In re Gonzalez

• Decision Date: 27 May 2003
• Docket Number: No. 02-B-48045.,02-B-48045.
• Citation: 295 B.R. 584
• Parties: In re Luis GONZALEZ, Jr., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

295 B.R. 584

In re Luis GONZALEZ, Jr., Debtor.

No. 02-B-48045.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

May 27, 2003.

COPYRIGHT MATERIAL OMITTED

Michael C. Burr, Robert J. Adams & Associates, Chicago, IL, for Debtor.

Christopher H. Purcell, Sherman & Sherman, Chicago, IL, for Ford Motor Credit Company.

MEMORANDUM OPINION AND ORDER

A. BENJAMIN GOLDGAR, Bankruptcy Judge.

This matter is before the court on the objection of Ford Motor Credit Company to the confirmation of debtor Luis Gonzalez, Jr.'s chapter 13 plan.

FMCC, a creditor, took a security interest in Mr. Gonzalez's van in return for the loan that allowed Mr. Gonzalez to buy the van. In his most recently tendered plan, Mr. Gonzalez proposes to keep the van and pay FMCC $1,000 as the value of the van — and therefore the value of FMCC's security interest — pursuant to 11 U.S.C. § 1325(a)(5)(B). FMCC objects to confirmation of the plan on the ground that $1,000 is not the van's value. In March, the court held an evidentiary hearing on FMCC's objection, after which the parties filed post-hearing memoranda.

The court now makes the following findings of fact and conclusions of law and determines that the value of the van is $2,411. The objection will therefore be sustained.

1. Jurisdiction

The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. §§ 1334(a) and 157(a), and the district court's Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(K) and (L).

2. Background

The van sparking the controversy is a 1996 Ford Windstar GL minivan. It has seen better days. The van has 103,335 miles on it, high mileage for this make and model. The body shows considerable minor damage: deep scratches on both bumpers, a large dent in the left rear quarter panel (near the gas tank), a small dent in the trunk and another in the right rear side door. One of the doors does not close properly. The left front turn signal is broken. The van starts, and it moves once started, but the "check engine" and "ABS" lights on the dashboard come on and remain on. It is unclear why.

Mr. Gonzalez bought the van from a suburban Chicago Ford dealer on February 7, 2001 for a cash price of $9,900.¹ The contract, which was admitted into evidence, does not describe the car's condition or mileage at the time of sale. The contract does show that on top of the cash price, Mr. Gonzalez paid $1,495 for something called "EXTSERVCONT," which the parties translated to mean an extended service contract. That contract, however, was not introduced at the hearing.

Not surprisingly, the parties hold rather different views on the van's value. Mr. Gonzalez contends that given its condition, the van has a value of no more than $325-even less than the $1,000 value assigned in his plan. FMCC asserts that despite its condition, the van has a value of $7,495.

To support his valuation, Mr. Gonzalez presented the testimony of Akin Ojuluwayo, an experienced used car dealer who regularly buys, sells, and appraises cars. In January 2003, Mr. Ojuluwayo inspected Mr. Gonzalez's van for the purpose of giving an opinion in this case.

As a preface to his opinion, Mr. Ojuluwayo described three standard publications listing the values of used cars: the Black Book, the Kelley Blue Book, and the National Automobile Dealers Association ("NADA") guide. The Black Book, he said, places a vehicle for a particular model year in one of four classes depending on its condition and then provides a price. These are wholesale prices based on the prices dealers pay for cars at auctions. Mr. Ojuluwayo testified that consumers are unable to attend these auctions and cannot obtain Black Book prices. Rather, he said, they pay the Black Book price plus a standard dealer markup of 20%.

Like the Black Book, the Kelley Blue Book classifies vehicles based on their condition. It, too, gives wholesale prices, and Mr. Ojuluwayo said the prices generally correspond to those in the Black Book.

The NADA guide, meanwhile provides both a wholesale and a retail price for each vehicle. Unlike Black Book and Kelley Blue Book prices, however, NADA prices do not vary with the vehicle's condition. The NADA guide assumes that all vehicles are, as Mr. Olujuwayo put it, "extra clean." Consequently, the prices in the NADA guide are typically higher than prices in the Black Book or Kelley Blue Book.

Relevant pages from the Black Book and Kelley Blue Book were admitted into evidence. For a 1996 Ford Windstar GL in "rough" condition — the condition of Mr. Gonzalez's van, according to Mr. Ojuluwayo — the December 2002 Black Book listed a value of $1,775. The Kelley Blue Book for January 2003 said a 1996 Ford Windstar GL in "poor" condition (comparable to the Black Book's "rough" condition) had "no value."

