Opinion ID: 346607
Heading Depth: 2
Heading Rank: 1

Heading: The Secured Creditor's Preferred Position in Chapter XIII Proceedings

Text: 53 It is true that a secured creditor dealt with by a Chapter XIII plan may decline to participate in it and may seek his collateral. 11 U.S.C. § 1052. The question is whether General Finance was dealt with by the Garner plan within the meaning of the Act. 54 The Act does not define dealt with as the term is used in section 1052, but this court in the past has indicated that dealt with is synonymous with affected, another term used in the section. See Terry v. Colonial Stores Employee's Credit Union, 411 F.2d 553 (5th Cir. 1969). The Act does define affected: 55 A creditor shall be deemed to be 'affected' by a plan only if his interest shall be materially and adversely affected thereby. . . . 56 11 U.S.C. § 1007. We must determine, then, whether the Garner plan materially and adversely affected General Finance's interest. General Finance contends its interest was materially and adversely affected because it was forced to accept less than the full contract payment and was also barred from reclaiming the collateral. General Finance cites as authority for the proposition our decision in the Terry case supra.B. Terry and Thompson 57 In Terry, the Chapter XIII debtor's credit union, which had lent the debtor money for an automobile purchase, was allocated less than the contract payment in the Chapter XIII plan. The Bankruptcy judge denied the credit union's petition for reclamation. The debtor defended this to us on the basis that 58 the bankruptcy court may modify the contractual interests of secured creditors in Chapter XIII proceedings, where the inconvenience to the creditor is slight as compared to the beneficial results to the wage earner. 59 411 F.2d at 554. We found the argument wholly unpersuasive. Id. We held that the creditor was materially and adversely affected, affirming the district court's decision to that effect. 60 In Thompson v. Ford Motor Credit Co., 475 F.2d 1217 (5th Cir. 1973), a case not cited by General Finance, we discussed a bankruptcy judge's discretionary power to deny reclamation when a secured creditor who has rejected a Chapter XIII plan seeks to repossess the collateral from a defaulting debtor. In Thompson, the debtor had fallen behind on the payments due a secured creditor, triggering the creditor's filing of the reclamation petition. The Chapter XIII plan under which the payments were being made provided for payments at the contract rate. 61 We measured the correctness of the bankruptcy judge's decision to deny reclamation by four criteria: 62 (1) General equitable considerations, including the debtor's good faith and ability to pay, should favor restraining foreclosure. (2) The injunction against foreclosure must be necessary to preserve the debtor's estate or carry out the Chapter XIII plan. (3) The injunction must not impair the security of the lien. (4) The owner of the secured indebtedness must not be required to accept less than full periodic payments specified in the contract. 63 475 F.2d at 1218-19. 64 The fourth criterion in Thompson and the decision in Terry on first reading might seem applicable here, but we conclude that neither of those cases controls this one. In each of those cases, the court's analysis was predicated on an assumption that the contract claim of the creditor accurately reflected the creditor's interest, see 11 U.S.C. § 1007, so that any reduction in the monthly payment called for by the contract would materially and adversely affect that interest. Here, General Finance's contract claim does not accurately reflect General Finance's interest. The balance sheet also includes a $1,000.00 credit for Garner flowing from the Truth-in-Lending claim. Taking account of this, the bankruptcy judge reduced the amount of the monthly payments. As a result, General Finance still will be paid all the money actually owed it by Garner in substantially less time than would have been the case had the amount owed and the monthly payments been at the levels called for by the conditional sales contract. 14 Under these circumstances, we cannot say that in any realistic, practical sense General Finance was materially and adversely affected by the Chapter XIII plan. Any adverse effect flowed from the Truth-in-Lending violation. We think the action taken by the bankruptcy judge comports with the language and purpose of Chapter XIII and is consistent with the concept included in the Bankruptcy Act that 65 (i)n all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid. 66 Bankruptcy Act § 68, 11 U.S.C. § 108. 67 AFFIRMED.