In re Bufford, 05-87178-BJH-13.

• Decision Date: 13 June 2006
• Docket Number: No. 05-87178-BJH-13.,05-87178-BJH-13.
• Citation: 343 B.R. 827
• Parties: In re Candace Jeanene BUFFORD, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Texas

Page 827

343 B.R. 827

In re Candace Jeanene BUFFORD, Debtor.

No. 05-87178-BJH-13.

United States Bankruptcy Court, N.D. Texas, Dallas Division.

June 13, 2006.

Thomas Ford, Higgins and Allmand, P.C., Benbrook, TX, for Debtor.

MEMORANDUM OPINION ON CONFIRMATION OF CHAPTER 13 PLAN

HARLIN DeWAYNE HALE, Bankruptcy Judge.

This case presents a novel issue in this district — whether the interest rate provided in a Chapter 13 plan to the claim of a creditor with a purchase money security interest in a motor vehicle, as set forth in the Supreme Court's decision in In re Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004), applies to debts incurred within the 910-day period preceding the petition date under the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA").

The Debtor's present bankruptcy case was filed on December 22, 2005, therefore the amendments to the Bankruptcy Code enacted by the BAPCPA are applicable to this case.¹ The Court held a hearing on confirmation of the Debtor's Chapter 13 Plan ("Plan"). Velocity Credit Union ("Velocity") filed an objection to confirmation of the Plan because it did not provide payment of its secured claim at the contract rate of interest. The Court took the matter under advisement for the parties to submit post-hearing briefs. After consideration the Court finds that Velocity's objection to confirmation of the Plan should be overruled, and that the Debtor must file an amended plan with interest provided at a rate consistent with this opinion on the claim filed by Velocity.

The Court has jurisdiction pursuant to 28 U.S.C. §§ 1334 and 151, and the standing order of reference in this district. The matter is core, pursuant to 28 U.S.C. § 157(b)(2)(A), (B) & (0). This Memorandum Opinion constitutes findings of fact and conclusions of law, pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014.

I. Background Facts

On April 10, 2004, the Debtor purchased a 2003 Nissan Altima (the "Vehicle"). Centrix Financial, LLC has a purchase money security interest in the Vehicle. The Debtor filed her Chapter 13 petition and Plan on December 22, 2005. Thus, the Vehicle was purchased 621 days prior to the date the petition was filed. Velocity filed a proof of claim in the Debtor's bankruptcy case on behalf of Centrix Financial, LLC, on January 17, 2006, totaling $19,820.70. Velocity amended its claim on January 31, 2006, changing the amount to $21,507.35, and included an interest rate of 17.9%, as provided in the loan agreement with the Debtor.

In her Plan, the Debtor provides for the claim of Centrix Financial, LLC to be valued at $19,820.00 and paid at 6.5% per annum over 60 monthly installments. In its objection to confirmation of the Plan proposed by the Debtor, Velocity does not object to the Debtor's valuation of the Vehicle, but does object to using any other interest rate than the contract rate of 17.9%. The basic thrust of Velocity's argument is that an amendment made to the Bankruptcy Code by the BAPCPA protecting creditors with purchase money security interests on recently purchased motor vehicles from having their claims bifurcated, also protects them from having the contract rate of interest reduced in a plan of reorganization.

II. Issues

Is the interest rate provided in a debtor's Chapter 13 plan to the claim of a creditor secured by a purchase money interest in a motor vehicle obtained within the 910-day period preceding the petition date controlled by the Supreme Court's decision in Till, or does the contract rate apply? And does the adequate protection requirement in 11 U.S.C. § 1325(a)(5)(B)(iii)(II) affect this determination?

III. Analysis

Since the argument at hand involves the interpretation of an amendment to the Bankruptcy Code, the Court's analysis should begin with the language of the statute and its related provisions. See Kellogg v. United States (In re West Texas Marketing Corp.), 54 F.3d 1194, 1200 (5th Cir.) cert. denied 516 U.S. 991, 116 S.Ct. 523, 133 L.Ed.2d 430 (1995) ("As with any statutory question, we begin with the language of the statute").

Section 1322 of the Bankruptcy Code addresses the contents of a plan of reorganization and states that a plan may modify the rights of a creditor whose claim is secured, other than a claim secured only by a security interest in real property that is the debtor's principal residence. 11 U.S.C. § 1322(b)(2). Section 1322(b)(2) provides:

(b) subject to subsections (a) and (c) of this section, the plan may —

(2) modify the rights of holders of secured claims, other than a claim that is secured only by a security interest in real property that is the debtor's principal residence, or of holders of unsecured claims, or leave un affected the rights of holders of any class of claims.