Based on his inspection of Mr. Gonzalez's van, Mr. Ojuluwayo opined that the van had a "replacement value" (his term) of $325. He reached that figure by taking the Black Book's $1,775 wholesale value as his starting point. From that, he deducted $1,500 for repairs — an amount he described as conservative and probably insufficient even to perform needed body work — to reach $275. He then added what he said was a customary markup of 20%, or about $50, to arrive at $325.²

FMCC offered no witnesses to support its valuation but relied solely on the NADA guide and the contract Mr. Gonzalez signed when he bought the van. The NADA guide for December 2002, the relevant page of which was admitted into evidence, listed the van's retail value as $6,000. To that figure, FMCC added the $1,495 price of Mr. Gonzalez's extended service contract, resulting in a total value of $7,495.

3. Analysis

The valuation issue arises here because of the Code's treatment of secured claims and section 13 plans. Section 506(a) bifurcates a secured creditor's "allowed claim" into two portions: a portion deemed secured "to the extent of the value of such creditor's interest in the estate's interest in such property," and an unsecured portion consisting of the balance. 11 U.S.C. § 506(a). Under section 1325 of the Code, a chapter 13 debtor can keep property securing a creditor's claim, even over the creditor's objection, if the debtor's plan provides for payment of the present value of the "allowed amount" of the claim — the value, in other words, under section 506(a). See 11 U.S.C. § 1325(a)(5)(B)(ii).

Mr. Gonzalez wants to keep his van and so has invoked this "cram down" provision of the Code. The dispute between FMCC and Gonzalez concerns the value of the secured portion of FMCC's claim for purposes of section 506(a).

a. The Proof of Claim Problem

The first question is whether valuation has to be addressed at all. The court's claims register does not list a proof of claim filed by FMCC in this case, and the claims bar date was April 23, 2003. At a status hearing on April 29, the court asked the parties whether the claims register was correct. FMCC's counsel promised to investigate whether FMCC had filed a proof of claim. At a status hearing the following week, he produced one — filed-stamped "May 1, 2003," eight days after the bar date.

Ordinarily, a secured creditor's failure to file a proof of claim would obviate any need to consider the creditor's valuation objection. Section 506(a) defines a secured claim as an "allowed claim." 11 U.S.C. § 506(a). Section 1325(a)(5) likewise applies only to an "allowed secured claim," 11 U.S.C. § 1325(a)(5), and when a debtor invokes the "cram down" provision under that section the creditor is protected only to extent of the value of "the allowed amount" of the claim, 11 U.S.C. § 1325(a)(5)(B)(ii). Section 502(a), in turn, provides that a "claim ... proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest objects," 11 U.S.C. § 502(a), making clear that a claim is not "allowed" unless a proof of claim has been filed. See In re Schaffer, 173 B.R. 393, 396 (Bankr.N.D.Ill.1994).

Because a secured creditor must have an "allowed claim" to object to valuation, and because a claim is not "allowed" unless it is filed, a filed proof of claim is a prerequisite to a valuation objection under section 1325(a)(5)(B)(ii). In re Linkous, 141 B.R. 890, 895 (W.D.Va.1992), aff'd on other grounds, 990 F.2d 160 (4th Cir.1993) In re Stewart, 247 B.R. 515, 520 (Bankr.M.D.Fla.2000); In re Dennis, 230 B.R. 244, 252 (Bankr.D.N.J.1999); 8 L. King, et al., Collier on Bankruptcy ¶ 1325.06[1][a] at 1325-23 (15th ed.2002).

For two reasons, however, FMCC is entitled to pursue its objection to the valuation of Mr. Gonzalez's van despite the apparent proof of claim problem. First, a document not actually intended as a proof of claim (and so not labeled "proof of claim" or consisting of the official form) will sometimes be taken as an "informal proof of claim." In re Bargdill, 238 B.R. 711, 717 & n. 2 (Bankr.N.D.Ohio 1999); 9 L. King, et al., supra, ¶ 3001.05[1] at 3001-11. The "informal proof of claim" concept is an "equitable doctrine developed by the courts to ameliorate strict enforcement of the claims bar date." In re Wigoda, 234 B.R. 413, 415 (Bankr.N.D.Ill.1999), aff'd without op., 11 Fed.Appx. 624 (7th Cir.2001).

To constitute an informal proof of claim, a document must (1) have been timely filed with the court and become part of the record; (2) state the existence and nature of the debt; (3) state the amount of the claim; and (4) evidence the creditor's intent to hold the debtor liable. Wigoda, 234 B.R. at 415; see also In re Plunkett, 191 B.R. 768, 774 (Bankr.E.D.Wis.1995) (adding that the allowance of the claim must also "be equitable under the facts of the case"), aff'd, 82 F.3d 738 (7th Cir.1996). An informal proof of claim may then "become the basis for an amended proof of claim." Wigoda, 234 B.R. at 415.

FMCC's objection to confirmation meets these requirements. The objection was filed with the court in February, well before the...