In re Quick

• Decision Date: 26 January 2007
• Docket Number: No. 06-11031-M.,No. 06-10729-M.,06-10729-M.,06-11031-M.
• Citation: 360 B.R. 722
• Parties: In re: Michael Justin QUICK, Debtor. In re: John Jason Ballard and Summer Michelle Ballard, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Oklahoma

360 B.R. 722

In re: Michael Justin QUICK, Debtor.

In re: John Jason Ballard and Summer Michelle Ballard, Debtors.

No. 06-10729-M.

No. 06-11031-M.

United States Bankruptcy Court, N.D. Oklahoma.

January 26, 2007.

COPYRIGHT MATERIAL OMITTED

Layla Dougherty, Love, Beal & Nixon, Oklahoma City, OK, Stephen DeGiusti, Crowe & Dunlevy, Oklahoma City, OK, for Petitioner.

MEMORANDUM OPINION

TERRENCE L. MICHAEL, Bankruptcy Judge.

This is the story of two motor vehicles and the debtors who no longer desire them. The parties to these disputes have asked the Court to determine whether debtors or creditors must suffer at the gallows of the "hanging paragraph" found in § 1325 of the United. States Bankruptcy Code, as modified by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). The following findings of fact and conclusions of law are made pursuant to Federal Rule of Civil Procedure 52 and Federal Rule of Bankruptcy Procedure 7052, made applicable to these contested matters by Federal Rule of Bankruptcy Procedure 9014.

Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), and venue is proper pursuant to 28 U.S.C. § 1409.¹ Reference to the Court of this matter is proper pursuant to 28 U.S.C. § 157(a). This is a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(L).

Findings of Fact

The facts in these cases are simple and undisputed.² On November 2, 2005, Michael Justin Quick ("Quick") entered into a retail installment contract (the "Quick Contract") for the purchase of a used 2002 Jeep Grand Cherokee (the "Cherokee") with Chris Nikel Chrysler Jeep Dodge. The Quick Contract was assigned without recourse to DaimlerChrysler Financial Services Americas LLC, successor by merger to DaimlerChrysler Services North America LLC ("Chrysler"). Under the terms of the Quick Contract, the purchase price of the Cherokee was $20,988. Of that, $20,693 was financed over a period of six years with interest at an annual rate of 11.44%. Quick was to make monthly payments to Chrysler of $400.43, commencing on December 17, 2005. As part of the transaction, Quick granted Chrysler a security interest in the Cherokee.

On June 9, 2004, John Jason Ballard and Summer Michelle Ballard (the "Ballards") entered into a retail installment contract (the "Ballard Contract") for the purchase of a used 2004 Dodge Neon (the "Neon") with Crown Bristow LLC. The Ballard Contract was also assigned without recourse to Chrysler. The Ballard Contract provided that the purchase price of the Neon was $10,340. The Ballards also purchased a service contract, bringing the total amount financed to $11,895. This was financed over a period of five years with interest at an annual rate of 17.5%. The Ballards were to make monthly payments to Chrysler of $300.97, commencing on July 24, 2004. As part of the transaction, the Ballards granted Chrysler a security interest in the Neon.

Quick and the Ballards eventually sought relief under Chapter 13 of the Bankruptcy Code. Quick filed his petition on June 14, 2006; the Ballards made their filing on August 9, 2006. Chrysler filed proofs of claim in both cases, alleging a claim of $19,712.84 in the Quick case and $10,614.51 in the Ballard case. Neither Quick nor the Ballards found it in their best interest to retain the Cherokee or the Neon (collectively referred to as the "Vehicles"). They filed plans calling for the surrender to Chrysler of the Vehicles in full satisfaction of Chrysler's claims. In the Quick case, based upon the most recently filed plan, unsecured creditors are projected to receive 100% of their claims.³ In the Ballard case, the number is 9%.⁴ Chrysler has objected to confirmation of the plans in each of the cases, arguing that it should be allowed to liquidate the Vehicles and then file unsecured claims for any remaining deficiency.

To the extent the "Conclusions of Law" contain any items which should more appropriately be considered "Findings of Fact," such items are incorporated herein by this reference.

