FILED

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

SEPT 29, 2008

THOMAS K. KAHN

CLERK

 [PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

Nos. 07-14796, 07-14797

________________________

Bankruptcy Court Docket No. 07-30424-BK-DHW

In Re: ROLLIFEE FRANKLIN BARRETT, JR.,

MARY ANN BARRETT,

Debtors.

__________________________________________________________________

DAIMLERCHRYSLER FINANCIAL

SERVICES AMERICAS LLC,

 Plaintiff-Appellant, 

versus 

ROLLIFEE FRANKLIN BARRETT, JR.,

MARY ANN BARRETT, 

Defendants-Appellees,

RICHARD JOHNSON,

CHERYLL JOHNSON, 

 Amicus Curiae.
Honorable C. Roger Vinson, United States District Judge for the Northern District of *

Florida, sitting by designation. 

2

________________________

Appeals from the United States Bankruptcy Court

for the Middle District of Alabama

_________________________

(September 29, 2008)

Before TJOFLAT and MARCUS, Circuit Judges, and VINSON, District Judge. *

VINSON, District Judge:

 In this consolidated appeal, DaimlerChrysler Financial Services Americas

LLC (“Daimler”) directly appeals two bankruptcy court orders in the Chapter 13

case of Rollifee Franklin Barrett and Mary Ann Barrett (“Debtors”). The issue

raised on appeal concerns a pure question of law: whether a Chapter 13 debtor’s

surrender of a “910 vehicle” (i.e., a vehicle purchased for personal use within 910

days before filing for bankruptcy) fully satisfies a creditor’s claim secured by the

vehicle and prevents the creditor from filing an unsecured claim for any remaining

deficiency. To date, this question has been considered by five of our sister circuits

(with each answering in the negative), but it is a matter of first impression in this

Court.

I. BACKGROUND
3

The facts of this case are simple and undisputed. On August 15, 2006, the

Debtors purchased a 2006 Jeep Liberty for their personal use, utilizing a retail

installment contract. Daimler is the secured creditor under that contract. On March

22, 2007, the Debtors filed a petition for bankruptcy relief under Chapter 13 of the

Bankruptcy Code, thus rendering the Jeep Liberty a 910 vehicle. Daimler filed a

proof of claim providing for its secured claim of $25,661.27, which represented

the outstanding payoff balance on the vehicle due at the time of the petition. The

Debtors filed their Chapter 13 bankruptcy plan, proposing to surrender the vehicle

in full satisfaction of the debt owed to Daimler and to pay 100% on allowed

unsecured claims. Daimler objected to confirmation because the plan did not

provide for the payment of any deficiency balance after disposition of the vehicle,

but the bankruptcy court overruled the objection and later confirmed the plan. This

direct appeal followed.

II. JURISDICTION AND STANDARD OF REVIEW

We have direct appellate jurisdiction in a bankruptcy case if the bankruptcy

court (or the district court on review) certifies that: (1) an order entered in the case

involves a question of law as to which there is no controlling decision of the court

of appeals for the circuit or of the Supreme Court, or if it involves a matter of

public importance; (2) the order involves a question of law that requires resolution
 The section in question has been called the hanging paragraph because, although it is set 1

forth as a subparagraph following 11 U.S.C. § 1325(a)(9), it is not separately designated by letter

or number. Rather, it just “hangs” without ordered designation and without surrounding context.

It has been variously referred to by courts as Section 1325(a)(9), Section 1325(a)(*), and as the

“hanging paragraph.” For purposes of this opinion, we will use “hanging paragraph” in text and §

1325(a)(*) for citations.

4

of conflicting decisions; or (3) an immediate appeal from the order may materially

advance the progress of the case or proceeding. See 28 U.S.C. § 158(d)(2)(A). The

bankruptcy court certified that (1) and (2) are present, and we accepted the appeal.

In considering this appeal, because the facts are undisputed, we will review the

bankruptcy court’s conclusions of law de novo. See, e.g., In re Calvert, 907 F.2d

