Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-07-03256/USCOURTS-ca10-07-03256-0/pdf.json

Parties Involved:
William H. Griffin
Appellee
Edward Lee Jones
Appellee
Valerie Elaine Kinsey
Appellee
National Association of Consumer Bankruptcy Attorneys
Amicus Curiae
Faron L. Prince
Appellee
Parrish K. Prince
Appellee
Jeffery Thompson
Appellee
Wachovia Dealer Services
Appellant
Benjamin Dwight Walters
Appellee
Jamie Michaele Walters
Appellee
Wells Fargo Bank, N.A.
Appellant
Wells Fargo Financial, Inc.
Appellant

Document Text:

FILED

United States Court of Appeals

Tenth Circuit

July 7, 2008

Elisabeth A. Shumaker

Clerk of Court

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

In re: EDWARD LEE JONES; BENJAMIN

DWIGHT WALTERS; JAMIE MICHAELE

WALTERS; VALERIE ELAINE KINSEY;

JEFFERY THOMPSON; FARON L.

PRINCE; PARRISH K. PRINCE, 

Debtors.

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WACHOVIA DEALER SERVICES;

WELLS FARGO FINANCIAL, INC.;

WELLS FARGO BANK, N.A.,

Appellants,

v.

EDWARD LEE JONES; WILLIAM H.

GRIFFIN, Trustee; BENJAMIN DWIGHT

WALTERS; JAMIE MICHAELE

WALTERS, f/k/a Jamie Michaele Pounds,

f/k/a Jamie Michaele Morsett; VALERIE

ELAINE KINSEY; JEFFERY THOMPSON;

FARON L. PRINCE; PARRISH K. PRINCE, 

Appellees.

------------------------------

NATIONAL ASSOCIATION OF

CONSUMER BANKRUPTCY

ATTORNEYS, 

Amicus Curiae. 

No. 07-3256

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APPEAL FROM THE UNITED STATES BANKRUPTCY PANEL

OF THE TENTH CIRCUIT

(BAP Nos. KS-07-071, KS-07-072, KS-07-078, KS-07-079, KS-07-080)

Jill D. Olsen (Michael P. Gaughan, with her on the briefs), South & Associates, P.C.,

Overland Park, Kansas, appearing for Appellant.

Kenneth M. Gay, Lenexa, Kansas, appearing for Appellee.

Tara Twomey, Esq., National Association of Consumer Bankruptcy Attorneys,

Washington, DC; Cynthia Grimes, Grimes & Rebein, LLC, Lenexa, Kansas; and Jill A.

Michaux, Esq., Principal Attorney for amicus curiae National Association of Consumer

Bankruptcy, Neis & Michaux, P.A., Topeka, Kansas, filed an amicus curiae brief.

Before HENRY, Chief Circuit Judge, TACHA, and LUCERO, Circuit Judges.

TACHA, Circuit Judge.

The appellants are creditors in five Chapter 13 bankruptcy proceedings. They

appeal the bankruptcy court’s confirmation of the debtors’ debt reorganization plans. 

Exercising jurisdiction under 28 U.S.C. § 158(d)(2)(A), we VACATE the confirmation

orders and REMAND the cases to the bankruptcy court.

I. BACKGROUND

All five cases involve “910 car loans.” That is, in each case, the creditor financed

the debtor’s purchase of a vehicle for the debtor’s personal use within the 910 days

preceding the debtor’s filing of a bankruptcy petition. See 11 U.S.C. § 1325(a)

(describing a claim secured by a vehicle purchased for the debtor’s personal use within

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the 910 days preceding the debtor’s filing of a bankruptcy petition). Under the terms of

the loan, the creditor acquired a purchase money security interest in the debtor’s vehicle. 

In their Chapter 13 plans, the debtors proposed to keep the vehicles and to pay the

contract balance on these loans without postpetition interest. The creditors objected to the

plans, arguing that they are entitled to postpetition interest on their claims under 11

U.S.C. § 1325(a)(5)(B)(ii). 

The bankruptcy court overruled the creditors’ objections and confirmed the plans. 

The court also denied motions for reconsideration filed by the creditors in four of the

cases. After filing separate appeals with the Bankruptcy Appellate Panel of the Tenth

Circuit (“BAP”), the creditors filed a motion to companion the five cases, which the BAP

granted. The BAP also granted the creditors’ motion for certification to appeal to this

Court under 28 U.S.C. § 158(d)(2)(A). We subsequently granted the creditors’ petition

for permission to appeal. See id.