Conclusions of Law

The dispute before the Court today focuses on § 1325(a) of the Bankruptcy Code, as modified by BAPCPA. That section provides as follows:

(a) Except as provided in subsection (b), the court shall confirm a plan if —

* * * * * *

(5) with respect to each allowed secured claim provided for by the plan —

(A) the holder of such claim has accepted the plan;

(B)(i) the plan provides that —

(I) the holder of such claim retain the lien securing such claim until the earlier of —

(aa) the payment of the underlying debt determined under nonbankruptcy law; or

(bb) discharge under section 1328; and

(II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law;

(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and (iii) if —

(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and

(II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or

(C) the debtor surrenders the property securing such claim to such holder;

* * * * * *

For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing; . . .⁵

Given that Congress did not see fit to provide it with a numeric designation, the emphasized portion of § 1325(a) has come to be known as the "hanging paragraph," and will be so identified herein.

Prior to the adoption of the hanging paragraph, determination of the amount of a secured claim in a Chapter 13 case was governed by § 506. As one court has explained:

Prior to BAPCPA, it was clear that "[s]ection 506 . . . govern[ed] the definition and treatment of secured claims, i.e., claims by creditors against the estate that are secured by a lien on property in which the estate has an interest. Subsection (a) of § 506 provide[d] that a claim [wa]s secured only to the extent of the value of the property on which the lien is fixed; the remainder of that claim [wa]s considered unsecured." United States v. Ron Pair Enters., Inc., 489 U.S. 235, 238-39, 109 S.Ct. 1026, 1029, 103 L.Ed.2d 290 (1989). "Thus, a $100,000 claim, secured by a lien on property having a value of $60,000, [wags considered to be a secured claim to the extent of $60,000, and to be an unsecured claim for $40,000." Id. at 240 n. 3, 109 S.Ct. 1026 (citing 3 Collier on Bankruptcy ¶ 506.04 (15th ed. 1988)) ("Section 506(a) requires a bifurcation of a `partially secured' or `undersecured' claim into separate and independent secured claim and unsecured claim components."). To the extent the secured component was otherwise allowed under 11 U.S.C. § 502(a), the secured part of the claim became an "allowed secured claim," while the unsecured component constituted an "allowed unsecured claim." Id.⁶

The treatment of a secured creditor under § 1325(a)(5) after BAPCPA was aptly explained by Judge Federman:

Debtors have three plan options for treatment of secured creditors entitled to the benefit of the hanging paragraph: they may obtain the creditor's approval of the plan; they may surrender the collateral; or they may provide that the creditor retain its lien and a promise of future property distributions (such as deferred cash payments) whose total value, as of the effective date of the plan, is not less than the allowed amount of the creditor's secured claim (commonly referred to as the "cramdown option"). If the cramdown option is chosen, and the secured creditor is not a 910-creditor, then the debtor may bifurcate the creditor's claim into secured and unsecured portions, based on the value of the collateral, pay the secured portion over the life of the plan (with interest), and treat the unsecured portion of the claim in the same manner as other unsecured creditors. As to 910-creditors, however, the debtor may not bifurcate the claim; rather, the allowed secured claim is the full amount that is owed to that creditor as of the date of the bankruptcy.⁷

In these cases, Quick and the Ballards have chosen to surrender the Vehicles. Chrysler does not take issue with the surrender. The question is whether Chrysler is entitled to file an unsecured claim for any deficiency which may exist after sale of the collateral.⁸

The Court is not writing on a blank slate. Two separate and distinct views have been developed since BAPCPA became law. The majority of courts have found that under the terms of the hanging paragraph, the surrender of a vehicle to a 910-creditor results in full satisfaction of the claim, and precludes the filing of an unsecured claim for a deficiency after liquidation of the vehicle.⁹ As explained in the Ezell decision:

The Anti-Cramdown [hanging] Paragraph serves to eliminate Revised § 506 from the allowed secured/unsecured claim bifurcation treatment otherwise mandated by Revised § 506 with regard to those claims secured by "a motor vehicle" and "any other thing of value" falling within its provisions. In other words, when the creditor files its claim as secured, the Anti-Cramdown Paragraph precludes the use of Revised § 506(a) to...