Opinion ID: 59533
Heading Depth: 2
Heading Rank: 2

Heading: Does BAPCPA's Hanging Paragraph Supercede Till?

Text: The Supreme Court recently addressed what rate of interest needed to be paid to an objecting secured creditor whose claim was paid in installments under a Chapter 13 plan. See Till, 124 S.Ct. at 1962 (Stevens, J., plurality) (holding that the primeplus approach should be used to determine the proper interest rate). After Till, Congress enacted BAPCPA, which made significant changes to the Bankruptcy Code. So before examining Till, we must determine whether it has been superceded by any provisions of BAPCPA. BAPCPA added an unnumbered paragraph following section 1325(a)(9). This paragraph is commonly referred to as the hanging paragraph. The hanging paragraph provides that section 506 of the Bankruptcy Code, 11 U.S.C. § 506, shall not apply 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 debtor. . . .  11 U.S.C. § 1325(a). Section 506 permits a debtor to bifurcate a secured creditor's claim into a secured and an unsecured portion if the value of the collateral is less than the amount of the claim. The portion of the claim that is greater than the value of the collateral is unsecured and the portion equal to the value is secured. This bifurcation process is known as stripping down a secured creditor's lien, and it is commonly used by debtors in conjunction with the cram down option to retain depreciated collateral on significantly better terms. [7] The hanging paragraph prevents this bifurcation for secured claims that meet its criteria, so the entire claim remains secured, regardless of the value of the collateral. [8] Drive Financial argues that since the hanging paragraph makes section 506 inapplicable to its claim, the Supreme Court's opinion in Till is distinguishable because it dealt with a lien-stripped claim [9] and it was decided before the hanging paragraph was added to the Bankruptcy Code. [10] If Till is distinguishable, Drive Financial contends that this court should follow its prior precedent and mandate that the Jordans' Chapter 13 plan use the contract rate to pay off its claim. Green Tree Fin. Servicing Corp. v. Smithwick, 121 F.3d 211, 214-15 (5th Cir.1997) (adopting the presumptive contract rate approach [11] to determine the interest rate to be paid on a secured Chapter 13 claim). This argument is unpersuasive because Till did not rely upon the fact that the creditor's claim had been bifurcated using section 506. The purpose of bifurcation is to determine how much of a creditor's claim is secured; then section 1325(a)(5)(B) determines what interest rate should be applied to that secured claim. In Till, the Supreme Court decided what interest rate was required to be paid on an objecting creditor's secured claim to ensure that the creditor receives value for its crammed down claim as required by section 1325(a)(5)(B). That is the same question presented in this case. The only difference is that all of Drive Financial's claim is secured, as opposed to only a portion of the creditor's claim being secured in Till, because the hanging paragraph prohibited Drive Financial's claim from being bifurcated. Drive Financial has provided no reason for why this distinction would affect Till's holding regarding the proper rate of interest to be paid upon a secured claim. BAPCPA did not amend the definition of value under section 1325(a)(5)(B), nor did it prohibit bankruptcy courts from altering the contractual terms for secured claims. [12] Since these were the issues decided by Till, we hold that Congress did not supercede Till when it passed BAPCPA.