The costs of delivering and setting up a mobile home to be retained by a debtor under a chapter 13 plan “must be excluded from the mobile home’s valuation under Section 506(a) of the Bankruptcy Code,” according to the Fifth Circuit.
The chapter 13 plan promised to pay the secured value of the mobile home over the life of the plan plus 5% interest. To determine value for cramdown under Sections 1325 and 506(a), the lender argued that the bankruptcy court should include $4,000 in costs that would be incurred in delivering the house to the site, along with expenses in blocking, leveling and anchoring the house as required by state law.
Relying on the Supreme Court’s decision in Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997), the bankruptcy court overruled the lender’s objection to confirmation and held that the valuation should not include delivery and setup costs. The district court affirmed, prompting the lender to appeal a second time.
In her opinion on August 13, Circuit Judge Jennifer Walker Elrod upheld the lower courts. The debtor did not submit a brief, but the U.S. Trustee supported the bankruptcy judge’s decision.
The case was governed by Section 506(a)(1) and (a)(2). The former provides that a secured claim is allowed “to the extent of the value of such creditor’s interest in the estate’s interest in such property.” It goes on to say that such “value shall be determined based on the purpose of such valuation and of the proposed disposition or use of such property.”
Subsection (a)(2), added by the BAPCPA amendments in 2005, provides that the value of personal property “shall be determined based on the replacement value of such property . . . without deduction for costs of sale or marketing.”
Quoting Rash, Judge Elrod said that the “‘proposed disposition or use’ of the collateral is of paramount importance.” Id. at 962. Rejecting an argument proffered by the lender, she held that subsection (a)(2) “should not be construed to the exclusion of” subsection (a)(1).
Judge Elrod also attached significance to footnote 6 in Rash, where Justice Ginsburg said, “A creditor should not receive portions of the retail price, if any, that reflect the value of items the debtor does not receive when he retains his vehicle, items such as warranties, inventory storage, and reconditioning.” Id. at 965. [Emphasis added.] Judge Elrod also said that the later addition of subsection (a)(2) in the BAPCPA amendments “does not conflict with Rash.”
Weaving the principles together, especially the idea that setup and delivery costs were not services the debtor would receive, Judge Elrod held that “delivery and setup costs of a mobile home retained by a debtor must be excluded from the mobile home’s valuation under Section 506(a).” She said the U.S. Trustee correctly argued that delivery and setup costs are not costs of sales or marketing but, instead, are additional costs like sales taxes and service agreements.
Judge Elrod said her holding “accords with the determination of all courts that have addressed the issue.” The lender could cite “no caselaw to the contrary,” she said.