II. DISCUSSION

To determine whether the bankruptcy court erred in overruling the creditors’

objections to confirmation of the plans, we must decide whether a creditor secured by a

910 vehicle (i.e., a vehicle purchased within the 910 days prior to the debtor’s filing of a

bankruptcy petition) is entitled to postpetition interest under 11 U.S.C.

§ 1325(a)(5)(B)(ii). Our review of this legal question is de novo. See In re Harper, 516

F.3d 1180, 1185 (10th Cir. 2008).

In order to qualify a plan for confirmation under Chapter 13 of the Bankruptcy

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This option is often referred to as the “cram down” because it does not require the

consent of the claim holder. See Till v. SCS Credit Corp., 541 U.S. 465, 468–69 (2004).

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Code, a debtor must accommodate each creditor with an “allowed secured claim” in one

of three ways under § 1325(a)(5). The debtor may (1) obtain the creditor’s acceptance of

the plan, § 1325(a)(5)(A); (2) surrender the collateral securing the claim, § 1325(a)(5)(C);

or (3) make property distributions (e.g., monthly payments) that are “not less than the

allowed amount of such claim,” § 1325(a)(5)(B). Under the third option, the creditor is

entitled to the present value of the claim.1

 See § 1325(a)(5)(B)(ii). Consequently, when

the debtor chooses to satisfy this option by making periodic payments, “the amount of

each installment must be calibrated to ensure that, over time, the creditor receives

disbursements whose total present value equals or exceeds that of the allowed claim.” 

Till v. SCS Credit Corp., 541 U.S. 465, 469 (2004) (plurality opinion). In other words, to

ensure that the creditor is compensated for the decreasing value of an allowed secured

claim over time, a bankruptcy court must ensure that the plan proposes an appropriate

interest rate. Id. at 474; see also id. at 487–88 (Thomas, J., concurring in the judgment).

The creditors in the cases before us argue that they are entitled to the formula, or

prime-plus, rate of interest endorsed by the plurality in Till. See id. at 478–80. 

Conversely, the debtors urge us to conclude, as the bankruptcy court did, that as a result

of a 2005 amendment to the Bankruptcy Code, a creditor who has a claim secured by a

910 vehicle is not entitled to interest at all because a 910 car claim is not an “allowed

secured claim” within the meaning of § 1325(a)(5). In the alternative, they argue that the

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The relevant amendment appears at the end of § 1325(a) and is referred to as the

“hanging paragraph” because it is unnumbered. It provides:

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 [sic] 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

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bankruptcy court has the authority to approve plans that do not comply with §

1325(a)(5)—over creditors’ objections—because the conditions specified in the statute

are not mandatory.

A. Present-Value Requirement of § 1325(a)(5)(B)(ii)

Typically, the value of an allowed secured claim under § 1325(a)(5)(B)(ii) equals

the value of the collateral securing that claim, rather than the entire balance on the loan. 

This valuation is a result of the bifurcation of an allowed secured claim under § 506(a). 

Under § 506(a), a claim secured by a lien is separated, or bifurcated, into a secured

portion reflecting the value of the property and an unsecured portion reflecting the

remaining debt or deficiency. When a claim is bifurcated under § 506(a), the debtor may

retain the collateral and meet the requirements of § 1325(a)(5)(B) by making payments

only on the secured portion of the bifurcated claim (i.e., the value of the collateral).

Bifurcation is no longer available, however, when the claim is secured by a 910

vehicle. As a result of the Bankruptcy Abuse Prevention and Consumer Protection Act of

2005 (“BAPCPA”), a debtor may no longer keep a 910 vehicle and make payments based

on the present value of the collateral, rather than on the amount of the claim.2

 As we

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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.

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recently explained in In re Ballard, 526 F.3d 634, 638 (10th Cir. 2008), because the

bifurcation provision of § 506 does not apply to 910 car claims, these claims are treated

as fully secured under § 1325(a)(5)(B). 

The bankruptcy court reasoned that, because a 910 car claim cannot be valued

under § 506(a), it does not constitute an “allowed secured claim” for purposes of

§ 1325(a)(5). We rejected this argument in In re Ballard because it rests on the “faulty

premise that § 506(a) generally defines the term ‘allowed secured claim.’” Id. at 640–41.

