In re Gibson
| Decision Date | 21 December 1981 |
| Docket Number | 81-10276,81-10235,81-40301,81-40613 and 81-11147.,Bankruptcy No. 81-40359 |
| Citation | 16 BR 257 |
| Court | U.S. Bankruptcy Court — District of Kansas |
| Parties | In re Margaret Ann GIBSON, Debtor. In re Allen George HILTON, Georgene (NMN) Hilton, Debtors. In re Toni Lee WOLFE a/k/a Toni L. Wolfe, Debtor. In re Edwin Jerry STUPKA, Jr., a/k/a Edwin Jerry Stupka, Jr., Debtor. In re Charlz Lloyd WALWYN, f/d/b/a Angels Fantasy Factory, Debtor. In re Danny Eugene MORROW, Kathleen Ann Morrow f/d/b/a Morrow Glass f/d/b/a Morrow Rentals f/d/b/a El Dorado Truck Wash, Debtors. |
Roger L. Hiatt, Hiatt, Hiatt & Carpenter, Chtd., Topeka, Kan., for debtors.
Wilburn Dillon, Jr., Tilton, Dillon, Beck & Crockett, Topeka, Kan., for Postal Finance Co.
Lloyd C. Swartz, Topeka, Kan., Trustee.
David M. Arnold, Wichita, Kan., for debtors.
Jerold E. Berger, Topeka, Kan., Trustee.
Frank A. Caro, Wichita, Kan., for debtors.
Paul M. Buchanan, Wichita, Kan., for Citizens State Bank of Grainfield.
Roberta Sue Hawver, Hawver & Irigonegaray, P.A., Topeka, Kan., for debtors.
Joseph I. Wittman, Topeka, Kan., for Finance America Corp.
Malcolm C. Black, Wichita, Kan., for Beneficial Finance Co.
Christopher J. Redmond, Wichita, Kan., Trustee.
Kermit M. Beal, Lawrence, Kan., for debtors.
William B. Pendleton, Lawrence, Kan., for C.F.C.A. Employees Credit Union.
Cary L. Standiferd, Topeka, Kan., Trustee.
Donald B. Clark, Wichita, Kan., for debtors.
Michael G. Coash, Bond, Bond & Coash, El Dorado, Kan., for Citizens State Bank of El Dorado.
In each of six cases, the debtors seek to avoid liens attaching to sundry household goods arising out of a series of notes, renewed notes and security interests given in return for loans from the creditor executed before the effective date of the Code. In each case, the final renewal note was executed after the effective date of the Code. In some cases, money advanced in the notes or renewed notes was used to purchase property in which the creditor then took a security interest.
In In Re Gibson, the debtor is represented by Roger L. Hiatt of Hiatt, Hiatt & Carpenter, Chartered, Topeka, Kansas. The creditor is represented by Wilburn Dillon of Tilton, Dillon, Beck and Crockett, Topeka, Kansas.
In In re Hilton, the debtors are represented by David M. Arnold, Wichita, Kansas. The creditor is represented by Malcolm C. Black, Wichita, Kansas.
In In Re Wolfe, the debtor is represented by Kermit M. Beal, Lawrence, Kansas. The creditor is represented by William B. Pendleton, Lawrence, Kansas.
In In Re Stupka, the debtor is represented by Frank A. Caro, Wichita, Kansas. The creditor is represented by Paul M. Buchanan, Wichita, Kansas.
In In Re Walwyn, the debtor is represented by Roberta Sue Hawver of Hawver & Irigonegaray, Topeka, Kansas. The creditor is represented by Joseph J. Wittman of Topeka, Kansas.
In In Re Morrow, the debtors are represented by Donald B. Clark, Wichita, Kansas. The creditor is represented by Michael G. Coash of Bond, Bond & Coash, El Dorado, Kansas.
These cases are joined for decision. Each case is a lien avoidance question under § 522(f). As developed, however, the cases encompass the full panoply of questions as to the effect that post-Code renewal, add on money, add on collateral and cross collateralization has on pre-Code purchase and non purchase money loans.
The issues presented are:
1. Can a debtor constitutionally avoid a security interest that attaches before the effective date of the Bankruptcy Code under 11 U.S.C. § 522(f).
2. Does a renewal note owing after the effective date of the Bankruptcy Code extinguish the original note and security interest and create a new, separate and distinct obligation and security interest.
3. Do add on or cross collateralization clauses destroy a creditor's purchase money status.
The parties have submitted legal memoranda and the matter is ready for determination.
In each of the following Code cases, collateral of the nature described under § 522(f)(2) was pledged as security by the debtor, and a cross collateralization agreement was signed.
