In re Bethoney

• Decision Date: 17 January 2008
• Docket Number: No. 07-13609-WCH.,07-13609-WCH.
• Citation: 384 B.R. 24
• Parties: In re Tuesday M. BETHONEY, Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

384 B.R. 24

In re Tuesday M. BETHONEY, Debtor.

No. 07-13609-WCH.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

January 17, 2008.

Andrew S. Koczera, New Bedford, MA, for Debtor.

MEMORANDUM OF DECISION

WILLIAM HILLMAN, Bankruptcy Judge.

I. INTRODUCTION

The matters before the Court are Tuesday M. Bethoney's (the "Debtor") Motion To Establish Value Pursuant to 11 U.S.C. Section 506(a) (the "506(a) Motion") and Motion to Modify Rights of Secured Claims [Pursuant to] 11 U.S.C. Section 1322(b)(2) (the "1322(b)(2) Motion") (collectively, the "Motions"). Through these unopposed motions, the Debtor seeks to bifurcate Capital One Auto Finance's ("Capital One") secured claim on her vehicle, which she purchased within 910 days prior to the filing of her Chapter 13 petition. As set forth in greater detail below, I will enter an order denying both motions as the requested relief violates the "hanging paragraph" of 11 U.S.C. § 1325 notwithstanding the lack of objection by the secured creditor.

II. BACKGROUND

The facts of this case are not in dispute.¹ On November 11, 2005, the Debtor purchased a "2005 Dodge Truck Durango — V8 Utility 4D SXT 4WD" (the "Vehicle").² The Debtor financed the purchase through Capital One.

On June 8, 2007, the Debtor filed a petition under Chapter 13 of the Bankruptcy Code. On Schedule B — Personal Property, the Debtor valued the Vehicle at $11,000.³ Capital One filed a proof of claim on July 11, 2007, asserting a secured debt of $29,190.20.⁴

On October 11, 2007, the Debtor filed her First Amended Chapter 13 Plan (the "Plan").⁵ In Part V of the Plan, the Debtor included the following provision:

Debtor has filed Motion to bifurcate the secured claim on the family vehicle, 2005 Dodge into $10,500.00 secured payable at 8% interest directly by the debtor at $212.90 to the creditor monthly and $18,690.00 payable at 10% unsecured through the plan.⁶

Contemporaneous with the filing of the Plan, the Debtor filed the Motions.

In the 506(a) Motion, the Debtor stated that she is the sole owner of the Vehicle and sought a determination that its current value is $10,500, based upon an appraisal she obtained.⁷ In the 1322(b)(2) Motion, the Debtor sought to bifurcate Capital One's claim as outlined in Part V of the Plan. The Debtor failed to serve the Motions on Capital One correctly at the address listed on their proof of claim, and no response was filed.

I held a hearing on the Motions on November 8, 2007, at which time I ordered the Debtor to serve Capital One at the address listed on its proof of claim and continued the hearing to November 29, 2007 to address further whether the Debtor was entitled to the relief she requested' given the provisions of the "hanging paragraph" of 11 U.S.C. § 1325. The Debtor subsequently filed a certificate of service for the November 29, 2007 hearing evidencing proper service on Capital One.⁸ Capital One, however, filed no response.

At the continued hearing, the Debtor's sole argument was that she properly served the Motions and that no objection had been filed. Recognizing that the applicability of the "hanging paragraph" and whether a debtor may bifurcate a 910-day vehicle claim in the absence of an objection from the secured creditor were issues of first impression before this Court, I took the Motions under advisement.

III. DISCUSSION

A. Applicability of the "Hanging Paragraph"

Prior to the amendment of 11 U.S.C. § 1325 by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), a Chapter 13 debtor could use 11 U.S.C. §§ 506 and 1322 to bifurcate the claim of a creditor with a security interest in the debtor's vehicle, by treating the claim as secured up to the value of vehicle and reclassifying the balance and paying it through the plan as a non-priority unsecured claim.⁹ BAPCPA amended 11 U.S.C. § 1325 by inserting an unnumbered paragraph following 11 U.S.C. § 1325(a)(9), commonly referred as the "hanging paragraph." It provides:

For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph 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 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, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.¹⁰