We explained that, “[i]n the absence of express language linking the meaning of ‘allowed

secured claim’ in § 1325(a)(5) to § 506(a), the most natural reading of the phrase is that it

describes a claim that is both ‘allowed’ under the Bankruptcy Code and ‘secured’ by a

lien.” Id. at 641. Thus, a claim that is allowed under § 502 and secured by a lien on a

910 vehicle is an “allowed secured claim” under § 1325(a)(5). Id. Moreover, because a

910 car claim is not subject to bifurcation under § 506(a), the holder of such a claim is

entitled to the present value of the entire claim under § 1325(a)(5)(B)(ii). Indeed, the

language of this provision explicitly requires that property distributions equal the present

value of the “claim,” not the collateral securing the claim. See § 1325(a)(5)(B)(ii). The

bankruptcy court therefore erred in overruling the creditors’ objections to confirmation of

these plans; the creditors are entitled to interest calculated to ensure they receive the

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Although the creditors initially argued that they are entitled to the contract rate of

interest, they have abandoned that argument and now ask only for the formula rate

adopted by the plurality in Till. Thus, we need not decide whether bankruptcy courts

must apply the Till rate of interest to 910 car claims under § 1325(a)(5)(B). See, e.g.,

Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343, 350 (5th Cir. 2008) (holding that the Till

plurality’s rate of interest applied to a 910 car claim). 

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present value of their claims.3

B. Mandatory Nature of § 1325(a)

Even if the creditors are entitled to interest under § 1325(a)(5)(B), the debtors

argue that we can affirm the bankruptcy court’s orders confirming the plans because the

conditions for confirmation delineated in § 1325(a) are not mandatory. In support of this

argument, they point to the language of § 1325(a) and the Third Circuit’s holding in In re

Szostek, 886 F.2d 1405, 1411 (3d Cir. 1989). As we explain below, we find their

arguments unconvincing and hold that the provisions of § 1325(a) are mandatory

requirements for the confirmation of a Chapter 13 plan.

We begin by acknowledging that § 1325(a) does not expressly state that a court

must confirm a plan only if certain conditions occur; rather, it states that “the court shall

confirm a plan if” these conditions occur. According to the debtors, this language permits

confirmation of a plan that does not satisfy the conditions because the statute does not

direct the court to confirm a plan only if the conditions occur. Read in context, however,

the conditions specified in § 1325(a) are clearly mandatory requirements. See Davis v.

Mich. Dep’t of Treasury, 489 U.S. 803, 809 (1989) (“It is a fundamental canon of

statutory construction that the words of a statute must be read in their context and with a

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view to their place in the overall statutory scheme.”). For example, § 1325(a)(3) permits

confirmation when “the plan has been proposed in good faith and not by any means

forbidden by law.” If we were to adopt the debtors’ reading of the statute, a bankruptcy

court would have the discretion to confirm a plan even if it were proposed in bad faith or

by illegal means. 

Given this result, it is not surprising that we have repeatedly treated the conditions

set forth in § 1325(a) as mandatory. See, e.g., In re Mersmann, 505 F.3d 1033, 1048

(10th Cir. 2007) (en banc) (“[Section] 1325(a)(1) of [the] Code permits the confirmation

of a plan only if it is consistent with the rest of the Code.”); In re Young, 237 F.3d 1168,

1174 (10th Cir. 2001) (noting that § 1325(a)(3) requires that a Chapter 13 plan be

proposed in good faith); In re Rasmussen, 888 F.2d 703, 706 (10th Cir. 1989) (reversing

the confirmation of a Chapter 13 plan because it was not proposed in good faith as

required by § 1325(a)(3)). Moreover, in analyzing questions arising under § 1325(a), the

Supreme Court has described the statutory conditions as mandatory requirements. See

Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 956 (1997) (“To qualify for

confirmation under Chapter 13, the [debtors’] plan had to satisfy the requirements set

forth in § 1325(a) of the Code.”); Johnson v. Home State Bank, 501 U.S. 78, 87–88

(1991) (noting that a “bankruptcy court is authorized to confirm a plan only if the court

finds” that certain statutory conditions, including § 1325(a)(5), have been met (emphasis

added)); see also In re Bateman, 331 F.3d 821, 829 n.7 (11th Cir. 2003) (noting that the

Supreme Court has treated the provisions of § 1325(a) as mandatory).

