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Parties Involved:
John Jason Ballard
Appellee
Summer Michelle Ballard
Appellee
DaimlerChrysler Financial Services Americas LLC
Appellant

Document Text:

FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

July 5, 2007

Barbara A. Schermerhorn

Clerk PUBLISH

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

In re MICHAEL JUSTIN QUICK, also

known as Justin Quick, 

 Debtor.

BAP No. NO-07-025

DAIMLERCHRYSLER FINANCIAL

SERVICES AMERICAS LLC,

successor by merger to

DaimlerChrysler Services North

America LLC, 

Appellant,

Bankr. No. 06-10729-M 

Chapter 13

v.

MICHAEL JUSTIN QUICK, 

Appellee.

OPINION

In re JOHN JASON BALLARD and

SUMMER MICHELLE BALLARD,

formerly known as Summer Ray, 

 Debtor.

BAP No. NO-07-026

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 1 of 11
* The parties did not request oral argument, and after examining the briefs

and appellate record, the Court has determined unanimously that oral argument

would not materially assist in the determination of this appeal. See Fed. R.

Bankr. P. 8012. The case is therefore ordered submitted without oral argument.

-2-

DAIMLERCHRYSLER FINANCIAL

SERVICES AMERICAS LLC,

successor by merger to

DaimlerChrysler Services North

America LLC, 

Appellant,

Bankr. No. 06-11031-M

 Chapter 13

v.

JOHN JASON BALLARD and

SUMMER MICHELLE BALLARD, 

Appellees.

OPINION

Appeal from the United States Bankruptcy Court

for the District of Northern Oklahoma

Submitted on the briefs:*

Layla J. Dougherty of Love, Beal & Nixon, P.C., and Stephen L. DeGiusti of

Crowe & Dunlevy, Oklahoma City, Oklahoma, for Appellant.

J. Scott McWilliams and Jared C. Smith of J. Scott McWilliams, P.C., Tulsa,

Oklahoma, for Appellees. 

Before CLARK, NUGENT, and McNIFF, Bankruptcy Judges.

CLARK, Bankruptcy Judge.

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 2 of 11
1 As defined by the “hanging paragraph” of 11 U.S.C. § 1325.

2 See In re Quick, 360 B.R. 722 (Bankr. N.D. Okla. 2007).

3 Both petitions were filed after enactment of the Bankruptcy Abuse

Prevention and Consumer Protection Act of 2005 (“BAPCPA”) and are thus

governed by the amended Code provisions, while the subject loans were entered

into both pre-(Ballard) and post-(Quick) BAPCPA.

-3-

This appeal involves undisputed facts and a single legal issue, which is

whether a debtor’s surrender of a “910 vehicle”1

 operates as full satisfaction of a

secured creditor’s claim, thereby precluding the filing of an unsecured claim for a

deficiency. Because we hold that it does, we affirm the bankruptcy court’s

judgment.2

BACKGROUND

Debtors each purchased a vehicle for personal use within 910 days of the

filing of their Chapter 13 bankruptcies. Both vehicles were secured by purchase

money security interests held by DaimlerChrysler Financial Services Americas

LLC (“Chrysler”), and each vehicle was worth less at the time of filing than the

remaining debt owed on it.3

 Debtors in both cases filed plans proposing to

surrender their vehicle in full satisfaction of the secured debt on it. Chrysler

objected to confirmation of both plans, asserting that it was entitled to liquidate

the vehicles and then file unsecured claims for any resulting deficiencies.

DISCUSSION

When the Bankruptcy Code was amended by BAPCPA in 2005, an

unnumbered paragraph was added to § 1325, between subparagraphs (a) and (b). 

Now commonly referred to as the “hanging paragraph,” it provides:

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 3 of 11
4 11 U.S.C. § 1325 provides in pertinent part:

(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,

(continued...)