In Re Gibson (Case No. 81-40359)
On July 26, 1976 Postal Finance Company, Inc. loaned debtor $943.47 at an annual interest rate of 27.95%. Debtor pledged as security for repayment of the debt the following items of personal property:
Plaid green and white cloth sofa; Zenith portable television; Whirlpool green electric stove; Whirlpool green refrigerator; white Maytag washing machine; white Maytag gas dryer; twin size bed with mattress and box springs; pink painted chest; double bed with mattress; walnut wood chest; walnut dresser.
A financing statement was filed on July 29, 1976 covering the same items of personal property, filing No. 256609, with the Register of Deeds of Shawnee County, Kansas.
Thereafter on at least six occasions prior to October 1, 1979 renewal notes were executed in which additional advances were made or collateral was added on or deleted.
On August 7, 1980 the creditor loaned the debtor a total of $1,598.31 at an annual interest rate of 26.71%, $1,233.41 was carried over from the July 23, 1979 loan. A total of $364.90 in cash was then advanced to the debtor. The same items of personal property were pledged as security for repayment of the debt. Set forth in the Disclosure Statement is the following: "This statement of loan is rendered in connection with a Master Loan Agreement between the parties dated August 7, 1980 providing a maximum of credit of $1,600 and is a part thereof." The Master Loan Agreement was also executed on August 7, 1980.
On February 10, 1981 the creditor filed a Continuation Statement with the Shawnee County Register of Deeds, No. 330838.
On May 15, 1981 the debtor filed a petition and plan under chapter 13 of title 11 U.S.C. along with a complaint requesting avoidance of the creditor's security interest under 11 U.S.C. § 522(f). On June 3, 1981 the creditor filed an objection to avoidance of lien and a Motion to Stay Confirmation Pending Adjudication of Security Interest. The creditor also filed a Proof of Claim rejecting the debtor's plan and filed as a secured creditor.
The balance owed the creditor as of May 15, 1981 is $1,352.73. The creditor asserts that the security originally pledged by the debtor on July 26, 1976 as itemized above and continued through the transaction on August 7, 1980, is of a value equal to or greater than the balance owed creditor. The debtor has valued the security at $1,000.
In Re Hilton (Case No. 81-10235)
On June 23, 1978 the debtors obtained a loan from Beneficial Finance Co. of New Mexico. The loan was paid by renewal on December 13, 1979. At that time the balance outstanding was $1,387.18. In conjunction with the renewal, an additional cash advance of $777.00 was made, and insurance was added, bringing the balance to $2,500.00. Finance charges of $772.43 were added bringing the total balance to $3,272.43. The debtors made payments of $832.17 before filing for bankruptcy. No new collateral was added in the renewal of December 13, 1979 and thus the new advance of $777.00 was not used to purchase any new collateral in which the creditor took a security interest.
In Re Wolfe (Case No. 81-40301)
A series of loans were made by C.F.C.A. Employees Credit Union to the debtor, with renewal notes executed, additional advances made and additional collateral pledged. The last renewal before the effective date of the Code was June 22, 1979. At that time $7,732.66 owing on the prior loan was carried over to the new loan, and an additional amount of $267.34 was advanced to the debtor.
One renewal note was executed after the effective date of the Code, on October 24, 1979. The sum of $6,233.88 was carried over from the prior loan and an additional $1,766.12 was advanced to the debtor. Additional collateral was pledged. The parties stipulated that the debtor used the $1,766.12 to purchase the following personalty in which the creditor took a security interest:
1979 King size bed 1979 Bar and 2 stools 1979 Coffee and end tables 1979 Love seat and chair 1979 Tilt-top table
The parties further stipulate that the following three items of additional collateral pledged in the renewal note after the effective date of the Code were existing household goods in which the creditor has a security interest:
Silver wine cooler 2 silver goblets 8 place silver setting
In Re Stupka (Case No. 81-10276)
A loan was made before the effective date of the Code by the Citizens State Bank of Grainfield, Kansas to the debtor. On October 18, 1979, after the effective date of the Code, the loan, with an outstanding balance of $3,800, was renewed. No new cash was advanced, and no new collateral was added. The loan was secured by: equipment, supplies, accounts receivables of Stupka Construction, and a 1974 Chevrolet pickup truck. The debtor made one payment of $663.22, leaving a balance owing of $3,136.78. The parties have stated the records do not go back far enough to determine if the original loan and security interest was a purchase money interest. This determination is not necessary, however, to the Court's decision.
In Re Walwyn (Case No. 81-40613)
On September 20, 1979 the debtor executed an unsecured installment note of $1,104.00 to Finance America Corp. (creditor). On July 10, 1980 the debtor borrowed an additional $501.63 from the creditor to purchase an Alpha Starr, Big Screen television with stand. In addition, the creditor "paid" the unsecured note and added the balance of it onto the July 10, 1980 note. The total balance of the new note was $1,049.91. A security agreement in connection with the new note was executed granting a security interest in the television and a financing statement perfecting the creditor's interest was filed on July 10, 1980 in the Shawnee County, Kansas Register of Deeds.
The debtor made 11 payments on the July...
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