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Furthermore, a reading that fails to recognize the mandatory nature of § 1325(a)

would be in conflict with § 1329, the section governing modification of a plan after

confirmation. This section explicitly states that “the requirements of section 1325(a) . . .

apply to any modification” under § 1329. § 1329(b)(1) (emphasis added). To hold that

the conditions set forth in § 1325(a) are not requirements for confirmation would clearly

“violate[] the general maxim that the Bankruptcy Code and Rules be construed so that

their provisions are harmonious with each other.” In re Mersmann, 505 F.3d at 1048

(quotation omitted). 

We therefore hold that the conditions set forth in § 1325(a) are requirements the

debtor must satisfy to qualify a Chapter 13 plan for confirmation. As a result, when a

secured creditor objects to confirmation because the plan does not comply with §

1325(a)(5)—as is the case here—the bankruptcy court may not confirm the plan unless it

meets the requirements of that subsection. 

As we have previously indicated, however, if a secured creditor fails to object to

confirmation, the creditor will be bound by the confirmed plan’s treatment of its secured

claim under § 1325(a)(5). In re Talbot, 124 F.3d 1201, 1209 n.10 (10th Cir. 2007). This

is because the failure to object constitutes acceptance of the plan. See In re RutiSweetwater, Inc., 836 F.2d 1263, 1266–67 (10th Cir. 1988) (holding that a creditor’s

failure to object to a Chapter 11 plan constitutes acceptance of the plan). And a creditor’s

acceptance of a Chapter 13 plan is one way to satisfy the requirements of § 1325(a)(5)

with respect to that creditor’s allowed secured claim. See § 1325(a)(5)(A) (providing that

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We have never cited In re Szostek as support for the debtors’ position that the

conditions of § 1325(a) are discretionary. Rather, our past decisions have cited the case

as support for the general proposition that creditors must affirmatively assert their rights

prior to confirmation. See In re Andersen, 179 F.3d 1253, 1257–58 (10th Cir. 1999),

overruled by In re Mersmann, 505 F.3d at 1051; In re Talbot, 124 F.3d at 1209 n.10.

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a plan qualifies for confirmation with respect to an allowed secured claim when the

holder of such claim accepts the plan). In short, when the holder of an allowed secured

claim does not object, the court may interpret this silence as acceptance under §

1325(a)(5)(A); under these circumstances, the plan need not meet the requirements set

forth in § 1325(a)(5)(B), including the present-value requirement.

The decision cited by the debtors, In re Szostek, essentially stands for this

proposition—that is, that a creditor’s failure to object constitutes acceptance and permits

confirmation even if the plan does not treat an allowed secured claim in accordance with

§ 1325(a)(5)(B). See In re Szostek, 886 F.2d at 1414. Citing our decision in In re RutiSweetwater, the Third Circuit rejected a creditor’s challenge to a Chapter 13 plan, holding

that the creditor accepted the plan when it “failed to object timely to the plan’s

confirmation.” Id. (citing In re Ruti-Sweetwater, 836 F.2d at 1263). This holding is

consistent with our prior case law and our decision today that the conditions regarding

allowed secured claims in § 1325(a)(5) are mandatory: if the creditor objects (i.e., does

not accept the plan under § 1325(a)(5)(A)), the plan must meet the requirements of §

1325(a)(5)(B).4

 

Although In re Szostek contains broader language that suggests the provisions of

§ 1325(a) are not mandatory, see 886 F.2d at 1412, the court expressly limited its holding

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to the facts of the case, discussing at length the creditor’s failure to object to

confirmation, id. at 1413–14. We therefore read the court’s holding narrowly. To the

extent the court in In re Szostek suggested that the statutory conditions are not mandatory,

we disagree. They are requirements for confirmation of a plan. See In re Barnes, 32 F.3d

405, 407 (9th Cir. 1994) (holding that § 1325(a)(5)(B)(ii) is mandatory). 

Here, the creditors objected to confirmation of the plans. Because they did not

accept the plans, see § 1325(a)(5)(A), and the debtors did not surrender the vehicles, see

§ 1325(a)(5)(C), the plans had to satisfy the requirements of § 1325(a)(5)(B)(ii) by

proposing property distributions equaling the present value of the claims. Because the

plans do not provide for the payment of interest on the claims, they fail to satisfy the

statute’s present-value requirement, and the bankruptcy court erred in confirming the

plans over the creditors’ objections.

III. CONCLUSION

Accordingly, we VACATE the bankruptcy court’s orders confirming the plans and

REMAND to the bankruptcy court for further proceedings consistent with this opinion.

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