-4-

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 referenced “paragraph (5)” is § 1325(a)(5), which specifies three ways in

which a debtor may obtain court approval of a plan with respect to the treatment

of secured claims: (1) obtain the creditor’s acceptance of the plan; (2) “cram

down” the claim pursuant to § 506 and pay it within the plan; or (3) surrender the

collateral.4

 Section 506 bifurcates secured claims into secured and unsecured

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 4 of 11
4 (...continued)

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[.]

5 11 U.S.C. § 506(a)(1) 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

setoff is less than the amount of such allowed claim. Such value shall be

determined in light of the purpose of the valuation and of the proposed

disposition or use of such property, and in conjunction with any hearing on

such disposition or use or on a plan affecting such creditor’s interest.

6 Such debts are created when creditors make purchase money loans for

vehicles intended for the debtor’s personal use within 910 days of debtor’s filing

of a petition in bankruptcy, and the debts are secured by the purchased collateral. 

References herein to “910" loans, debtors, creditors, and collateral all relate to

this situation, to which the hanging paragraph applies.

-5-

portions, with the secured portion limited to the value of the collateral at the time

of filing, and the unsecured portion equal to the difference between the

collateral’s value and the balance of the loan.5

Pursuant to the hanging paragraph, the § 506 bifurcation process is no

longer applicable to “910 debts.”6

 As such, a debtor can no longer “cram down” a

910 debt and, instead, must pay the entire amount owed to the creditor in order to

retain 910 collateral. This concept is universally accepted. However, a

controversy has arisen regarding treatment of 910 debts when debtors choose to

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 5 of 11
7 See, e.g., In re Osborn, 348 B.R. 500 (Bankr. W.D. Mo. 2006), aff’d, 363

B.R. 72 (8th Cir. BAP 2007); In re Moon, 359 B.R. 329 (Bankr. N.D. Ala. 2007);

In re Gentry, No. 06-50204, 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 Maggett, No. BK06-80573, 2006 WL

3478991 (Bankr. D. Neb. Oct.19, 2006); In re Bayless, No. 06 31517, 2006 WL

2982101 (Bankr. E.D. Tenn. Oct. 18, 2006); In re Pool, 351 B.R. 747 (Bankr. D.

Or. 2006); In re Evans, 349 B.R. 498 (Bankr. E.D. Mich. 2006); In re Nicely, 349

B.R. 600 (Bankr. W.D. Mo. 2006); In re Sparks, 346 B.R. 767 (Bankr. S.D. Ohio

2006); In re Brown, 346 B.R. 868 (Bankr. N.D. Fla. 2006); In re Payne, 347 B.R.

278 (Bankr. S.D. Ohio 2006); In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006);

In re Long, No. 06-30651, 2006 WL 2090246 (Bankr. E.D. Tenn. July 12, 2006);

In re Durham, 361 B.R. 206 (Bankr. D. Utah 2006).

8 See, e.g., Wright v. Santander Consumer USA Inc., No. 07-1483, 2007 WL

1892502 (7th Cir. July 3, 2007); In re Duke, 345 B.R. 806 (Bankr. W.D. Ky.

2006); In re Zehrung, 351 B.R. 675 (W.D. Wis. 2006); In re Particka, 355 B.R.

616 (Bankr. E.D. Mich. 2006); In re Hoffman, 359 B.R 163 (Bankr. E.D. Mich.

2006); In re Morales, 359 B.R. 211 (Bankr. N.D. Ill. 2007); In re Blanco, 363

B.R. 896 (Bankr. N.D. Ill. 2007); Silvers v. Wells Fargo Auto Fin., No. 4:07-CV00012-HLM, 2007 WL 1812628 (N.D. Ga. May 10, 2007).

