In re Wampler

• Decision Date: 29 June 2006
• Docket Number: No. 05-27659.,05-27659.
• Citation: 345 B.R. 730
• Parties: In re Shane Lynn WAMPLER and Lori Lynn Wampler, Debtors.
• Court: U.S. Bankruptcy Court — District of Kansas

345 B.R. 730

In re Shane Lynn WAMPLER and Lori Lynn Wampler, Debtors.

No. 05-27659.

United States Bankruptcy Court, D. Kansas.

June 29, 2006.

COPYRIGHT MATERIAL OMITTED

Christopher R. Coons, Lawrence, KS, for Debtors.

MEMORANDUM OPINION SUPPLEMENTING ORDER CONFIRMING CHAPTER 13 PLAN

ROBERT D. BERGER, Bankruptcy Judge.

At a hearing on March 9, 2006, this Court confirmed the debtors' Chapter 13 plan over the objections of creditors Nuvell Financial Services Corporation ("Nuvell") (Doc. No. 18) and Wells Fargo Financial Acceptance ("Wells Fargo") (Doc. No. 20) (collectively the "Creditors").¹ An order confirming the debtors' Chapter 13 plan is reflected on the record (Doc. No. 26). The order confirming the debtor's Chapter 13 plan is currently on appeal to the United States Bankruptcy Appellate Panel of the Tenth Circuit.² Although the appeal of an issue typically deprives this Court of jurisdiction over the matter on appeal, this Court may enter orders "pertaining to the appeal record in aid of the appeal process."³ This memorandum opinion supplements the order of confirmation by more fully explaining the Court's findings and conclusions as set forth on the record in open court.

Factual Background

The Creditors extended financing to the debtors for the purchase of automobiles for their personal use within the 910 days preceding the filing of the above-captioned proceeding. Nuvell's proof of claim reflects that its collateral is a 2004 Suzuki Verona, with a balance due of $15,892.14, but does not reflect the value for the vehicle. Wells Fargo's proof of claim reflects that its collateral is a 2001 Pontiac Aztek, with a balance due of $10,913.40, but likewise does not reflect the value for the vehicle. The automobiles served as collateral for the loans. As a result, the Creditors assert that Title 11 U.S.C. § 1325(a) requires their allowed claims be paid in full at the contract rate of interest over the duration of the debtors' Chapter 13 plan.⁴ Under the debtors' plan as confirmed, the Creditors' allowed claims are paid in full without postpetition interest. In addition to the Court's oral findings and conclusions made in open court, the following constitutes the complete grounds for confirming the debtors' Chapter 13 plan.

Discussion

I. The Hanging Paragraph of § 1325(a).

Section 1322 addresses the contents of Chapter 13 plans. Subsections (a) and (b) of § 1322 set forth, respectively, the terms a Chapter 13 plan shall include and the terms a Chapter 13 plan may include. Section 1325(a), on the other hand, addresses the confirmation of a Chapter 13 plan and provides that a court, after notice and hearing, "shall confirm a plan if" certain criteria are met. The criteria set forth in § 1325(a) are the exclusive requirements that must be satisfied by a debtor before the court must confirm a Chapter 13 plan.⁵ At odds here is the interplay between § 1325(a)(5), which applies to allowed secured claims, and an unnumbered, hanging paragraph (hereinafter the "Hanging Paragraph") that was added after § 1325(a)(9), and language contained therein regarding the treatment of certain motor vehicle loans (hereinafter the "910 Language"), with the adoption of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPPA").⁶

In Till v. SCS Credit Corp., the United States Supreme Court concluded that § 1325(a)(5)(B)(ii) entitled the holder of an allowed secured claim to receive interest on its claim at a modified rate during the pendency of the Chapter 13 case.⁷ However, the enactment of BAPCPA and the addition of the Hanging Paragraph raise questions regarding what rate of interest, if any, the Creditors should be paid on their claims. The Hanging Paragraph of § 1325(a) reads:

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. (The "910 Language" is set out in bold.)

