A most frustrating baseball statistic is the “LOB,” runners left on base, representing missed opportunities to score runs. Creditors relying on BAPCPA’s anti-cramdown provision to make life simpler and richer by precluding cramdown of purchase-money interests will, from time to time, have to leave a few runners and claims stranded on base.
This incredibly important change of prior law is found in an orphaned paragraph at the end of Bankruptcy Code §1325(a)(9), and is one of the most carelessly written provisions of BAPCPA:
For the purposes of paragraph (5), §506 shall not apply to a claim described in that paragraph 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 preceding the date of the filing of the petition and the collateral for that debt consists of a motor vehicle (as defined in §30102 of title 49) acquired for the personal use of the debtor, or if the collateral for that debt consists of any other thing of value, if the debt was incurred during the one-year period preceding that filing.
It identifies the subject collateral as having been purchased for “the personal use” of the debtor (as opposed to “personal, family or household use”), creating a very serious limitation on the anti-cramdown provision – which we will not address in this article. See In re Jackson, --B.R.-- 2006 WL 563317 (Bankr. M.D. Ga. March 6, 2006) (cramdown allowed on car purchased for nondebtor wife). The provision is designed to protect purchase-money loans, what we’ll call “910 claims” of “910 creditors” because it applies primarily to motor vehicles purchased within 910 days of the petition for relief, although it also encompasses nonvehicle purchases within a year of the petition.
Affirmatively mandating payment in full of a 910 claim was much too simple. The author of the anti-cramdown provision wants to do the job with oblique sophistication by telling us that “§506 shall not apply” to a 910 claim and therefore, as only the initiated would understand, you could not revalue or cramdown the claim.
One court has taken the view that a 910 claim is not a secured claim at all. In re Carver, --B.R.-- 2006 WL 563321 (Bankr. S.D. Ga. March 6, 2006). Unable to utilize §506, this court finds itself without the means to determine if the 910 claim is, in fact, “secured.” Rather, the 910 claim is a uniquely-treated unsecured claim – almost a special class of claim. Seeming to enjoy hoisting the anti-cramdown language, the court would allow the very type of cramdown the provision the law was intended to prevent. “In a chapter 13 plan, a 910 claim must receive the greater of the full amount of the claim without interest [because only a secured claim is entitled to interest], or the amount the creditor would receive if the claim were bifurcated and crammed down (i.e., secured portion paid with interest and unsecured portion paid pro rata).” In re Carver, supra (footnotes omitted; bracketed comments added).
However, given the very clear legislative history and, more importantly, that the anti-cramdown paragraph specifically relates to treatment of “allowed secured claims” [§1325(a)(5)], most other courts reject the Carver-type analysis and accept the 910 claim as secured either by virtue of that reference to §1325(a)(5) (See In re Johnson, 337 B.R. 269, 270 (Bankr. M.D.N.C. 2006)), or as a matter of state law. In re Sessions (Bankr. S.D. Ala. No. 05-17647, March 13, 2006). They instead focus on how to determine what needs to be paid to the secured creditor in the chapter 13 plan, given that the normal secured-claim determination procedures of §506 are unavailable.
For example, the Sessions court first found that the 910 claim cannot be bifurcated, then applied state law to determine the extent or value of the secured claim, finding that Alabama law protects a purchase-money lien until it is paid in full (as do most states). Accordingly, the 910 claim is secured to the full extent of the amount due. “Amount due” seems to be the payoff amount as of the petition date with interest to be paid thereon, probably in accordance with Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004) (see In re Wright, --B.R.-- 2006 WL 547824 (Bankr. M.D. Ala. Feb. 28, 2006)), and not on the original contractual terms. In re Robinson, --B.R.-- 2006 WL 349801 (W.D. Mo. Feb. 10, 2006).
Since §1325(a)(5), to which this anti-cramdown provision applies, speaks of an “allowed secured claim,” the 910 creditor will file a secured proof of claim presumably for the payoff amount as of the date of the petition for relief. Can the debtor object to this secured claim under §506(a)(2)? The inability to apply §506 to 910 claims necessarily implies that the objection process of §502(a) cannot allow for an objection as to value of the collateral; any other grounds for objection would remain available. The debtor might say that, having made payments, he only owes $1, not the $2, on the proof of claim, but cannot argue that the claim is secured only to the extent of the $1 value of the collateral. See In re Ezell, --B.R.-- 2006 WL 598142 (Bankr. E.D. Tenn. March 13, 2006); In re Johnson, supra.
So is all again well for the creditor, back to slamming every pitch over the wall with a big anti-cramdown bat? Not so fast. The inattentive author of the Faulkner-like 105-word paragraph, given the purported goal, failed to consider the legal concept of “what’s good for the goose….” If the only mechanism in the Code to bifurcate claims (i.e., §506) is unavailable to the debtor, it is similarly unavailable to the creditor. Thus, unless one accepts the Carver analysis, the surrender of the collateral must be in exchange for the full value of the 910 claim. There is no “deficiency” claim allowed. See, In re Ezell, supra.
This “no deficiency” consequence may give the purchase-money lender minor pause before swinging for the fences every time, particularly with minimal value in the collateral. If a debtor wants to surrender the collateral, the proceeds from its disposition may be all the creditor gets. Still, if the debtor thinks that “eat steel, lender!” is something of a bargaining chip, as suggested by the Carver court, my bet is that more often the debtor blinks first, not wishing to gamble with his car. Frankly, the “personal use” dispute (See Jackson, supra), if appropriate, is the leverage of choice for the debtor. Moreover, if the jurisdiction allows “zero percent” chapter 13 plans, the deficiency issue is effectively moot, anyway.
By and large, and before consideration of the “personal use” language that creditors may find a tough pitch to hit, the orphan paragraph of §1325(a)(9) will work to preclude bifurcation and cramdown of 910 claims. Nonetheless, thoughtless drafting of the provision means that the creditors will leave some money left on base in the scoring position.