In re Pajot

• Decision Date: 17 July 2007
• Docket Number: No. 06-31861-DOT.,No. 06-31734-DOT.,No. 06-33159-DOT.,No. 06-31446-DOT.,06-31446-DOT.,06-31861-DOT.,06-31734-DOT.,06-33159-DOT.
• Citation: 371 B.R. 139
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re John Walter PAJOT, Amy Lillian Taylor, Rebecca Ann Price, Morris Dwayne Horne, Chapter 13 Debtors.

371 B.R. 139

In re John Walter PAJOT, Amy Lillian Taylor, Rebecca Ann Price, Morris Dwayne Horne, Chapter 13 Debtors.

No. 06-31446-DOT.

No. 06-31861-DOT.

No. 06-31734-DOT.

No. 06-33159-DOT.

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

July 17, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

John Russell Bollinger, Boleman Law Firm, P.C., Richmond, VA, for Chapter 13 Debtors.

Robert E. Hyman, Richmond, VA, Chapter 13 Trustee.

Deborah S. Kirkpatrick, Virginia Beach, VA, for Branch Banking & Trust Company.

Sara A. John, M. Richard Epps, P.C., Virginia Beach, VA, for CitiFinancial Auto Corporation.

John P. Van Beek, Young, Goldman & Van Beek, P.C., Alexandria, VA, for Nissan Motor Acceptance Corporation.

Carl A. Eason, Steven L. Brown, Virginia Beach, VA, for GMAC.

Barkley Clark, Marc E. Albert, Stinson Morrison Hecker LLP, Washington, D.C., Co-Counsel for GMAC.

OPINION

DOUGLAS O. TICE JR., Chief Judge.

Hearings were held on November 8, 2006, January 10, 2007, and April 17, 2007, on objections to confirmation filed by secured creditors in each of these four cases filed under chapter 13 of the Bankruptcy Code. Four different creditors object to confirmation of the debtors' proposed chapter 13 plans because the plans attempt to bifurcate the relevant secured creditor's claim into an unsecured and a secured portion. The debtors are all represented by the same counsel. The collateral at issue in each case is a motor vehicle, purchased for the debtor's personal use within the 910 days preceding each debtor's bankruptcy filing. As part of acquiring the collateral in each of the cases, the debtor traded in a vehicle which was subject to debt exceeding its trade-in value. The excess debt less the vehicle's trade-in value, known as the "negative equity," was rolled into the financing package for the purchase of the new vehicle.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPPA)¹ applies because each of these cases was filed after October 15, 2005. As part of the large-scale revision of the Bankruptcy Code, Congress added a provision preventing bifurcation of purchase-money security interests in motor vehicles purchased for personal use within the 910 days preceding a bankruptcy filing. This provision was placed in 11 U.S.C. § 1325(a) in an unnumbered, "hanging" paragraph following § 1325(a)(9).² The creditors' objections to confirmation argue that each debtor has improperly attempted to bifurcate the creditors' claims, in contravention to this new provision. The debtors argue that a claim including rolled-in negative equity is not entirely a purchase-money security interest. Hence, the hanging paragraph is inapplicable, and the claim can be bifurcated.

Hearings were held in all the cases, and the court has taken each under advisement. The facts in each of the cases are essentially the same; therefore, this court will address all four cases together in this consolidated opinion and issue separate orders for entry in each of the cases. The court finds that the portion of the claim corresponding to rolled-in negative equity may be bifurcated because it is not a purchase-money security interest, but the hanging paragraph applies to the remaining purchase-money portion, which cannot be bifurcated as proposed by debtors' plans. For the reasons set forth below, the objections to confirmation will be sustained in part with the plan provisions to be modified as discussed herein.

Findings of Fact

John Walter Pajot Case No. 06-31446-DOT

On June 15, 2006, debtor John Walter Pajot filed a voluntary petition for relief under chapter 13. Debtor had purchased for his personal use a 2005 Mazda Tribute from Capitol Lincoln Mercury on April 28 2005, less than 910 days prior to filing. Branch Banking & Trust Company ("BB & T") financed the purchase for a total of $24,871.16 and retained a purchase-money security interest in the vehicle pursuant to a lien recorded on the Certificate of Title filed with the Virginia Department of Motor Vehicles. As part of the financing transaction, debtor traded in a 2003 Mazda Protégé to Capitol.

At the time of the trade-in, the Protégé was subject to a note held by another creditor, Onyx, with a payoff in the amount of $14,960.82. Capitol allowed a trade-in amount of $7,000 for the Protég é, which resulted in a deficiency of $7,960.82 in the amount owed to Onyx. This negative equity amount was included in the total amount financed by BB & T for the purchase of the Tribute and increased the total financing package to $24,871.16, after applying a rebate of $3,000.00 to the transaction.