The pertinent subsection, § 1325(a)(5)(B)(ii), reads:

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 —

. . .

(B)(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....

Here, the Creditors contend the addition of the 910 Language prohibits the modification of their right to receive the contract rate of interest on their claims during the pendency of the debtors' Chapter 13 plan. Conversely, while the debtors do not contest that the Creditors' prepetition claims are required to be paid in full through the Chapter 13 plan if they wish to retain the collateral, they contend that the 910 Language prevents the Creditors from receiving postpetition interest on their claims.

Review of Emerging 910 Language Interpretations.

A number of courts have considered the 910 Language, although because the Hanging Paragraph is unnumbered, tracking its citation may initially prove difficult. At this point, it appears three interpretations of the 910 Language are emerging. The first interpretation, which has been adopted by several courts, construes the 910 Language to prohibit only the bifurcation pursuant to § 506(a) of a secured claim into a secured portion, which represents the actual value of the collateral, and an unsecured portion, which represents any portion of a prepetition claim that is not secured by the value of the collateral.⁸ Many of these decisions assume, without discussion or rationale, that a creditor's 910 Claim is fully secured and the only issue addressed is whether the creditor is entitled to the contract or Till rate of interest.⁹ Under the first interpretation, creditors are entitled to treat their entire prepetition claim as secured, which also entitles them to the postpetition interest on their entire claim.¹⁰ The majority of the Courts adopting the first interpretation have concluded that creditors holding claims under the 910 Language are entitled to receive the Till modified rate of interest on their claim.¹¹

Under the second interpretation, which has been adopted by at least one court creditors holding claims under the 910 Language (hereinafter "910 Claims") are not entitled to secured claims for the purposes of § 1325(a)(5).¹² Instead, a creditor with a 910 Claim "must receive the greater of (1) the full amount of the claim without interest; or (2) the amount the creditor would receive if the claim were bifurcated and crammed down (i.e., secured portion paid with interest and unsecured portion paid pro rata)."¹³

The third interpretation, led by the oftcited bankruptcy treatise, Collier on Bankruptcy, construes the 910 Language as it is written, which leaves a creditor with an allowed claim for the entire prepetition debt that must be paid in full but without postpetition interest through the duration of a Chapter 13 plan if the debtor wishes to retain the collateral.¹⁴ For the reasons more fully set forth below, this Court agrees with Collier on Bankruptcy and construes the 910 Language as written.

Claims Falling Under the 910 Language Exception Are Not Secured Claims Entitled to Accrue Postpetition Interest.

"The starting point in discerning congressional intent is the existing statutory text, and not the predecessor statutes."¹⁵ Where the statute is clear, "the sole function of the courts — at least where the disposition required by the text is not absurd — is to enforce it according to its terms."¹⁶ Here, the statutory language is clear within the context of the Code.

The allowance and treatment of claims is generally governed by §§ 502 and 506 and the Federal Rules of Bankruptcy Procedure 3001, et seq. Pursuant to the provisions of § 502(a), a creditor that files a proof of claim without drawing a successful objection is entitled to an "allowed" claim. If a proof of claim draws an objection, § 502(b) directs the court, with certain exceptions, to "allow" such claim after determining its amount in dollars. Included in § 502 is the disallowance of unmatured interest.¹⁷ Absent from § 502 is any discussion of a creditor's right to the allowance of a secured claim. On the other hand, as noted by the Supreme Court in U.S. v. Ron Pair Enterprises, Inc., 506 "governs 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."¹⁸ The operative language, found in § 506(a), provides:

An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to set off is less than the amount of such allowed claim....

The provisions of §§ 502 and 506, read together, establish the only means by which a court may determine that an allowed claim should be allowed as a secured claim.¹⁹ In other words, for the purposes of claims allowance in bankruptcy, if § 506 does not apply, a creditor may be entitled to an allowed, albeit unsecured claim.

Section 1325(a) sets forth the terms under which a court shall confirm a chapter 13 plan. Relevant to this discussion is the application of § 1325(a)(5...