Since the implementation of the hanging paragraph, the vast majority of courts have held that it precludes Chapter 13 debtors from using 11 U.S.C. § 506 to bifurcate 910-day vehicle claims.¹¹ This Court has found only one court which has held that 11 U.S.C. § 506 does not apply to 910-day vehicle claims and therefore they are not secured for purposes of 11 U.S.C. § 1325(a)(5).¹² I disagree with In re Carver and instead join the ever increasing majority as this view is supported by both the case law and the legislative history of BAPCPA.¹³ As the court in In re Montoya so aptly states:

A purchase money security interest is secured through the parties' contract and applicable perfection statutes and is secured without the operation the Code. A creditor's secured status is not erased without any further adjudication merely because the hanging paragraph makes the § 506 valuation mechanism inapplicable to 910-day vehicle claims.¹⁴

It is without question that the retail installment contract the Debtor signed is a purchase money security interest. Additionally, as the Debtor purchased the Vehicle 574 days prior to filing her petition, it is well within the 910-days. Moreover, the Vehicle is a "motor vehicle" as defined by 49 U.S.C. § 30102.¹⁵ The sole remaining issue in deciding whether the "hanging paragraph" applies is whether the Debtor acquired the Vehicle for her "personal use."

BAPCPA provides no definition of "personal use" for purposes of the "hanging paragraph." "The `personal use' element of the hanging paragraph has spawned a surprisingly large volume of cases setting forth various legal tests."¹⁶ Two main lines of interpretation have arisen regarding the word "personal," defining it as either who may use the vehicle or for what purpose the vehicle may be used. There is almost universal agreement that "personal" implies "non-business."¹⁷ The majority of courts, however, have interpreted "personal" also to define who may use the vehicle in question.¹⁸

After reviewing the plethora of cases, I find the most cogent opinion on this issue is In re Solis.¹⁹ In this case, the court compiled all the cases written on "personal use" to date and summarized the splits of authority.²⁰ It first concluded that the statutory language "acquired for" clearly indicated that the analysis must start with the debtor's intent at the date of acquisition and not actual use.²¹ Next, the court agreed that if the vehicle were acquired for the exclusive use of a non-debtor then the "hanging paragraph" would not apply, though it noted that this would be complicated if the non-debtor in question were the debtor's spouse²² Noting the absence of such words as "exclusively," "mostly," "primarily," and "solely" from the statute, the court adopted a totality of the circumstances test in which the "personal use" requirement is satisfied when the debtor's use is "significant and material."²³ In defining "personal," the court stated the following:

What does "personal" mean? — "Personal" use and "family or household" use are not different or mutually exclusive. The chapter 13 debtor is always a person, and when the debtor has a family it would be virtually impossible to distinguish "family" use from "personal" use. And, even if "personal" "family" and "household" were mutually exclusive as to any one event or activity, the same vehicle could provide "family or household" benefits on some trips and could provide "personal" benefits on other trips. Therefore, the Court concludes that "personal use" includes any use of the vehicle that benefits the debtor(s) such as transportation that satisfies personal wants (such as recreation), transportation that satisfies personal needs (such as shopping or seeking medical attention or other errands), and transportation that satisfies family and other personal obligations, whether legal or moral obligations. The Court concludes that "personal use" includes transportation to and from work in almost all circumstances since there is almost always an alternative such as walking, bicycling, public transportation, carpooling, obtaining housing closer to the workplace, etc. In circumstances in which there is an alternative, the decision to use an automobile is a personal use: to make the trip faster, more pleasant, and more convenient. But if there is truly no alternative, the Court would not conclude that the use of a vehicle to go to and from work was "personal use" of the vehicle. This Court will consider all of the facts and circumstances to determine whether the vehicle was acquired with the intent of providing personal benefits for the debtor(s).²⁴

In somewhat unusual move, the Solis court went further to define "use." As is clear from the above quoted passage, the court considered "use" to constitute a benefit. It held that the standard is for whose benefit the vehicle is intended to be used.²⁵ Accordingly, one need not drive a vehicle in order to use it. The court cited two examples to demonstrate the advantage of this standard. First, a disabled person who acquired a vehicle and a driver would do so for the disabled person's benefit, and therefore "personal use," even though the acquirer in this case is unable to manipulate it.²⁶ Second, a husband driving a vehicle to run an errand for his wife can be operating the vehicle for the benefit of his wife and therefore constitute "personal use."²⁷...