11 U.S.C. § 1322(b)(2).

Section 1325 of the Bankruptcy Code sets forth the requirements for confirmation of a Chapter 13 plan. 11 U.S.C. § 1325. With respect to each allowed secured claim provided for by a plan, § 1325(a)(5) generally requires that either (1) the holder of the claim accepts the plan; (2) the holder of the claim retains its lien and the debtor makes equal monthly payments, which total not less than the allowed amount of such claim, over the term of the plan or until the debt is paid in full; or (3) the debtor surrenders the collateral to the secured creditor. 11 U.S.C. § 1325(a)(5).² Prior to the effective date of the BAPCPA, a plan only had to provide a secured car creditor with retention of its lien and payment of the present value of the collateral as of the petition date in order for the debtor to retain the vehicle. The amendments provided in the BAPCPA modified § 1325(a)(5) by restricting the ability of debtors to bifurcate certain claims of creditors secured by a purchase money security interest in a motor vehicle by adding the following paragraph immediately *after § 1325(a)(9):

For the 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 [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, 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.³

The Effect of Making Section 506 Inapplicable

Section 506(a) of the Bankruptcy Code allows the bifurcation of the claim of a secured creditor into two claims — a secured claim for the actual value of the collateral as of the petition date, and an unsecured claim representing the difference between that actual value and the amount owed on the collateral under the loan agreement.⁴ See 11 U.S.C. § 506. This is known as "stripping down" the secured creditor's lien position from the contract amount to an amount capped at the actual value of the collateral. See Dewsnup v. Timm, 502 U.S. 410, 417, 112 S.Ct. 773, 778, 116 L.Ed.2d 903 (1992). A debtor then pays the secured claim under the plan in accordance with § 1325(a)(5) and pays a small percentage of the unsecured claim, along with other unsecured creditors' claims, based on the debtor's disposable income. This is "commonly known as the `cramdown option' [of plan confirmation] because it may be enforced over a claim holder's objection." In re Till, 541 U.S. 465, 468-69, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004) (citing Associates Commercial Corp. v. Rash, 520 U.S. 953, 957, 117 S.Ct. 1879, 138 L.Ed.2d 148 (1997)). In this district, at least, this option usually results in very little being paid above the secured claim amount.

No doubt, the drafters of the 910-day provision intended to eliminate the ability of debtors to bifurcate, or "strip down" secured claims on these recently purchased vehicles.⁵ Some have also argued, probably because of the title of § 506 — "Determination of secured status," that by making § 506 inapplicable to 910-day car claims, the amended Code provision has had the unintended effect of making it impossible for those claims to be considered secured. See In re DeSardi, 340 B.R. 790, 811-12 (Bankr.S.D.Tex.2006) (discussing this argument and generally rejecting it); In re Carver, 338 B.R. 521, 525 (Bankr.S.D.Ga.2006) ("[b]y rendering [§ 506] inapplicable to 910 claims, Congress expressly eliminated the mechanism by which they could be treated as secured claims under the Chapter 13 plan."). This argument has been adopted by one of the leading treatises on bankruptcy:

Language added at the end of section 1325(a) by the 2005 amendments, to the Bankruptcy Code removes certain claims from the protections of 1325(a)(5). This new language states that for purposes of section 1325(a)(5), section 506 shall not apply to certain claims. Such claims, therefore, cannot be determined to be allowed secured claims under section 506(a) and are not within the ambit of section 1325(a)(5).

8 COLLIER ON BANKRUPTCY ¶ 1325.06[1][a] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.2006). Velocity tries to use a variation on this argument, when it argues in its brief that since § 506 provides the basis for determination of a secured creditor's claim, its elimination results in the original loan contract dictating both the value and rate of interest to be provided in a plan. However, this Court finds that this argument is misplaced. A claim is determined to be "allowed" or not pursuant to § 502 of the Code, and is determined to be either "secured" or not pursuant to state law. See In re Montoya, 341 B.R. 41, 44 (Bankr.D.Utah 2006); In re Brown, 339 B.R. 818, 821-22 (Bankr. S.D.Ga.2006); See also Nobelman. v. American Savings Bank, 508 U.S. 324, 329, 113 S.Ct. 2106, 2110, 124 L.Ed.2d 228, 235 (1993).

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