplicable to its claim, the Supreme Court's opinion in Till is distinguishable because it dealt with a lien-stripped claim⁹ and it was decided before the hanging paragraph was added to the Bankruptcy Code.¹⁰ If Till is distinguishable, Drive Financial contends that this court should follow its prior precedent and mandate that the Jordans' Chapter 13 plan use the contract rate to pay off its claim. Green Tree Fin. Servicing Corp. v. Smithwick, 121 F.3d 211, 214-15 (5th Cir.1997) (adopting the "presumptive contract rate approach"¹¹ to determine the interest rate to be paid on a secured Chapter 13 claim).

This argument is unpersuasive because Till did not rely upon the fact that the creditor's claim had been bifurcated using section 506. The purpose of bifurcation is to determine how much of a creditor's claim is secured; then section 1325(a)(5)(B) determines what interest rate should be applied to that secured claim. In Till, the Supreme Court decided what interest rate was required to be paid on an objecting creditor's secured claim to ensure that the creditor receives value for its crammed down claim as required by section 1325(a)(5)(B). That is the same question presented in this case. The only difference is that all of Drive Financial's claim is secured, as opposed to only a portion of the creditor's claim being secured in Till, because the hanging paragraph prohibited Drive Financial's claim from being bifurcated. Drive Financial has provided no reason for...