Debtor's chapter 13 plan, filed on June 20, 2006, proposed a separation of the debt to BB & T, which would receive a secured claim in the amount of $13,125.18 and a general unsecured claim in the amount of $7,960.82, totaling $21,086.00. BB & T had filed a secured claim in the amount of $21,137.60.³

BB & T objected to confirmation of the plan on June 21, 2006, alleging that the plan does not provide for BB & T's secured claim in full pursuant to 11 U.S.C. § 1325(a)(5).

Amy Lillian Taylor Case No. 06-31861-DOT

Debtor Amy Lillian Taylor filed a voluntary petition for relief under chapter 13 on July 25, 2006. Within 910 days prior to filing, debtor had purchased for her personal use a 2005 Mazda 6 on March 31, 2006, from Whitten Brothers, Inc. CitiFinancial financed the vehicle purchase in the amount of $20,146.18 and retained a purchase-money security interest in the vehicle. As part of the financing, debtor traded in a 2002 Mazda 626. At the time of the trade-in, debtor owed $10,721.88 and Whitten Brothers valued the trade-in at $6,800.00, leaving $3,921.88 of negative equity financing that was rolled over into the financing for the Mazda 6.

On July 27, 2006, debtor filed a chapter 13 plan, valuing CitiFinancial's total claim as $20,122.00 and proposing to separate CitiFinancial's claim into a secured portion in the amount of $16,201.00 and an unsecured portion in the amount of $3,921.00. CitiFinancial filed a proof of claim on July 31, 2006 claiming $20,732.53⁴ as the total amount owed, which included the negative equity rolled into the financing transaction as secured debt.

On August 11, 2006, CitiFinancial objected to confirmation of the plan, claiming that the plan failed to satisfy the provisions of 11 U.S.C. § 1325(a)(5).

Rebecca Ann Price Case No. 06-31734-DOT

Debtor Rebecca Ann Price filed a voluntary petition for relief under chapter 13 on July 14, 2006. She had purchased for her personal use a 2005 Nissan Xterra from Dominion Nissan on December 16, 2005, within the 910 days preceding filing. Nissan Motor Acceptance Corporation ("Nissan") financed the transaction through a Virginia Simple Interest Retail Installment Contract. The contract indicates that the cash price of the Xterra was $27,944.00 and the total amount of financing was $34,153.74. The $6,209.74 difference between the two figures included charges of $995.00 for a service contract, $295.00 for gap insurance, $95.00 for a document preparation fee, $908.44 for sales tax, $27.00 for license, registration and title fees, and $8,229.30 to pay off the obligation owed on the trade-in vehicle owed to the creditor, Branch Banking & Trust ("BB & T"), reduced by credits of $2,000.00 for a manufacturer's rebate, a $200.00 cash payment and $2,140.00 for a trade-in allowance. The negative equity rolled into the transaction therefore is the $8,229.30 payoff less the $2,140.00 trade-in allowance, yielding $6,089.30.

On July 24, 2006, Nissan filed a proof of secured claim for its security interest in the vehicle in the amount of $32,745.48⁵. Debtor filed her chapter 13 plan on July 26, 2006, which proposed to separate Nissan's claim into a secured portion in the amount of $2,625.00 and an unsecured portion in the amount of the negative equity paid off by the financing transaction without accounting for the trade-in allowance, $8,229.30.⁶

Nissan objected to confirmation on August 24, 2006 on the grounds that the plan does not comply with the provisions set forth in 11 U.S.C. § 1325(a)(5) and requested that the plan's confirmation be denied.

Morris Dwayne Horne Case No. 06-33159-DOT

Debtor Morris Dwayne Horne filed a voluntary petition for bankruptcy under chapter 13 on November 7, 2006. Prior to filing, on June 24, 2006, debtor had purchased for his personal use a 2006 Chevrolet HHR from Dominion Chevrolet Cadillac. Debtor traded in a 2004 Chevrolet Colorado truck as part of the financing of the HHR. Because debtor owed $3,721.17 more on the Colorado than the amount it was worth, debtor requested that this negative equity be rolled into the financing for the HHR. Along with the negative equity, the financing included the cash price of the vehicle, a $755.00 service contract, gap insurance of $195.00⁷, and other fees. The total amount the dealer financed was $22,328.91, which sum is secured by a security interest in the vehicle. Subsequently, the dealer assigned the financing contract to GMAC.

On November 9, 2006, debtor filed his chapter 13 plan which proposed to separate GMAC's claim into a secured portion totaling $15,535.00 and an unsecured portion totaling $6,000.00. Debtor had listed the vehicle on his bankruptcy schedules as having a value of $16,600.00. GMAC filed a proof of claim in the amount of $21,332.71⁸ son December 28, 2006 and objected to the confirmation of the plan on the grounds that the plan violated the provisions of 11 U.S.C. § 1325(a)(*) by bifurcating its claim.

Discussion and Conclusions of Law

Prior to the enactment of BAPCPA, a debtor's chapter 13 plan could bifurcate a secured creditor's claim into a secured portion equal to the value of the collateral at filing and an unsecured portion for the remainder. 11 U.S.C. § 506. This was often referred to as "cramdown" because the secured creditor could not object to such treatment.⁹ In BAPCPA, Congress added a...