-6-

 surrender the collateral. In such cases, a majority of published decisions hold

that the hanging paragraph precludes 910 creditors from filing unsecured claims

for any deficiency that remains after liquidation of the collateral,7

 while a

minority of published decisions hold that the hanging paragraph does not preclude

such deficiency claims.8

Chrysler urges this Court to adopt the minority position allowing undersecured creditors to assert unsecured claims for deficiencies resulting from sales

of collateral. In support of its position, Chrysler contends that since deficiency

claims were allowed prior to the amendment of § 1325, precluding such claims

would be “contrary to the spirit of BAPCPA,” which it apparently asserts was

enacted for the benefit of creditors. However, such a holding would require this

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 6 of 11
9 See Starzynski v. Sequoia Forest Indus., 72 F.3d 816, 820 (10th Cir. 1995).

-7-

Court to first determine that the hanging paragraph is ambiguous, thereby

necessitating an examination of legislative history.9

 This we decline to do.

Although Chrysler asserts that the purpose behind enactment of the hanging

paragraph must be examined in order to interpret it, the cases relied upon do not

support its position. For example, in Griffin v. Oceanic Contractors, Inc., 458

U.S. 564 (1982), the Court first acknowledged that “[t]here is, of course, no more

persuasive evidence of the purpose of a statute than the words by which the

legislature undertook to give expression to its wishes,” and then noted that “in

rare cases the literal application of a statute will produce a result demonstrably at

odds with the intentions of its drafters, and those intentions must be controlling.” 

Id. at 571 (emphasis added; internal quotation marks omitted). Moreover, an

unambiguous statute may not be “interpreted” to match a court’s determination of

what Congress “meant” to say. See Bracewell v. Kelley (In re Bracewell), 454

F.3d 1234, 1243 (11th Cir. 2002), cert. denied, 127 S.Ct 1815 (2007). 

In this case, the language of the hanging paragraph is neither ambiguous,

nor does literal application of its terms lead to a result that is demonstrably at

odds with the apparent intentions of its drafters. Significantly, this Court is not

persuaded that the sparse legislative history of the amendment of § 1325 supports

Chrysler’s assertion that the hanging paragraph was enacted solely for the benefit

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 7 of 11
10 Specifically, we do not agree that BAPCPA amendments that appear to

benefit creditors must be interpreted in such a way as to benefit only creditors. In

fact, many of the supposedly “pro-creditor” amendments appear reflective of the

normal give and take of the legislative process. Thus, it may well be that

elimination of deficiency claims was intended to offset, on behalf of 910 debtors,

the benefit conferred upon secured 910 creditors by eliminating the cram down

option. However, our determination of unambiguity eliminates the necessity of

elucidating such an intent.

-8-

of secured creditors.10 In any event, Congress easily could have specified that the

hanging paragraph applies only to § 1325(a)(5)(B), but it did not. 

We therefore hold that the hanging paragraph unambiguously precludes

application of § 506 to the entirety of § 1325(a)(5), and no bifurcation of allowed

secured claims may be effected in the exercise of any of a 910 debtor’s three

options under § 1325(a)(5). The effect of this elimination of bifurcation in 910

cases has been described as follows:

The effect of the hanging paragraph is that a debtor no longer has

this bifurcation tool at his or her disposal. If a creditor files a

secured claim relating to 910 property and that claim is allowed

under § 502, the debtor must treat the claim as fully secured. In a

sense, a fiction arises that the 910 collateral is worth the exact

amount of the proof of claim. So when a debtor proposes to retain

the collateral, the debtor must propose to pay the entire claim as

filed. Likewise, where the debtor proposes to surrender the

collateral, the fiction created by the hanging paragraph serves to

render the secured claim completely satisfied.

In re Durham, 361 B.R. 206, 209 (Bankr. D. Utah 2006). Thus, post-BAPCPA,

910 debtors may no longer retain collateral and cram down their loans, and 910

creditors may not recover deficiencies when collateral is surrendered.

