In re Desardi

• Citation: 340 B.R. 790
• Decision Date: 21 April 2006
• Docket Number: No. 05-95075.,No. 05-95121.,No. 05-95052.,05-95075.,05-95052.,05-95121.
• Parties: In re Eric G. DeSARDI, Jr., Debtor. In re Wilma LaBove, Debtor. In re Robert Anthony O'Neil, Debtor.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

340 B.R. 790

In re Eric G. DeSARDI, Jr., Debtor.

In re Wilma LaBove, Debtor.

In re Robert Anthony O'Neil, Debtor.

No. 05-95075.

No. 05-95052.

No. 05-95121.

United States Bankruptcy Court, S.D. Texas, Houston Division.

April 21, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Kenneth A. Keeling, Grant Tabor, Keeling Law Firm, Houston, TX, for Eric G. DeSardi, Jr. and Wilma LaBove.

Paul K. Kim, New York City, Steve Wilcox, Bassel & Wilcox, PLLC, for DaimlerChrysler Services North America, LLC.

Billy Baca, Lawrence, Baca & Donohue, Houston, TX, for National Auto Finance, c/o Nuvell Financial Services Corp.

Richard Aurich, Reese W. Baker, Baker & Associates LLP, Houston, TX, for Robert O'Neil.

Gary Cerasuolo, Smith & Cerasuolo, LLP, for Credit Union of Texas.

Daniel Emmett O'Connell, Office of the U.S. Chapter 13 Trustee.

MEMORANDUM OPINION

MARVIN ISGUR, Bankruptcy Judge.

On October 17, 2005, several provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became effective. Among those are provisions that affect the rights of creditors whose claims are secured by purchase money security interests in vehicles in chapter 13 cases. New local rules and a new uniform chapter 13 plan, both of which provide for adequate protection for vehicle lenders in chapter 13 bankruptcy cases, also became effective in this District on October 17, 2005.

Various disputes have arisen in these cases that require the Court to resolve the interplay between BAPCPA, the Bankruptcy Local Rules ("BLR") of the Southern District of Texas, and the Uniform Plan adopted by the Southern District of Texas. Because of the related nature of the disputes, the Court issues this memorandum opinion in the above-referenced cases. Separate orders that are consistent with this memorandum opinion will be issued in each case.

The following issues have been raised:

• Are adequate protection payments to automobile lenders senior or junior in priority to attorneys fees claims by chapter 13 debtor's counsel?

• Should the Court consider the total amount of the lender's claim in deciding the amount of adequate protection to be provided to automobile lenders under § 363 and § 1325 of the Bankruptcy Code?

• Does § 1325(a)(5)(B)(iii) require that equal payments commence in the first month of the plan and continue at the same amount throughout the plan's term?

• What is the appropriate interest rate to be paid to a lender who holds purchase money debt both (1) incurred within 910 days preceding the petition date; and (2) secured by an automobile?

Summary Conclusions

For the reasons set forth below, the Court has concluded that:

1. In these three cases, adequate protection payments have priority over payments awarded to debtors' counsel under § 330 of the Bankruptcy Code. Payments in excess of required adequate protection do not have priority.

2. In determining the amount of adequate protection, the amount of the lender's claim is relevant only if the amount of the claim is less than the value of the collateral. If the amount of the lender's claim exceeds the value of the collateral, the actual amount of the claim is irrelevant in determining adequate protection.

3. Equal payments neither need to commence in the first month nor continue until the last month of a chapter 13 plan.

4. The interest rate to be paid to an automobile lender under BAPCPA should be determined in accordance with In re Till, 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004).

Factual Background

Eric DeSardi, Jr.

Mr. DeSardi filed a chapter 13 bankruptcy petition, along with his schedules and his statement of financial affairs, on October 31, 2005. Mr. DeSardi works as a technician at Sweeten Truck Center in Houston. He is married, with a four-year old daughter. He owns a 2002 Dodge Ram with 126,000 miles, financed by Chrysler Financial (now DaimlerChrysler). He purchased the Dodge Ram on November 15, 2001, 1446 days before he filed bankruptcy. Mr. DeSardi owes approximately $11,500 on his truck. The truck is valued at approximately $12,500.

Mr. DeSardi originally proposed a chapter 13 plan on October 31, 2005. He proposed amended plans on December 21, 2005, and February 9, 2006. The original and amended plans are in the form required by the local rules. The Court conducted a confirmation hearing on February 27, 2006, to consider confirmation of the proposed plan, as amended on February 9, 2006.

