In re Baker, 5:19-bk-71061
| Decision Date | 03 December 2019 |
| Docket Number | No. 5:19-bk-71061,5:19-bk-71061 |
| Parties | IN RE: NIKI L. BAKER, Debtor |
| Court | U.S. Bankruptcy Court — Western District of Arkansas |
Before the Court are the following: Crain K of Fayetteville, LLC's [Crain or creditor] Motion for Relief from Stay, filed June 26, 2019; the debtor's Response to Motion for Relief from Automatic Stay, filed June 27, 2019; the debtor's Objection to Claim, filed June 26, 2019; Crain's Response to Objection to Claim, filed July 22, 2019; and Crain's Objection to Confirmation of Amended Plan, filed August 6, 2019. The Court held a hearing on the motion, objections, and responses on September 11, 2019 [September 11 hearing]. Todd F. Hertzberg appeared on behalf of the debtor. Stephen L. Gershner appeared on behalf of Crain. At the conclusion of the hearing, the Court took the matters under advisement. For the reasons stated below, the debtor's Objection to Claim is sustained in part. Further, Crain's Motion for Relief from Stay is denied and its Objection to Confirmation of Amended Plan is sustained in part.
The Court has subject matter jurisdiction under 28 U.S.C. § 157(b)(1). These matters are core proceedings under 28 U.S.C. § 157(b)(2)(B), (G), and (L) and are deemed contested matters under Federal Rule of Bankruptcy Procedure 9014. This order contains findings of fact and conclusions of law under Federal Rule of Bankruptcy Procedure 7052(a)(1).
On March 2, 2019, the debtor purchased a vehicle from Crain for her personal use. The debtor and Crain executed a retail installment sales contract [the contract], which Crain immediately assigned to Ally Financial. On April 17, 2019, the debtor filed her chapter 13 bankruptcy case. On June 21, 2019, Ally Financial reassigned the contract to Crain. On June 26, 2019, Crain filed a motion for relief from the automatic stay and proof of claim in the debtor's case. Crain's claim consisted of principal of $25,101, accrued interest of $132.17 owed as of the petition date, and $1500 in post-petition attorney fees. On the same day, the debtor filed her objection to Crain's claim pursuant to 11 U.S.C. § 506(b), objecting to the portion of the claim seeking post-petition attorney fees.1
On July 18, 2019, debtor filed her amended chapter 13 plan. On August 6, 2019, Crain filed its objection. On July 22, 2019, Crain filed its response to the debtor's objection to its claim, arguing that the "hanging paragraph" of 11 U.S.C. § 1325(a)(9) makes § 506 inapplicable to a 910-car claim.2 Specifically, Crain argued that "[t]he § 506(b) requirement of equity in a secured creditor's collateral for allowance of its attorney's fees does not apply to Crain K's secured claim." Response to Objection to Claim, ¶ 8. Crain further contended that confirmation of the debtor's chapter 13 plan required payment of the attorney fees pursuant to § 1325(a)(5)(B)(ii)(I)(aa). Id. at ¶ 9.
As additional support for its claim for post-petition attorney fees, Crain referenced the contract, which states in relevant part:
Because the address on the front of the contract is Fayetteville, Arkansas, Crain contends that Arkansas law applies, and, in particular, Arkansas Code Annotated § 16-22-308.
At the September 11 hearing, the parties stipulated that the value of the vehicle in question is less than the debt owed; that the debtor purchased the vehicle within 910 days of the date she filed her petition; and that the attorney fees requested in Crain's claim were incurred post-petition. The debtor's attorney stipulated that the amount to be paid under the plan was insufficient, but also represented that the chapter 13 trustee's confirmation order would include a payment in an amount sufficient to confirm the plan. The debtor's attorney also stated that the debtor was only contesting the post-petition attorney fees included in Crain's claim, clarifying that the issue before the Court is whether a 910-car creditor can "tack on" post-petition attorney fees to its secured claim. Crain's attorney argued that the debtor's plan was not feasible and that because the debtor never made a payment prior to filing her bankruptcy case,4 she had neither filed her case nor proposed her plan in good faith. He further asserted that relief from stay should be granted because of a lack of adequate protection. At the September 11 hearing, Crain's attorney reiterated his written argument that because § 506(b) does not apply to a 910-car claim, the debtor's plan must provide for payment of post-petition attorney fees in accordance with non-bankruptcy law under § 1325(a)(5). According to Crain, the relevant non-bankruptcy law in this instance consists of the parties' pre-petition contractual agreement and Arkansas Code Annotated §16-22-308.
