In re Cason
| Decision Date | 14 December 1995 |
| Docket Number | Bankruptcy No. 95-40853 (13). |
| Citation | 190 BR 917 |
| Parties | In re Horace Christopher CASON and Teresa Dianne Cason, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Thomas M. Semmes, Anniston, Alabama, for debtors.
Jake B. Mathews, Jr., Anniston, Alabama, for Ford Motor Credit Company.
Linda Gore, Chapter 13 Standing Trustee, Gadsden, Alabama.
This proceeding is before the Court for a hearing on a case filed under Title 11, United States Code, Chapter 13. In this case Ford Motor Credit Company (FMCC) has filed a motion for relief of the stay or in the alternative a motion to direct the trustee to make adequate protection payments and the debtor objected to such relief. This Court has jurisdiction pursuant to 28 U.S.C. § 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G)(M). The Court must determine (1) whether FMCC is entitled to § 507(b) superpriority; (2) the time for valuation of the collateral for adequate protection purposes; (3) the proper procedure for Court ordered adequate protection payments made by the trustee in relation to administrative costs; namely filing fees, standing trustee's compensation, and debtor's attorney fees; and (4) if interest should be included with adequate protection and if so, at what rate of interest. For the reasons discussed below, FMCC is entitled to adequate protection beginning when the motion is filed.
Appearing at the July 19, 1995, hearing were Linda Gore, Esq., Chapter 13 standing trustee, Jake B. Mathews, Jr., Esq., for FMCC, and Thomas M. Semmes, Esq., attorney for the debtors. After an initial briefing schedule, the Court ordered supplemental briefs. FMCC and the standing trustee have filed final briefs and written arguments on October 3, 1995, which the Court has considered, debtors did not file briefs, and the facts as set forth below are not in dispute. The Court entered an Order and Memorandum Opinion on November 14, 1995. The standing trustee filed a motion to alter the Memorandum Opinion. The trustee's motion is granted and the Memorandum Opinion entered November 14, 1995 is withdrawn, and this Memorandum Opinion is entered. Upon full consideration of the arguments by counsel, the facts, and the law, the Court makes these findings:
FINDINGS OF FACT
Horace Christopher and Teresa Dianne Cason filed a Chapter 13 petition on April 5, 1995. The hearing for confirmation was scheduled for October 18, 1995.1 The personal property listed in the schedules attached to the debtor's petition, includes a 1994 Ford 150 truck. FMCC was listed in the schedules as having a secured claim; the collateral being the same 1994 Ford 150 truck. The debtor listed the amount of FMCC's claim in their schedules as $14,689.45. Debtors also listed $2,864.45 of this amount as unsecured. The debtor's plan provides for FMCC, as a secured claim holder, to receive $11,825.00 plus 8% per annum interest over five years. The balance of the proof of claim filed by FMCC was to be treated as an unsecured claim, with an estimated distribution to unsecured claims of zero. The fixed payments under the plan were listed to be $667.67 per month, totaling $40,060.20. Of this amount, the standing trustee was to distribute $255.59 to FMCC per month including 8% interest for a total payment of $15,335.16. FMCC timely filed a proof of claim as a secured claim on May 25, 1995, in the amount of $14,967.77, with a fair market value of the 1994 Ford 150 pickup truck as collateral of $13,250.00. Attached to the proof of claim was a contract to finance $15,805.84 in 60 monthly payments of $365.73, beginning June 30, 1994, and a certificate of title with FMCC as first lienholder.
On June 23, 1995, FMCC filed an objection to confirmation, stating among other things that it objected to the interest rate of 8% and the value attached to the collateral. Six days later, on June 29, 1995, FMCC filed a motion for relief from the stay stating in part that the debtors have not made any payments on their account since February 22, 1995, the debtors do not have insurance on the collateral, the debtors have no equity in the collateral, such collateral is not necessary for an effective reorganization, and that such collateral is declining in value. The debtors objected to FMCC's motion for relief and the matter came before the Court on July 19, 1995.2
At the hearing the debtor testified that the vehicle in question was declining in value at the rate of $100.00 to $150.00 per month. The witness for the movant, FMCC, testified but was unable to give the amount that the vehicle declined in value. FMCC requested leave to add the National Automobile Dealers Association (NADA) page on depreciation to its written argument. Without objection, the request was granted. However, FMCC failed to supply this information on either of its briefs submitted to the Court. Based upon this evidence the Court concludes that the vehicle in question is declining in value at a rate of $125.00 per month.3
The procedure, employed by the trustee in respect to adequate protection, was also brought out during the hearing. The standing trustee, upon an agreement for adequate protection or an order for such adequate protection, would make no distribution of adequate protection payments until there were enough funds accumulated for payment of administrative expenses prior to confirmation. If sufficient funds were not accumulated prior to confirmation, then the creditor would not receive any adequate protection payments. After confirmation, the standing trustee pays out claims under the plan and does not pay out any further adequate protection or any unpaid accrued adequate protection.
