In re Adkins

• Decision Date: 04 October 2005
• Docket Number: No. 03-1087.,03-1087.
• Citation: 425 F.3d 296
• Parties: In re: Matthew ADKINS, Debtor. David Wm. Ruskin, Trustee, Plaintiff-Appellant, v. DaimlerChrysler Services North America, L.L.C., (Creditor), Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

425 F.3d 296

In re: Matthew ADKINS, Debtor.

David Wm. Ruskin, Trustee, Plaintiff-Appellant, v. DaimlerChrysler Services North America, L.L.C., (Creditor), Defendant-Appellee.

No. 03-1087.

United States Court of Appeals, Sixth Circuit.

Argued: April 21, 2004.

Decided and Filed: October 4, 2005.

ARGUED: Gordon S. Gold, Seyburn, Kahn, Ginn, Bess & Serlin, Southfield, Michigan, for Appellant. Charles L. McKelvie, Troy, Michigan, for Appellee. ON BRIEF: Gordon S. Gold, Tova Shaban, Seyburn, Kahn, Ginn, Bess & Serlin, Southfield, Michigan, for Appellant. Elizabeth M. Abood, Daniela Dimovski Shermeta, Chimko & Kilpatrick, Rochester Hills, Michigan, for Appellee.

Before: BATCHELDER and MOORE, Circuit Judges; CALDWELL, District Judge.^*

CALDWELL, D.J., delivered the opinion of the court, in which BATCHELDER, J., joined.

MOORE, J. (pp. 306-09), delivered a separate dissenting opinion.

OPINION

KAREN K. CALDWELL, District Judge.

Plaintiff David Ruskin, Standing Chapter 13 Trustee for the Eastern District of Michigan ("Trustee"), appeals the district court's decision in favor of DaimlerChrysler Services North America, L.L.C. ("DaimlerChrysler"), in the Trustee's appeal from a decision of the bankruptcy court. The Chapter 13 debtor, Matthew Adkins, had defaulted on his car payments, and DaimlerChrysler, holder of a claim secured by Adkins's car, moved to repossess the vehicle. The Trustee argued that any debt remaining after the repossession and sale of the car at auction should be reclassified as an unsecured claim; DaimlerChrysler argued, and the bankruptcy court and the district court agreed, that this court's decision in Chrysler Financial Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir.2000), foreclosed such a reclassification. For the reasons explained below, we AFFIRM the district court's decision.

I. FACTUAL BACKGROUND

On August 17, 2001, Adkins ("Debtor") filed a Chapter 13 petition and proposed plan. On September 13, 2001, DaimlerChrysler filed a proof of claim secured by the Debtor's 1997 Plymouth Neon ("Neon") for $5,963.81 at 18.75% interest, valuing the Neon at $5,842.50. The Debtor's proposed plan valued the Neon at $5,525.00, and proposed an interest rate of 12%. DaimlerChrysler filed objections to the proposed plan based on the value and interest rate proposed by the debtor.

Following a confirmation hearing and resolution of both the Trustee's and DaimlerChrysler's objections, the bankruptcy court confirmed a plan ("the Plan") on November 8, 2001. The confirmed Plan set the value of the Neon at $5,842.00; DaimlerChrysler's secured claim was subject to "cram down" to that amount under 11 U.S.C. § 1325(a)(5)(B)(ii), with the remaining deficiency balance transformed into an unsecured claim for $121.81. The Plan provided that the $5,842.00 secured claim should be paid by 59 monthly payments of $136.00 and interest at 14% per annum. The Plan provided that these payments on the secured claim would be paid by the Trustee from payments the Debtor made to the Trustee. The Plan provided that general unsecured creditors receive no less than 100% on all filed claims.

Following confirmation, the Debtor failed to remit the payments to the Trustee as required by the Plan.¹ DaimlerChrysler received no payments on its claims after December 6, 2001. After more than sixty (60) days passed without any payments from the Debtor, DaimlerChrysler moved for relief from the automatic stay to repossess and sell the Neon. As part of that motion, DaimlerChrysler requested that any deficiency balance, or the difference between the amount still owed to it on the previously allowed secured claim of $5,842.00 and the proceeds from selling the Neon at auction, should be paid to it as a secured claim as set forth in the original confirmed Plan after filing an amended Proof of Claim. The Trustee objected to the latter request, and a hearing was held.² The bankruptcy court granted the motion for lifting the automatic stay and held that this court's decision in Chrysler Financial Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir.2000), required that any deficiency resulting from the sale of the repossessed automobile be paid as a secured claim.³ In re Adkins, 281 B.R. 905, 910 (Bankr.E.D.Mich.2002).