1069, 1071 (11 Cir. 1990). th

III. ANALYSIS

To answer the question presented in this case, we must interpret and apply

two provisions of the Bankruptcy Code --- Title 11, United States Code, Sections

1325(a)(5) and 506(a) --- in light of the “hanging paragraph,” which was added at

the end of Section 1325(a)(9) by the Bankruptcy Abuse Prevention and Consumer

Protection Act of 2005 (“BAPCPA”).1

Chapter 13 of the Bankruptcy Code provides a reorganization remedy for

consumers and business proprietors with small debts. See Johnson v. Home State

Bank, 501 U.S. 78, 82, 111 S. Ct. 2150, 2153, 115 L. Ed. 2d 66 (1991). A debtor

who is eligible for such relief may submit a plan that modifies the rights of his or
 It is called “cramdown” because, as the Seventh Circuit has explained, the bankruptcy 2

court in effect “crams down the creditor’s throat the substitution of money for the collateral, a

situation that creditors usually oppose because the court may underestimate the collateral’s

market value and the appropriate interest rate, and the debtor may fail to make all promised

payments, so that the payment stream falls short of the collateral’s full value.” In re Wright, 492

F.3d 829, 830 (7 Cir. 2007) (Easterbrook, J.). th

5

her secured and unsecured creditors. Id. The bankruptcy court will confirm the

plan if it satisfies the requirements of Title 11, United States Code, Section

1325(a). Under that statute, the plan’s treatment of an “allowed secured claim”

will be confirmed if (1) the creditor accepts the plan [11 U.S.C. § 1325(a)(5)(A)];

(2) the debtor retains the property and makes payments on the claim [11 U.S.C. §

1325(a)(5)(B)]; or (3) the debtor surrenders the property to the creditor [11 U.S.C.

§ 1325(a)(5)(C)].

Pre-BAPCPA, if a Chapter 13 debtor surrendered the property, the creditor

could pursue an unsecured deficiency claim if it had a right to collect a deficiency

under applicable nonbankruptcy law. If a debtor retained the property, the debtor

would be allowed to keep the collateral over objection of the creditor and satisfy

the debt by making monthly payments equal to its present market value instead of

the remaining balance on the loan. See Associates Commercial Corp. v. Rash, 520

U.S. 953, 957, 117 S. Ct. 1879, 1882-83, 138 L. Ed. 2d 148 (1997). This is

commonly known as “cramdown.” The treatment and valuation of the claim 2

secured by the collateral was governed by Section 506 of the Code, which
6

provides:

(a)(1) An allowed claim of a creditor secured by a lien on

property . . . is a secured claim to the extent of the value

of such creditor’s interest in the estate’s interest in such

property . . . and is an unsecured claim to the extent that

the value of such creditor’s interest . . . 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[.]

11 U.S.C. § 506(a)(1). If a debtor exercised the retention option, the secured claim

could thus be separated, or bifurcated, into a secured portion (reflecting the actual

present value of the collateral) and an unsecured portion (reflecting the remaining

deficiency). Regardless of whether the debtor retained or surrendered the vehicle,

the creditor was permitted to seek payment of any deficiency as an unsecured

creditor. Cf. Rash, supra, 520 U.S. at 962-63 (recognizing that Section 506(a)

applied to both retention and surrender of collateral pre-BAPCPA).

BAPCPA changed the foregoing with respect to certain claims. Specifically,

it added the hanging paragraph, which provides:

For purposes of [Section 1325(a)(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
7

[i.e., a 910 vehicle], 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.

11 U.S.C. § 1325(a)(*). As courts have widely recognized, the hanging paragraph

prevents a bankruptcy court from approving a plan incorporating a “cramdown”

when the debtor elects to retain the 910 vehicle. See In re Rodriguez, 375 B.R.

535, 548 (9 Cir. BAP 2007) (“It is apparent that [with the hanging paragraph] th

Congress intended to take away the right of debtors to reduce their secured

obligations on retained 910 vehicles to the value of the vehicles.”). In other words,

because the valuation provision of Section 506(a) no longer applies to bifurcate a

910 vehicle claim, a debtor retaining the vehicle must now pay the entire claim

and it is to be treated as fully secured. The question in this case, however, is: what

happens when the debtor surrenders a 910 vehicle post-BAPCPA?

 Early on, this issue was confronted by a number of bankruptcy courts, with

the clear majority holding that the surrender of the 910 vehicle fully satisfies the

claim. See, e.g., Rodriguez, supra, 375 B.R. at 542, n.6 (collecting multiple cases

adopting this view). The rationale of these cases can be generally summed up as

follows: Because a 910 vehicle claim is no longer subject to bifurcation and must

be treated as fully secured when the debtor retains the vehicle, it must also be

treated as fully secured when the debtor surrenders the vehicle, and, logically,
8

surrender satisfies the claim and precludes an unsecured claim for deficiency.