During the hearing, the debtor testified that (1) she had maintained full insurance coverage on the vehicle; (2) her plan payments to the chapter 13 trustee are "payrolldeducted"; (3) the vehicle was purchased for better gas mileage; (4) the vehicle is properly licensed; (5) her current proposed plan provides for pre-confirmation adequate protection payments of $190 per month; (6) she proposes to pay Crain the amount of $25,233.17, representing principal and accrued interest on the day the petition was filed, together with 6.2% interest over the life of the plan; and, (7) upon confirmation of her amended plan, plan payments of $488 per month would be paid to Crain on its claim.
Section 506 of the bankruptcy code "allows the bifurcation of the claims of secured creditors into secured and unsecured claims based on the value of the creditor's collateral at the time of the bankruptcy filing." In re Fleming, 339 B.R. 716, 722 (Bankr. E.D. Mo. 2006). Under § 506, a chapter 13 debtor may generally "strip down a car creditor's secured claim to the current value of the collateral and treat the balance owed the secured creditor as an unsecured claim."5 Id. However, the hanging paragraph of § 1325(a)(9) provides that § 506 "does not apply to secured creditors with purchase money security interests in vehicles acquired by a debtor for personal use within 910 days prior to the bankruptcy filing." Id. Because of the hanging paragraph, a debtor cannot "cram down" a 910-car creditor's secured claim to the value of the creditor's collateral. Id. Instead, a 910-car creditor's "secured claim is allowed in the amount of the balance owed as of the petition date." Id. Here, the primary question before the Court is whether a 910-car creditor may include post-petition attorney fees in its secured claim. The Eighth Circuit has not determined whether a 910-car claim may include post-petition attorney fees. In fact, there are very few courts that have decided the issue of whether post-petition attorney fees should be allowed in 910-car claims. See In re Lucier, No. 07-30658, 2007 Bankr. LEXIS 4486, at *9 (Bankr. N.D. Dec. 5, 2007) ( that an oversecured 910-car creditor could not include post-petition attorney fees in its claim because the hanging paragraph of § 1325(a)(9) makes § 506 inapplicable to 910-car claims); In re Jenkins, No. 08 B 5297, 2009 Bankr. LEXIS 1682, at *6 (Bankr. N.D. Ill. June 15, 2009) (allowingpost-petition attorney fees on 910-car claim); and In re Kiser, No. 14-71381, 2015 Bankr. LEXIS 134, at *7-8 (Bankr. W.D. Va. Jan. 16, 2015) (disallowing post-petition attorney fees because claimant failed to provide any evidence that the fees requested were reasonable). For the reasons discussed below, this Court finds that an undersecured 910-car claimant is not entitled to include post-petition attorney fees in its secured claim.
As an initial matter, the Court finds it relevant that the bankruptcy system is premised upon the theory that "everything stops at a certain date." See Sexton v. Dreyfus, 219 U.S. 339, 344 (1911). Accordingly, § 502(b) provides:
if [an] objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount . . . ."
11 U.S.C. § 502(b) (emphasis added). By using the word "shall," § 502(b) mandates that the court determine the amount of a claim as of the date of the filing of the petition. 11 U.S.C. § 502(b); see also In re Waterman, 248 B.R. 567, 573 (B.A.P. 8th Cir. 2000) (); but see Summitbridge Nat'l Inv. III, LLC v. Faison, 915 F.3d 288, 292 (4th Cir. 2019) (). Because the amount of post-petition attorney fees cannot be determined as of the petition date, the Court finds that such fees may not be included in the amount of the claim, unless another provision of the code provides an exception to § 502(b)'s directive to determine the amount of a claim as of the petition date.
The code expressly authorizes the recovery of post-petition attorney fees in certain circumstances, for example:
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