The Trustee then appealed to the district court, which initially refused to hear the appeal because the foreclosure had not yet taken place.⁴ Once "actual repossession, sale and assertion of a secured claim for the deficiency by Daimler Chrysler [sic]" took place,⁵ the appeal was reinstated nunc pro tunc. The district court had subject matter jurisdiction under 28 U.S.C. § 158.

On December 18, 2002, the district court affirmed the bankruptcy court's decision. In re Adkins, 307 B.R. 880, 888 (E.D.Mich.2002). A timely notice of appeal was filed January 15, 2003. This Court has appellate jurisdiction under 28 U.S.C. § 1291.

II. LAW AND ANALYSIS

A. Standard of Review

This Court reviews a district court's statutory interpretation and conclusions of law de novo. It reviews a bankruptcy court's factual findings for clear error. In re American HomePatient, Inc., 414 F.3d 614, 617 (6th Cir.2005).

B. In re Nolan

The sole legal issue in this case is whether the bankruptcy court and district court correctly extended the principles this Court espoused in the case Chrysler Financial Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir.2000), to the present situation in which a secured creditor repossesses a debtor's vehicle post-confirmation under court-ordered relief from the automatic stay.

In the Nolan decision, a Chapter 13 debtor moved under 11 U.S.C. § 1329 to surrender her car post-confirmation and reclassify any deficiency resulting from the sale of the surrendered car as an unsecured claim. 232 F.3d at 529-30. Section 1329 allows modification of a Chapter 13 bankruptcy plan after confirmation of the plan but before completion of payments, on the motion of the debtor, the trustee, or the holder of an unsecured claim, to "increase or reduce the amount of payments on claims of a particular class provided for by the plan," to "extend or reduce the time for such payments," or to "alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan." 11 U.S.C. § 1329(a).⁶ Prior to Nolan, lower federal courts were split on whether section 1329 allowed a debtor to modify a confirmed plan by surrendering collateral to a secured creditor (the value of which typically would have already been subjected to "cram down"), and then reclassifying any deficiency resulting from the sale of the collateral as an allowed unsecured claim to be paid back at the generally reduced rate for unsecured creditors set forth in the plan. See 232 F.3d at 531-32 (noting split). What the Nolan court termed "a sizable minority" of lower courts⁷ followed a rationale set forth in In re Jock, 95 B.R. 75 (Bankr.M.D.Tenn.1989), that allowed such a surrender and reclassification under section 1329.

In Nolan, however, this Court held that section 1329 did not allow reclassification as an unsecured claim of a deficiency resulting from the sale of a vehicle surrendered post-confirmation, finding five "fundamental deficiencies" in the reasoning of Jock and its progeny.

First, Nolan found that "section 1329(a) does not expressly allow a debtor to alter reduce, or reclassify a previously allowed claim," but rather only "affords the debtor a right to request an alteration of the amount or timing of specific payments." 232 F.3d at 532 (emphasis added). Jock and its progeny had interpreted section 1329(b)'s reference to section 1325(a),⁸ which allows for pre-confirmation surrender of collateral and classification of the deficiency as an unsecured claim, as allowing post-confirmation surrender and reclassification. Nolan, however, rejected this interpretation of section 1329(b). Nolan held that section 1329(b) does not apply unless the proposed modifications first comply with section 1329(a), and that section 1329(a) did not expressly allow reclassification of secured claims to unsecured claims. 232 F.3d at 535. In so holding, the Nolan court noted that while section 1325(a) allows surrender of collateral pre-confirmation, "[f]or section 1325(a)(5)(B)(ii) to provide any protection to the creditor when the debtor chooses to retain her collateral, the secured claim must not be subject to modification throughout the life of the plan." Id. at 533 n. 8.

Indeed, the second principle on which Nolan reversed the Jock line of cases was the finding that the proposed modification "would violate section 1325(a)(5)(B), which mandates that a secured claim is fixed in amount and status and must be paid in full once it has been allowed." 232 F.3d at 533. Nolan held that a post-confirmation surrender and subsequent reclassification is an attempt to bifurcate a claim that has already been classified as fully secured, and thus would negate the requirement in section 1325(a)(5)(B)(ii) that a plan is not to be confirmed unless the property to be distributed on account of a claim is not less than the allowed amount of the claim. Id.

Third, Nolan found that the proposed post-confirmation modification would violate section 1327(a),⁹ which provides that a confirmed Chapter 13 plan is binding on debtor and creditor, and postulated "an unlikely congressional intent to give debtors the option to shift the burden of depreciation to a secured creditor by reclassifying the claim and surrendering the collateral when the debtor no longer has any use for the devalued asset." 232 F.3d at 533. Allowing the post-confirmation surrender and reclassification, Nolan reasoned, would subject secured creditors to a double reduction of a secured claim in those cases where the creditor already experienced a "cram down" in valuation at the time of confirmation. Id. at 534. Nolan found that allowing...