However, a small minority of bankruptcy courts held that surrender did not fully

satisfy the claim if the security agreement provided for recourse. See, e.g., In re

Particka, 355 B.R. 616, 625-26 (Bankr. E.D. Mich. 2006) (citing with approval

the “only two published cases” rejecting the majority view). These few courts held

that “the right to pursue a deficiency claim derives from the recourse nature of an

obligation under non-bankruptcy law after disposition of collateral.” Id. at 626.

The Seventh Circuit was the first court of appeals to address this issue. The

debtors in In re Wright, 492 F.3d 829 (7 Cir. 2007) owed more on a 910 vehicle th

than it was worth, and they proposed in their Chapter 13 plan to surrender the

vehicle in full satisfaction of the debt. However, the security agreement between

the parties provided for recourse, that is, if the debt was not paid in full after the

vehicle was taken and sold, then the debtors would be liable for any deficiency

under the contract and relevant provisions of the state’s version of the Uniform

Commercial Code. The Wright’s creditors objected to confirmation of the Chapter

13 plan. The bankruptcy court adopted the then-minority position and declined to

approve the plan because the debtors did not propose to pay any portion of the

deficiency.

On direct appeal to the Seventh Circuit, the Court (per Judge Easterbrook)
9

presented the issue as “what happens when, as a result of the hanging paragraph, §

506 vanishes from the picture.” 492 F.3d at 830. The court held that “by knocking

out § 506, the hanging paragraph leaves the parties to their contractual

entitlements.” Id. at 832. In reaching this result, the Seventh Circuit reasoned that

“it is a mistake to assume, as the majority of bankruptcy courts have done, that §

506 is the only source of authority for a deficiency judgment when the collateral is

insufficient.” Id. (emphasis in original). Rather, Supreme Court precedent provides

that “state law determines rights and obligations when the Code does not supply a

federal rule.” Id. (citing Butner v. United States, 440 U.S. 48, 99 S. Ct. 914, 59 L.

Ed. 2d 136 (1979); and Travelers Cas. & Surety Co. v. Pacific Gas & Electric Co.,

--- U.S. ---, 127 S. Ct. 1199, 167 L. Ed. 2d 178 (2007); Raleigh v. Illinois Dep’t of

Revenue, 530 U.S. 15, 120 S. Ct. 1951, 147 L. Ed. 2d 13 (2000)). Put differently,

the Court believed that the majority view made the mistake of assuming that the

sales contracts and state law are irrelevant unless implemented by the Bankruptcy

Code, when, in fact, “Butner holds that the presumption runs the other way: rights

under state law count in bankruptcy unless the Code says otherwise.” Id. at 832-

33.

The Wright court also observed that, under the majority view, if the debtors

had surrendered their 910 vehicle the day before filing for Chapter 13 bankruptcy,
10

then the creditor would be able to treat any shortfall in the collateral’s value as an

unsecured debt, yet if the debtors surrendered the vehicle the day after filing for

bankruptcy, then the creditor would not be entitled to such relief. See id. at 832.

The Seventh Circuit noted that this anomalous result (the compulsory conversion

of full recourse purchase money secured loans into non-recourse loans) was

inconsistent with “Restoring the Foundation for Secured Credit,” which is the

name and stated purpose of the BAPCPA section that enacted the hanging

paragraph. Id. To the contrary, if the majority view was to be followed, “then

many secured loans have been rendered non-recourse, no matter what the contract

provides.” Id. at 830. The court explained that nothing in the Bankruptcy Code

prohibits an unsecured deficiency claim under state law following surrender of the

collateral, and that “[c]reditors don’t need § 506 to create, allow, or recognize

security interests, which rest on contracts (and the UCC) rather than federal law.”

Id. at 832-33. The Seventh Circuit concluded that the “fallback” under Supreme

Court precedent was the parties’ contract, and that:

[b]y surrendering the car, debtors gave their creditor the

full market value of the collateral. Any shortfall must be

treated as an unsecured debt. It need not be paid in full,

any more than the Wrights’ other unsecured debts, but it

can’t be written off in toto while other unsecured

creditors are paid some fraction of their entitlements.
11

Id. at 833.

The Eighth Circuit was the next court of appeals to consider this issue, in

Capital One Auto Finance v. Osborn, 515 F.3d 817 (8 Cir. 2008). The court th

recognized that the majority of bankruptcy courts had held that “since § 506(a)

does not apply, the entire claim is secured, and therefore, under § 1325(a)(5)(C),

the surrender of the vehicle fully satisfies the claim.” Id. at 821. But, this view,

according to Osborn (and as noted in Wright, supra), “essentially turns a recourse

loan into a non-recourse loan, to the benefit of unsecured creditors.” Id. at 821.

