Bankruptcy

11th Cir. - Secured Creditor May Still Pursue Deficiency After Surrender of "910 Vehicle"

By Scott Riddle

In re Barrett, Nos. 07-14796, 07-14797 (11th Cir. Sep. 29, 2008) (download opinion here).

The issue  raised on appeal concerned a pure question of law:

"whether a Chapter 13 debtor’s surrender of a “910 vehicle” (i.e., a vehicle purchased for personal use within 910 days before filing for bankruptcy) fully satisfies a creditor’s claim secured by the vehicle and prevents the creditor from filing an unsecured claim for any remaining deficiency. To date, this question has been considered by five of our sister circuits  (with each answering in the negative), but it is a matter of first impression in this Court." ...

As courts have widely recognized, the hanging paragraph prevents a bankruptcy court from approving a plan incorporating a “cramdown” when the debtor elects to retain the 910 vehicle. See In re Rodriguez, 375 B.R. 535, 548 (9 Cir. BAP 2007) th (“It is apparent that [with the hanging paragraph] Congress intended to take away the right of debtors to reduce their secured obligations on retained 910 vehicles to the value of the vehicles.”). In other words,because the valuation provision of Section 506(a) no longer applies to bifurcate a 910 vehicle claim, a debtor retaining the vehicle must now pay the entire claimand it is to be treated as fully secured. The question in this case, however, is: whathappens when the debtor surrenders a 910 vehicle post-BAPCPA? ...

In light of the foregoing, it seems safe to say that the previous minority view is now the majority view. Given the comprehensive analysis by our sister circuits, we have little to add. A plain reading of the hanging paragraph makes clear that Congress intended to (and did) make Section 506(a) inapplicable to a 910 vehicle. In such a situation, we agree with the Seventh Circuit that “by knocking out § 506, the hanging paragraph leaves the parties to their contractual entitlements.” See Wright, supra, 492 F.3d at 832. Leaving the parties to their contract, and looking  to applicable state law, is required by well-established Supreme Court precedent. ...

We thus join the Seventh, Eighth, Tenth, and Fourth Circuits and hold that a creditor may pursue an unsecured deficiency claim when the debtor surrenders a 910 vehicle. The deficiency claim is to be governed by the parties’ contract and applicable state law, and will depend on whether the contract and state law provide for recourse. Nothing in the Bankruptcy Code says otherwise, and we see no persuasive reason to conclude otherwise.

Full post as published by Georgia Bankruptcy Blog on September 29, 2008 (boomark / email).