By: Scott B. Riddle, Esq.
Rob Matson, who represented the debtor, was kind enough to send a copy of Judge Hershner’s opinion in In re Bivens, Case No. 06-51778 RFH (M.D. Ga., February 23, 2007). Judge Hershner, contrary to Judges Massey, Bonapfel and Diehl in the Northern District, held that the surrender of a vehicle constitutes full satisfaction of the creditor’s claim –
The last paragraph of section 1325(a) provides that for purposes of paragraph (5), section 506 of the Bankruptcy Code shall not apply to a claim that is secured by a purchase money security interest in a motor vehicle on a debt incurred within 910 days preceding the bankruptcy filing if the vehicle was acquired for the personal use of the debtor. The last paragraph of section 1325(a) is sometimes referred to as the unnumbered paragraph or the hanging paragraph. Prior to BAPCPA’s amendment of section 1325(a), a debtor could bifurcate an undersecured claim into a secured claim and an unsecured claim. The last paragraph of section 1325(a), as amended by BAPCPA, prevents bifurcation of certain undersecured claims. Triad Financial Corp. v. Brown, (In re Brown), 346 B.R. 246, 247-48 (Bankr. M.D. Ga. 2006). Under section 506(a) of the Bankruptcy Code1 a “secured creditor’s claim is to be divided into secured and unsecured portions, with the secured portion of the claim limited to the value of the collateral.” Associates Commercial Corp. v. Rash, 520 U.S.
953, 117 S. Ct. 1879, 1884, 138 L.Ed.2d 148 (1997). …
Respondent concedes that Capital One’s secured claim is protected from bifurcation by the hanging paragraph. … Capital One does not oppose the surrender but contends that it is entitled to file an unsecured claim for any deficiency that remains after it disposes of the vehicle.
A majority of courts hold that under section 1325(a)(5)(C), as amended by BAPCPA, a Chapter 13 debtor can surrender a vehicle in full satisfaction of the secured creditor’s claim and that the creditor cannot assert an unsecured claim for a deficiency after disposal of the vehicle. These courts hold that the hanging paragraph applies to both subsections (B) and (C) of section 1325(a)(5). In re Quick, 2007 WL 269808 (Bankr. N.D. Okla., Jan. 26, 2007); In re Gentry, 2006 WL 3392947 (Bankr. E.D. Tenn., Nov. 22, 2006); In re Turkowitch, 355 B.R. 120 (Bankr. E.D. Wis. 2006); In re Feddersen, 355 B.R. 738 (Bankr. S.D. Ill. 2006); In re Pool, 351 B.R. 747 (Bankr. D. Or. 2006); In re Nicely, 349 B.R. 600 (Bankr. W.D. Mo. 2006) (Dow, J.);
In re Evans, 349 B.R. 498 (Bankr. E.D. Mich. 2006); In re Osborn, 348 B.R. 500 (Bankr. W.D. Mo. 2006) (Federman, J.); In re Sparks, 346 B.R. 767 (Bankr. S.D. Ohio 2006) (Aug, J.); In re Brown, 346 B.R. 868 (Bankr. N.D. Fla. 2006); In re Payne, 347 B.R. 278 (Bankr. S.D. Ohio 2006), (Preston, J.); In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006).
A minority of courts hold that a creditor can assert an unsecured claim for a deficiency after disposal of the vehicle. Dupaco Community Credit Union v. Zehrung, (In re Zehrung), 351 B.R. 675 (Bankr. W.D. Wis. 2006); In re Hoffman, 2006 WL 3813775 (Bankr. E. D. Mich., Dec. 28, 2006). (“Nothing in the language of § 1325(a)(5) suggests that surrender of the vehicle satisfies the ‘allowed secured claim provided for by the plan.’”); In re Duke, 345 B.R. 806 (Bankr. W.D. Ky., 2006) (hanging paragraph is ambiguous; if Congress had intended to enact an anti-deficiency provision, it would have made its intentions very clear in the statute); DaimlerChrysler Financial Americas, LLC v. Barton, (In re Barton), Ch. 13, Case No. 06-41283 PWB (Bankr. N.D. Ga., Dec. 14, 2006).
The Court The Court is persuaded that it should follow the majority of courts which hold
that a Chapter 13 debtor can surrender a vehicle in full satisfaction of the secured creditor’s claim. The Court is persuaded that the hanging paragraph applies to all subsections of section 1325(a)(5). The hanging paragraph provides that “section 506 shall not apply to a claim described” in section 1325(a)(5). The Court is persuaded that the statute is clear and unambiguous and that the Court should apply it as enacted by Congress.