In re Jenkins
| Decision Date | 21 April 2022 |
| Docket Number | Case No. 19-10567 |
| Citation | 639 B.R. 356 |
| Parties | IN RE: Larry S. JENKINS Jennifer W. Jenkins, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Texas |
Robert W. Barron, Barron & Carter, LLP, Nederland, TX, for Joint Debtor Jennifer W. Jenkins, Debtor Larry S. Jenkins.
Steven S. Packard, Packard & Packard, PLLC, Houston, TX, for Joint Debtor Jennifer W. Jenkins.
Before the Court for consideration is the "Second Motion to Modify Confirmed Chapter 13 Plan" ("Motion") filed by the Debtors, Larry S. Jenkins and Jennifer W. Jenkins ("Debtors"), on January 17, 2022. Debtors seek to modify their previously confirmed Chapter 13 plan pursuant to 11 U.S.C. § 1329 for multiple reasons, including the need to surrender collateral pursuant to Section 3.6 of their plan. The Chapter 13 Trustee objected to the Motion, but the objection has been resolved. Mobiloil Federal Credit Union ("Mobiloil FCU") also objected to the Motion. That objection remains unresolved. The Court conducted a hearing to consider the Motion on March 31, 2022, at which counsel for Debtors and Mobiloil FCU appeared, as did Lloyd Kraus, the Chapter 13 Trustee.
The Court finds that the Motion was properly served pursuant to the Federal and Local Rules of Bankruptcy Procedure, and that it contained the appropriate twenty-eight (28)-day negative notice language pursuant to LBR 3015(h), which directed any party opposed to the relief sought by the Motion to file a written response within twenty-eight (28) days or the Court would deem the Motion unopposed. Other than the Chapter 13 Trustee and Mobiloil FCU, no other creditor or party-in-interest objected. After consideration of the Motion, the objections, the evidence submitted by the parties, the relevant legal authorities, and the arguments and presentations of the parties, the Court concludes that the Motion should be GRANTED and the modified plan CONFIRMED for the reasons stated in this Memorandum of Decision. 1
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a). The Court has the authority to enter a final judgment in this contested matter because it constitutes a core proceeding pursuant to 28 U.S.C. §§§ 157(b)(2)(L), (b)(2)(B), and (b)(2)(A).
Debtors, Larry S. Jenkins and Jennifer W. Jenkins, filed their voluntary petition for relief under Chapter 13 and their original Chapter 13 Plan ("Plan") on December 3, 2019.2 3 Debtors’ original Plan was confirmed on February 27, 2020.4 Mobiloil FCU did not object to confirmation.
Mobiloil FCU holds two secured claims against Debtors, both of which were provided for under the terms of the original Plan. Mobiloil FCU's first claim is secured by a 2014 Ford Flex vehicle.5 The Plan treated the Ford Flex claim as a fully secured claim pursuant to the hanging paragraph of 11 U.S.C. § 1325(a) (*), which excepts certain claims from bifurcation under 11 U.S.C. § 506(a).6 Mobiloil FCU's second claim is secured by a 2012 Dodge Durango vehicle.7 The Dodge Durango claim was bifurcated and treated as a partially secured claim pursuant to 11 U.S.C. § 506(a).8 On July 20, 2020, Debtors objected to the Dodge Durango claim in order to establish the value of that vehicle pursuant to § 506(a).9 The Court sustained Debtors’ claim objection on August 24, 2020, allowing the Dodge Durango claim to be treated as a secured claim in the amount of $12,425.00. The balance was classified as a general unsecured claim.10 Mobiloil FCU did not respond to Debtors’ claim objection.
Later, Debtors moved to modify their original Plan.11 The Court approved that first modification.12 It increased the amount of payments required, and reconciled the Plan with allowed claims pursuant to this Court's claims reconciliation process.13 Mobiloil FCU did not respond to Debtors’ first plan modification, which was approved by the Court.14 Most recently, Debtors have moved a second time to modify their Plan.15 Mobiloil FCU objects to this second proposed modification which is before the Court.
Mobiloil FCU objects to the Motion for two reasons. Firstly, the "surrender of collateral after confirmation of a previous plan is not authorized by 11 U.S.C. Section 1329" such that "the modified plan does not provide for payment in full of the secured claims of Mobiloil Federal Credit Union previously provided for under the Debtors' plan."16 Second, the "surrender of the collateral in this instance is inequitable and improper due to depreciation in value and use of the collateral by Debtors during the previous periods since the filing of this bankruptcy in 2019 to the present."17 These arguments are addressed below. No other issues are contested by MobilOil FCU.