The court went on to explain that the majority position was based on the erroneous

belief that the Bankruptcy Code prohibits bifurcation when, in fact, “the hanging

paragraph simply removes the bankruptcy code’s method of bifurcation. The

hanging paragraph has no effect on state-law rights.” Id. at 822 (emphasis added).

Citing Wright and other cases, Osborn noted that there was a “trend . . . toward

allowing a deficiency claim.” Id. at 819. Because the underlying sales contract

gave the creditor the right to repossess the vehicle, sell it, and apply the proceeds

to the debt owed, and also sue the debtors for any “additional amounts if the

proceeds of the sale do not pay all of the amounts [owed],” the Eighth Circuit

adopted the Seventh Circuit’s interpretation and held that the creditor was entitled
 On the same date that Osborn was decided, the Eighth Circuit decided AmeriCredit 3

Financial Servs., Inc. v. Moore, 517 F.3d 987 (8 Cir. 2008). Moore reemphasized that under th

Osborn, the deficiency claim is an unsecured claim under state law and not --- as the creditor in

that case argued --- a fully secured claim entitling the creditor to “full payment.” See id. at 989.

In this case, Daimler advances the same argument that was rejected in Moore. See Appellant’s

Brief at 20-24. We reject it for the same reasons.

12

to an unsecured deficiency under state law. Id. at 822-23.3

Soon thereafter, the Sixth Circuit, in a very divided opinion, reached the

same result in In re Long, 519 F.3d 288 (6 Cir. 2008). The lead opinion agreed th

with Wright, supra, insofar as the case held that “courts should not simply allow

the debtor to surrender the car and then wipe out the deficiency” because doing so

“undermines reasonable obligations created by the contract between the parties.”

Id. at 291; see also id. at 295 (“the complete elimination of a deficiency judgment

in Chapter 13 cases” would be a “nonsensical” and “[ir]rational result” because,

inter alia, it “dispenses with a major obligation created by the contract”).

Although the lead opinion agreed with Wright with respect to the foregoing, it

“question[ed] the wisdom” of the Seventh Circuit’s holding that the deficiency

judgment “should depend entirely on the vagaries of state laws as to foreclosure,

repossession, sale and judicial remedy.” Id. at 291. Relying on the common law

principle of interpretation known as “the equity of the statute,” the lead opinion

believed there should be a uniform national rule. Id. at 297-98. The concurring

judge agreed that surrender of the vehicle should not wipe out the deficiency, but
 The third judge on the Long panel filed a dissenting opinion in which he stated that he 4

would “affirm based upon the well-reasoned opinion of the bankruptcy court.” Id. at 301 (Clay,

J., dissenting).

13

he disagreed with substituting a national rule in place of state law, as proposed by

the lead opinion:

A uniform national rule as urged by the lead opinion

would allow a creditor to seek a deficiency following

foreclosure without regard to whether the contract at

issue was non-recourse under state law. There is no

indication that this was the intent of Congress when it

enacted the BAPCPA.

Id. at 300 (Cox, J., concurring).4

In In re Ballard, 526 F.3d 634 (10 Cir. 2008), the Tenth Circuit concurred th

with Wright, Osborn, and Long, supra, in that the surrender of a 910 vehicle will

not be in full satisfaction of the debt. In so doing, it “join[ed] the growing number

of courts [to hold] that, by making § 506 inapplicable to 910 car claims, the

hanging paragraph does not abrogate a creditor’s right to assert a deficiency claim

authorized by state law.” Id. at 638. This conclusion was based on the plain

language of the statute and Supreme Court precedent, as recognized by the

Seventh and Eighth Circuits in Wright and Osborn, respectively. See id. at 638-41.

Therefore, in the case of surrender of a 910 vehicle under Section 1325(a)(5)(C), a

debtor satisfies the requirements for plan confirmation with respect to that allowed
 The Ballard court agreed with the result, but by necessary implication did not adopt the 5

reasoning, of the Sixth Circuit’s lead opinion in Long, supra, which, as noted, used “the equity of

the statute” to fill a perceived statutory gap rather than resort to non-bankruptcy law to preserve

the deficiency claims. 