Also at the hearing, the parties submitted several stipulations. They included four items: 1) On or about May 31, 1994, Horace C. Cason and Teresa Cason entered into a security agreement in respect to a 1994 Ford F150 Truck, VIN # 1FTDF15Y6RLB10356, and financed the amount of $21,943.80 for a term of 60 months at the rate of 13.75 percent. The debtors were required to maintain insurance on said 1994 F150 Truck; 2) Ford Motor Credit Company is a secured creditor; 3) On or about the 5th day of April, 1995, the debtors filed a petition for relief under Chapter 13 of Title 11, U.S.Code; 4) It was stipulated that the value of the vehicle was $12,000.00 and that Ford Motor Credit is an undersecured claim holder; and 5) That the creditor's collateral is insured by Cotton States Insurance.
After the parties filed briefs, the issues were submitted to the Court on October 3, 1995. The standing trustee, debtor, and FMCC moved to continue the confirmation hearing in order to prevent these issues from becoming moot if a plan is confirmed by 11 U.S.C. § 1327. The motion was granted and the hearing on confirmation was rescheduled for November 15, 1995.
FMCC contends that it is entitled to superpriority administrative status in this case pursuant to 11 U.S.C. § 507(b). Because the debtor is continuing to use the collateral, FMCC claims its adequate protection payments should have superpriority over administrative expenses. FMCC contends that under the current system used by the standing trustee, it is not receiving the proper adequate protection it is entitled to receive under § 361(1)4 and § 363(e).5 FMCC contends its adequate protection is proving to be inadequate. The debtors and standing trustee disagree.
The language of § 507(b) does grant a superpriority status in limited circumstances. 11 U.S.C. § 507(b) provides:
If the trustee, under section 362, 363, or 364 of this title, provides adequate protection of the interest of a holder of a claim secured by a lien on property of the debtor and if, notwithstanding such protection, such creditor has a claim allowable under subsection (a)(1) of this section arising from the stay of action against such property under section 362 of this title, from the use, sale, or lease of such property under section 363 of this title, or from the granting of a lien under section 364(d) of this title, then such creditor\'s claim shall have priority over every other claim allowable under such subsection.
This section states that when adequate protection is given which later turns out to be inadequate, the creditor is entitled to request superpriority administrative expense status. Bonapfel v. Nalley Motor Trucks (In re Carpet Center Leasing Co., Inc.), 991 F.2d 682 (11th Cir.1993), amended, 4 F.3d 940 (11th Cir.1993), cert. denied, ___ U.S. ___, 114 S.Ct. 1069, 127 L.Ed.2d 388 (1994); In re Moulton Excavating, 143 B.R. 955 (Bankr.D.Utah 1992). This expense claim is in such amount to the extent that the adequate protection proved to be inadequate and insufficient. Carpet Center Leasing at 685; Grundy Nat'l Bank v. Rife, 876 F.2d 361 (4th Cir.1989); In re McGill, 78 B.R. 777 (Bankr.D.S.C.1986). "It was grafted on to § 507 so that `to the extent the protection (under Section 361) proves to be inadequate after the fact, the creditor is entitled to a first priority administrative expense.'" In re Callister, 15 B.R. 521 at 528 (Bankr. D.Utah 1981) quoting 124 Cong.Rec.H. 11,092 (daily ed., September 28, 1978). "This administrative expense claim is based on the insufficiency of adequate protection in covering post-petition diminution in value of the vehicles furnished by the creditor and used by the estate." Bonapfel v. Nalley Motor Trucks (In re Carpet Center Leasing Co., Inc.), 991 F.2d 682 (11th Cir.1993), amended, 4 F.3d 940 (11th Cir.1993), cert. denied, ___ U.S. ___, 114 S.Ct. 1069, 127 L.Ed.2d 388 (1994).
From the language of § 507(b), there is a three tier test for a creditor to pass before it will be entitled to a superpriority administrative expense. Ford Motor Credit Company v. Dobbins, 35 F.3d 860 (4th Cir. 1994). The first test...
To continue reading
Request your trial