At the hearing on this matter, the Chapter 13 Trustee stated that his objections to the Motion had been resolved, and he recommended confirmation of the Debtor's modified plan. Furthermore, the Chapter 13 Trustee represented that Debtors are current on the payments required by the second modification Motion.18
The only witness to testify at the hearing was Debtor, Jennifer W. Jenkins. Mrs. Jenkins testified that Debtors filed their bankruptcy case because of financial difficulties, and that they have struggled lately to maintain their plan payments. Specifically, Debtors have struggled because of their son's Covid-19 diagnosis, mechanical failures of the Dodge Durango which necessitated expensive repairs, and a reduction in the overtime hours worked by Mr. Jenkins upon which they rely in part for income. Debtor's filed the second modification Motion to help lower their monthly plan payments to a more manageable sum, cure post-petition mortgage arrears, and help them better afford their ongoing mortgage payments.19 In order to make these changes, Debtors seek to surrender the Ford Flex and Dodge Durango to MobilOil FCU.
According to Mrs. Jenkins’ testimony, the Debtors’ son has primarily used the Dodge Durango. He paid Debtors $489.00 monthly for use of the vehicle, which they in turn contributed towards their monthly plan payments to the Trustee. The Durango does not currently run, and their son had to obtain another, more reliable vehicle due to mechanical issues with the Durango. Thus, he stopped paying Debtors each month, meaning they could no longer afford their plan payments, or afford to retain the Dodge Durango. MobilOil FCU's Dodge Durango claim is secured in the amount of $12,425.00, and the balance is classified as a general unsecured claim.20
As of March 22, 2022, the Chapter 13 Trustee has paid Mobiloil FCU a principal amount no less than $6,745.87, and interest no less than $883.44.21
In comparison, according to Mrs. Jenkins’ testimony, the Ford Flex runs and is in good condition. Debtors seek to surrender this vehicle purely to cut their expenses and lower their monthly plan payments. After the surrender of this vehicle, Debtors will only have a single vehicle to share for transportation, despite the fact that both Debtors work. MobilOil FCU's Ford Flex claim was allowed as secured in the full amount of $16,591.00. As of March 22, 2022, the Chapter 13 Trustee has paid Mobiloil FCU for the Ford Flex claim a principal amount of no less than $9,079.62, and interest no less than $1,177.80.22
Debtors are prepared to surrender both vehicles to MobilOil FCU so they can be sold and the sale proceeds applied to the remaining amounts owed. The Motion provides that any deficiency balance after application of the sales proceeds will be treated as an allowed general unsecured claim.
The issue before the Court is whether 11 U.S.C. § 1329 permits Debtors to surrender collateral to MobilOil FCU as proposed in the Motion. No other requirements for plan modification appear to be contested by any party, and the Court finds Debtors have otherwise met their burden for approval of the Motion.
Courts are split over whether it is permissible to surrender collateral in a Chapter 13 plan modification, and there does not appear to be any direct authority from the Fifth Circuit on this question. There is, however, precedent from this Court allowing such plan modifications. In a decision by the Hon. Donald R. Sharp, such a modification was permitted where the collateral in question had already been surrendered and sold at auction. In re Taylor , 297 B.R. 487, 490-91 (Bankr. E.D. Tex. 2003). Other courts in the Fifth Circuit have similarly found Chapter 13 plan modifications to surrender collateral permissible, even when they denied the underlying modification motion. See In re Sellers , 409 B.R. 820, 827-29 (Bankr. W.D. La. 2009) ; see also In re Hernandez , 282 B.R. 200, 206-208 (Bankr. S.D. Tex. 2002) ; see also In re Anderson , 545 B.R. 174, 182 (Bankr. N.D. Miss. 2015) ; see also In re Tucker , 500 B. R. 457, 461-62 (Bankr. N.D. Miss. 2015).
These decisions are not isolated, and many bankruptcy courts in other parts of the country have reached similar conclusions.23
A competing line of cases prohibits Chapter 13 plan modifications to surrender collateral. At the hearing, MobilOil FCU mostly relied on a Sixth Circuit decision which held that "a debtor cannot modify a plan under section 1329(a) by: 1) surrendering the collateral to a creditor; 2) having the creditor sell the collateral and apply the proceeds toward the claim; and 3) having any deficiency classified as an unsecured claim." Chrysler Fin. Corp. v. Nolan (In re Nolan) , 232 F.3d 528, 535 (6th Cir. 2000).24 Some courts in the Fifth Circuit have followed Nolan and found that Chapter 13 plan modifications to surrender collateral are not permissible. See e.g., In re Ramos , 540 B.R. 580, 593 (Bankr. N.D. Tex. 2015) ; see also In re Coffman , 271 B.R. 492, 496 (Bankr. N.D. Tex. 2002) ; see also In re Cameron , 274 B.R. 457, 461 (Bankr. N.D. Tex. 2002). Other courts outside the Fifth Circuit have also followed Nolan .25
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