14

secured claim, and “[w]hether the creditor may bring an unsecured claim to

recover a deficiency after sale of the vehicle depends on the underlying contract

and state law.” Id. at 641.5

Most recently, the Fourth Circuit, in Tidewater Finance Co. v. Kenney, 531

F.3d 312 (4 Cir. 2008), expressly joined the Seventh, Eighth, and Tenth Circuits th

“in holding that, after a debtor satisfies the requirements for plan confirmation

under § 1325(a)(5)(C) by surrendering his 910 vehicle, the parties are left to their

contractual rights and obligations, and the creditor may pursue an unsecured

deficiency claim under state law.” Id. at 318. The Kenney court began its analysis

by stating that “[t]he principle that state law determines the rights and obligations

of debtors and creditors when the Bankruptcy Code fails to supply a federal rule is

well recognized.” Id. The Fourth Circuit then quoted from Butner, supra, wherein

the Supreme Court explained the logic behind this principle as follows:

Property interests are created and defined by state law.

Unless some federal interest requires a different result,

there is no reason why such interests should be analyzed

differently simply because an interested party is involved

in a bankruptcy proceeding. Uniform treatment of

property interests by both state and federal courts within
 Like the Tenth Circuit, the Kenney court agreed with the overall result, but did not adopt 6

the reasoning, of the Sixth Circuit’s Long decision.

15

a State serves to reduce uncertainty, to discourage forum

shopping, and to prevent a party from receiving “a

windfall merely by reason of the happenstance of

bankruptcy.” Lewis v. Manufacturers National Bank, 364

U.S. 603, 609, 81 S. Ct. 347, 350, 5 L. Ed. 2d 323. The

justifications for application of state law are not limited

to ownership interests; they apply with equal force to

security interests, including the interest of a mortgagee in

rents earned by mortgaged property.

Id. at 319 (quoting Butner, 440 U.S. at 55) (emphasis added). The Kenney court

thus concluded that a deficiency claim may be pursued by the creditor of a 910

vehicle as an unsecured claim so long as the underlying state law, in conjunction

with the parties’ contract, allows for such a claim.6

In light of the foregoing, it seems safe to say that the previous minority view

is now the majority view. Given the comprehensive analysis by our sister circuits,

we have little to add. A plain reading of the hanging paragraph makes clear that

Congress intended to (and did) make Section 506(a) inapplicable to a 910 vehicle.

In such a situation, we agree with the Seventh Circuit that “by knocking out § 506,

the hanging paragraph leaves the parties to their contractual entitlements.” See

Wright, supra, 492 F.3d at 832. Leaving the parties to their contract, and looking

to applicable state law, is required by well-established Supreme Court precedent.
 The Debtors and the parties appearing amicus curiae suggest that we should not look to 7

legislative intent because the language of the hanging paragraph is plain and unambiguous. While

it is true that the statute is plain and unambiguous, as the Debtors and amici themselves also note,

we may look to legislative intent to avoid an absurd result at odds with the meaning of the

drafters. As noted above, we believe it would be an absurd result to hold that Congress intended

to indirectly render secured loans into non-recourse loans --- no matter what the contract provides

--- in legislation that expressly sought to restore the foundation of secured credit. 

 And the Sixth Circuit, to the extent that it reaches the same result. 8

16

See, e.g., Butner, supra, 440 U.S. at 48 (explaining that state law determines rights

and obligations when the Bankruptcy Code does not provide a federal rule).

We further note that a contrary result would be inconsistent with legislative

intent. As we have recently stated, the legislative history of the hanging paragraph

“leaves little doubt that its ‘architects intended only good things for car lenders

and other lienholders.’” Graupner v. Nuvell Credit Corp., --- F.3d ---, 2008 WL

2993570, at *2 (11 Cir. Aug. 6, 2008) (quoting Long, supra, 519 F.3d at 294). th

Thus, car lenders and lienholders should clearly not be negatively impacted by the

hanging paragraph in situations where the debtor surrenders a 910 vehicle, yet that

is exactly the effect if surrendering the vehicle is deemed to fully satisfy the debt

when the contract provides for recourse. Congress obviously did not intend such a

result in legislation purporting to “Restor[e] the Foundation for Secured Credit.”7

We thus join the Seventh, Eighth, Tenth, and Fourth Circuits and hold that 8

a creditor may pursue an unsecured deficiency claim when the debtor surrenders a
17

910 vehicle. The deficiency claim is to be governed by the parties’ contract and

applicable state law, and will depend on whether the contract and state law

provide for recourse. Nothing in the Bankruptcy Code says otherwise, and we see

no persuasive reason to conclude otherwise.

IV. CONCLUSION

For the reasons stated above, we VACATE the bankruptcy court’s orders

overruling Daimler’s objection and confirming the plan and REMAND to the

bankruptcy court for further proceedings consistent with this opinion.