The February 9, 2006 plan proposes to amortize DaimlerChrysler's full claim at an annual interest rate of 8.25%, with level payments beginning in the sixth month of the plan and ending in the fifty-third month of the plan. Current local rules dictate that the amount of payments set forth in a plan for payments on claims secured by personal property are only estimates; the actual amount of payments to be made is determined based on the actual allowance of the creditor's claim.¹ BLR 3015(a)(4). The level payments are estimated by Mr. DeSardi to be $290.23. Although this estimate may prove to be incorrect, an estimation error does not preclude plan confirmation.

For the first through fifth month after the petition date, the plan proposes to pay DaimlerChrysler adequate protection payments.² The proposed plan provides that DaimlerChrysler will retain its lien until it is fully paid.

Wilma LaBove

Ms. LaBove filed her chapter 13 bankruptcy petition, schedules and statement of financial affairs on October 31, 2005. Ms. LaBove is employed in Houston as a ticket agent for Continental Airlines. She is a single mother of two children, ages nineteen and nine. Ms. LaBove owns a 2003 Ford Explorer that is financed by Nuvell Financial Services. The truck was purchased 755 days before the petition was filed. The Explorer is worth approximately $19,000, with approximately $22,000 still owed to Nuvell.

Ms. LaBove filed her first chapter 13 plan on October 31, 2005. She filed amended plans on December 22, 2005, and February 24, 2006. On February 27, 2006, the Court held a hearing to determine whether to confirm the second proposed amended plan.

The February 24, 2006 plan proposes to amortize Nuvell's full claim at 8.25%. Estimated level payments of $485.26 are scheduled to begin in month five and continue through month sixty. The plan proposes an adequate protection payment estimated at approximately $300 for months one through four. The plan provides that Nuvell will retain its lien until it is fully paid.

Robert O'Neil

Mr. O'Neil filed a voluntary petition under chapter 13 on November 1, 2005. He filed his schedules and a statement of financial affairs on November 16, 2005. Mr. O'Neil works as a contract driver for Watkins Motor Freight in Houston. He is married and has a son, age three. His wife is a teacher's aide. Mr. O'Neil owns a 2004 Chevrolet Impala worth $14,500. The vehicle was purchased 611 days before he filed his chapter 13 petition. The Impala was financed by Centrix Res. Approximately $25,000 is still owed on the car.

Mr. O'Neil filed his first chapter 13 plan on November 16, 2005. On February 6, 2006, and February 21, 2006, Mr. O'Neil filed amended chapter 13 plans. At a hearing on February 27, 2006, the Court considered whether to confirm the second proposed amended plan. That plan proposes to amortize Centrix's claim at 8.25%. Level payments estimated at approximately $550 are scheduled to begin in month seven and continue through month fifty-eight. Adequate protection payments estimated at approximately $200 are scheduled for months one through six.

Creditor Objections

At the hearing on February 27, 2006, DaimlerChrysler and Nuvell objected to the confirmation of the DeSardi and LaBove plans, respectively. Each creditor objected to the debtor's plan provision that granted the debtor's attorney's fees priority payment over any interim adequate protection payments afforded by the plan itself. Counsel for DeSardi and LaBove argue that § 1326(b) of the Bankruptcy Code gives debtor's attorney's fees priority over any payment to creditors.

Nuvell objects to confirmation of the LaBove plan on additional grounds. Nuvell argues that the amendments to § 1325 are intended to preserve a lender's full secured claim. Consequently, Nuvell argues that § 1325 mandates that the Court apply the 1.5% to the amount of Nuvell's claim rather than the vehicle's actual value.

DaimlerChrysler also objects to confirmation because the debtor's plan is "deficient pursuant to 11 U.S.C. § 1325(a)(5)(B)(iii)(I) because it does not provide for periodic payments in equal monthly amounts, in that no payments are scheduled to DaimlerChrysler for months one through six." DaimlerChrysler's Objection to Confirmation at 1, In re Desardi (docket no. 32). Nuvell also raises this issue. Specifically, Nuvell objects to the fact that its payments do not begin until month five of the plan. This treatment, Nuvell claims, is in violation of 11 U.S.C. § 1325(a)(5)(B)(iii)(I).

A portion of this dispute arose because the debtors and the creditors all misinterpreted the Southern District's local rules and uniform plan. In oral argument, all of the lawyers believed that the three proposed plans did not provide for continued adequate protection payments after plan confirmation. Instead, the parties believed that the plans diverted these funds to debtors' counsel. Because this interpretation is contrary to the plain meaning of the plans³, the Court rejects the interpretation and will apply the plain meaning.

Credit Union of Texas (Centrix) objects to the proposed plan in the O'Neil case because the plan proposes an 8.25% interest rate. Although Centrix acknowledges that this rate satisfies the requirements of In re Till, it argues that Congress intended to increase protections to car lenders. Centrix claims that the 8.25% interest rate is improper because it is lower than the rate provided for in the original contract between the debtor and Centrix. Centrix argues that such a...