Questions under chapter 13 can be complex, but the issue confronting Bankruptcy Judge Laura K. Grandy of East St. Louis, Ill., was off the charts.

Two people purchased a car together, taking title in both of their names. The lender was shown on the title as having a lien on the car.

The “other” purchaser filed chapter 13 first. He confirmed a plan surrendering the car to the lender. Evidently, the lender did not take possession of the car, presumably because the co-owner had not surrendered the car.

Ten months after the “other” purchaser confirmed his chapter 13 plan, the co-owner filed her own chapter 13 petition. After several revisions, the co-owner, whom we shall refer to as the debtor, filed a plan to pay the car loan in full, but at an interest rate lower than the contract rate.

Note: The two co-owners had purchased the car fewer than 910 days before their chapter 13 petitions.

The auto lender filed an objection to the plan, contending that the district’s standard-form plan should be supplemented to say that the lender would retain a lien on the car until the loan was paid in full, with contract interest.

In Judge Grandy’s October 29 opinion, the lender won. Now comes the hard part: explaining why the lender won.

If the debtor were the sole owner of the car, the lender would not have been entitled to a lien. Judge Grandy explained the seemingly bizarre result under Section 1325(a)(5)(B).

Assuming that the debtor completes plan payments and that the payments to the lender are “not less than the allowed amount of such claim,” the subsection says that the lender will “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.”

In other words, if the debtor were the only owner, the lien would evaporate when the car loan was paid off or when the debtor earned her discharge. That’s the result that the debtor wanted Judge Grandy to reach.

However, the debtor was not the sole owner. The “other” owner would be receiving a discharge, leaving him no personal liability for the car loan. Nonetheless, the lender would retain the lien with respect to the “other” owner.

With co-owners, the result is different, in part, given the Bankruptcy Code’s co-debtor stay, which is lifted to “the extent . . . the plan filed by the debtor proposes not to pay such claim.” 11 U.S.C. § 1301(c)(2).

Interpreting Section 1301(c)(2), note that the term is “claim,” not the allowed amount of the claim. Judge Grandy cited a bankruptcy court decision from Georgia in 2012 holding that the co-debtor stay is lifted if the lender does not collect interest at the contract rate.

Judge Grandy observed that the debtor’s plan did not provide for payment of the car loan in full. “Ordinarily,” Judge Grandy said, the lender “would be entitled to collect the difference between the contract interest rate and the interest rate provided for in the plan from the Co-Borrower personally.”

However, the “other” owner was in chapter 13 with no personal liability on the auto loan, assuming the “other” owner were to complete his plan payments and receive a discharge.

“If the Court were to require [lender] to release its lien upon entry of [“other” owner’s] discharge,” Judge Grandy said, “the [“other” owner] would be entitled to retain an ownership interest in the Vehicle without having to pay [debtor’s] claim in full or actually complying with § 1325(a)(5)(C).”

“Such a result would be inequitable and inconsistent with the requirements of the Bankruptcy Code,” Judge Grandy said. She sustained the lender’s objection to confirmation, holding that the lender was entitled to retain its lien until the claim “is paid in full.”