Another argument Chrysler makes in support of bifurcation is that

bifurcation of claims in surrender cases has always been based on state law and,

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 8 of 11
11 We note that this claim appears to be a constitutional challenge within the

scope of 28 U.S.C. § 2403(a), which requires certification of such challenges to

the United States Attorney General and allows intervention by the Attorney

General in support of the statute’s constitutionality. No such certification

occurred in this case. However, given that both this Court and the bankruptcy

court have upheld the constitutionality of the subject statute, we deem this

violation of § 2403(a) to be harmless. See Weinman v. Word of Life Christian

Ctr. (In re Bloch), 207 B.R. 944, 952 (D. Colo. 1997) (failure to notify is not

jurisdictional, and belated notification where constitutionality is upheld is not

(continued...)

-9-

therefore, elimination of the § 506(a) bifurcation process has no effect in such

cases. This argument was rejected in In re Ezell, 338 B.R. 330 (Bankr. E.D.

Tenn. 2006), as follows:

The argument that Pre-BAPCPA § 506(a) had no application to

surrender under Pre-BAPCPA § 1325(a)(5)(C) is misplaced. 

Valuation of a creditor’s allowed secured claim under Pre-BAPCPA

§ 506(a) was determined in light of the purpose of the valuation and

of the proposed disposition or use of such property. Upon surrender

under Pre-BAPCPA § 1325(a)(5)(C), liquidation value was clearly

the yardstick by which the allowed secured claim was determined,

while, for cramdown purposes under Pre-BAPCPA § 1325(a)(5)(B),

replacement value was the criteria.

Id. at 339-40 (citation, internal quotation marks, and footnote omitted). Thus, an

“allowed unsecured claim comes into being not because of the sale pursuant to

state law, but because, when § 506(a) is applied, the value of the collateral,

whether determined by estimation for use under § 1325(a)(5)(B) or by surrender

and eventual liquidation for use under § 1325(a)(5)(C), is less than the debt.” In

re Osborn, 363 B.R. 72, 77 (8th Cir. BAP 2007). 

Finally, Chrysler contends that the elimination of its “state law” deficiency

claim is a taking in violation of the Fifth Amendment to the United States

Constitution.11 However, a “secured creditor has two types of rights: the

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 9 of 11
11 (...continued)

prejudicial); see also McClain v. Am. Student Assistance (In re McClain), 264

B.R. 230, 234 (Bankr. D. N.H. 2001). However, the Clerk of this Court is

directed to serve a copy of this Opinion on the United States Attorney General,

which will serve as notice that constitutionality of 11 U.S.C. § 1325 was called

into question in these cases.

-10-

contractual right to obtain repayment of its debt with a fair rate of return in the

form of interest payments and the property right the creditor has in the collateral

that secures the debt. These two types of rights together constitute the ‘bundle of

rights’ held by the secured creditor. Bankruptcy laws have long been construed to

authorize the impairment of contractual obligations.” In re Nichols, 440 F.3d

850, 854 (6th Cir. 2006). Thus, “there is nothing inappropriate about bankruptcy

laws affecting a creditor’s right to recover under state law” and creditors’ rights

“are curtailed in many ways once a debtor files bankruptcy.” In re Brown, 346

B.R. 868, 876 (Bankr. N.D. Fla. 2006). In fact, pre-BAPCPA § 1325(a)(5)(B),

which allowed debtors to retain collateral and reduce contractual claims that

exceeded the statutorily defined “value” of collateral to unsecured deficiency

claims, was just such an impairment of creditors’ rights. The current version of

§ 1325(a)(5), which restores those rights and imposes a lesser impairment in the

case of collateral surrender is equally allowable.

CONCLUSION

The hanging paragraph of § 1325 is unambiguous and eliminates § 506

bifurcation in all 910 cases. Therefore, debtors’ proposed surrender of vehicles in

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 10 of 11
-11-

full satisfaction of their indebtedness to Chrysler is authorized and the bankruptcy

court’s denials of Chrysler’s objections are affirmed.

BAP Appeal No. 07-26 Docket No. 28-1 Filed: 07/05/2007 Page: 11 of 11