Opinion ID: 170721
Heading Depth: 2
Heading Rank: 1

Heading: The Question Presented by the Hanging Paragraph

Text: This appeal presents a single legal question: whether a Chapter 13 debtor's surrender of a 910 vehicle (i.e., a vehicle the debtor purchased within the 910 days preceding his bankruptcy petition) fully satisfies a creditor's claim secured by the vehicle and prevents the creditor from filing an unsecured claim for the deficiency based on state law. To answer this question, we must interpret two provisions of the Bankruptcy Code, 11 U.S.C. § 1325(a)(5) and § 506(a), in light of an unnumbered paragraph added to § 1325(a) by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Section 1325(a)(5) specifies the conditions for confirmation of a debtor's plan with respect to each allowed secured claim provided for by the plan. Under § 1325(a)(5), a debtor seeking confirmation of a plan has three options regarding a creditor's allowed secured claim: (1) obtain the creditor's acceptance of the plan; (2) keep the collateral securing the claim and make payments equaling the present value of the claim; or (3) surrender the collateral securing the claim to the creditor. § 1325(a)(5)(A)-(C). Generally, a debtor exercising the retention option under § 1325(a)(5)(B), also known as cram down, keeps the collateral securing the debt and satisfies the debt by making monthly payments equal to the present value of the collateral, rather than the remaining balance on the loan. The cram down is the result of § 1325(a)(B)(ii)'s requirement that the debtor pay the present value of the creditor's claim and § 506(a)'s provision for judicial valuation of claims secured by collateral. Section 506(a) specifies how a claim secured by a lien on property should be valued: An allowed claim of a creditor secured by a lien on property in which the estate has an interest . . . 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. Thus, 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. As a result of this process, an undersecured creditor may seek payment of a deficiency only as an unsecured creditor. [2] Since BAPCPA, however, the hanging paragraph has prevented the valuation of certain claims under § 506(a). [3] Most salient for purposes of this case, § 506 no longer applies to a 910 car claim, that is, a claim secured by a 910 vehicle. Both the bankruptcy court and the BAP acknowledged that this change in law prevents a debtor from engaging in the cram down when electing to retain the vehicle. Because the valuation provision of § 506(a) no longer applies to bifurcate the creditor's claim into secured and unsecured portions, a debtor who keeps the 910 vehicle under § 1325(a)(5)(B) must now pay the entire claim as filed. In other words, a 910 car claim under § 1325(a)(5)(B) is treated as fully secured. Here, however, the debtors surrendered the vehicles under § 1325(a)(5)(C). Because a 910 car claim is treated as fully secured when a debtor retains the vehicle, the bankruptcy court and the BAP reasoned that it must also be treated as fully secured when the debtor surrenders the vehicle. Following this logic, surrender fully satisfies the claim and precludes an unsecured claim for a deficiency. Although courts agree that the hanging paragraph now prevents the application of § 506 to 910 car claims under § 1325(a)(5), they have reached different conclusions concerning the effect of this change on cases involving the surrender of a 910 vehicle. In the present case, the bankruptcy court and the BAP adopted the majority view among bankruptcy courts; both courts concluded that, because a 910 car claim is no longer subject to bifurcation into secured and unsecured claims under § 506(a), the debtor's surrender of the vehicle under § 1325(a)(5)(C) satisfies the entire claim, and the creditor may not pursue an unsecured claim, based on state law, to recover a deficiency. See, e.g., In re Moon, 359 B.R. 329, 333 (Bankr. N.D.Ala.2007); see also In re Rodriguez, 375 B.R. 535, 542 n. 6 (9th Cir. BAP 2007) (listing cases in which bankruptcy courts have adopted this view). Conversely, a growing number of courts, including the only circuit courts to address this issue, have held that a creditor may pursue an unsecured deficiency claim when the debtor surrenders the vehicle. See In re Long, 519 F.3d 288, 298, 299-301 (6th Cir.2008); Capital One Auto Fin. v. Osborn, 515 F.3d 817, 822-23 (8th Cir.2008); In re Wright, 492 F.3d 829, 832-33 (7th Cir.2007); see also In re Rodriguez, 375 B.R. at 548-49 (rejecting majority view adopted by bankruptcy courts).