Lisa M. Elkins

UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION AT COLUMBUS
In re: 	:
: 	Case No. 04-67961
WILLIAM T. ELKINS and 	: 	Chapter 13
LISA M. ELKINS, 	: 	Judge Hoffman
:
Debtors. 	:
OPINION AND ORDER SUSTAINING
OBJECTION OF VINTON COUNTY NATIONAL BANK
TO DEBTORS’ CHAPTER 13 PLAN
The Vinton County National Bank (“Bank”) objects to confirmation of the Chapter 13 plan
of William T. Elkins and Lisa M. Elkins (“Debtors”), asserting that § 1325(a)(5) of the Bankruptcy
Code does not permit the Debtors to bifurcate the Bank’s secured claim by surrendering part of its
collateral—a mobile home—while retaining the other portion—the lot on which the mobile home
sits. The Court agrees with the Bank and accordingly denies confirmation of the plan.
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: August 16, 2005
____________________________________________________________
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1The Court notes that the copy of the title to the Mobile Home, attached as Exhibit C to the
Stipulation, lists Ross County Banking Center rather than Vinton County National Bank as the
lienholder. However, because the parties have stipulated that Vinton County National Bank is the
lienholder, the Court will presume for purposes of this decision that Vinton County National Bank
holds a valid lien on the Mobile Home.
2
I. Background
This matter is before the Court on the First Amended Chapter 13 Plan (“Plan”) (Doc. 9) filed
by the Debtors on December 13, 2004; the objection to confirmation of the Plan (“Objection”) (Doc.
15) filed by the Bank on December 22, 2004; the response to the Objection (“Response) (Doc. 21)
filed by the Debtors on February 14, 2005; and the stipulation between the Debtors and the Bank
(“Stipulation”) (Doc. 23) filed March 25, 2005.
The parties stipulate that the Bank has a valid and enforceable lien on a 1997 Skyline mobile
home (“Mobile Home”) 1 and a valid and enforceable mortgage on real property at 847 Pennington
Road, Waverly, Ohio (“Property”). They also stipulate that as of the date of filing of the Debtors’
petition, the Bank was owed $79,781.29 on a variable-rate, consumer promissory note secured by
the Mobile Home and the mortgage on the Property. The Bank rejects the Plan. Stipulation ¶¶ 2,
3 and 4.
The Plan contains a “Special Provision” setting forth the proposed treatment of the Bank’s
claim. This Special Provision, which the Bank finds objectionable, reads as follows:
1997 Skyline Mobile Home to be surrendered to Vinton County
National Bank, further said mobile home to be sold in a reasonable
commercial manner with all proceeds from sale to be applied to
mortgage balance, said creditor being entitled to file an unsecured
deficiency claim, if any, for the unpaid balance of the mortgage loan
after appropriate adjustment for value of the 5 acres of land located
at 847 Pennington Road, Waverly, Ohio 45690 being paid through
the debtor’s chapter 13 plan in accordance with plan paragraphs 2(5)
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2Section 1325(a)(5) of the Bankruptcy Code provides as follows:
(a) Except as provided in subsection (b), the court shall confirm a plan if—
. . . .
(5) with respect to each allowed secured claim provided for by the plan—
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that the holder of such claim retain the lien securing
such claim; and
(ii) the value, as of the effective date of the plan, of property to be
distributed under the plan on account of such claim is not less than the
allowed amount of such claim; or
(C) the debtor surrenders the property securing such claim to such holder[.]
11 U.S.C. § 1325(a)(5) (West 2004).
3
and 2(10), said Creditor to release its mortgage lien upon further
court order or discharge, which ever occurs first.
Plan at ¶ 3. Thus, the Debtors propose to surrender the Mobile Home and allow the Bank to sell it
in a commercially reasonable manner, applying the proceeds of the sale to the Bank’s secured claim.
After application of the proceeds, the Debtors propose that the balance of the Bank’s secured claim
will be allowed in the amount of $13,000, the value the Debtors place on the Property. 	The
remaining debt owed to the Bank will be treated as a general unsecured claim, to be paid at five
cents on the dollar, pursuant to paragraph 2(10) of the Plan. The Bank asserts that the Mobile Home
and the Property have a combined value of $75,000, and has submitted an appraisal in support of
its position. It argues that the Special Provision violates § 1325(a)(5) of the Bankruptcy Code2
because the Bank has not accepted the Plan and the Plan does not either (1) call for the surrender
of the collateral securing the claim to the Bank; or (2) provide that the Bank will retain its lien while
the Debtors pay the Bank an amount equal to the present value of the allowed amount of its secured
claim.
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II. Legal Argument
At issue is whether the alternatives for the treatment for secured claims provided in 11
U.S.C. § 1325(a)(5) are mutually exclusive. The Bank says yes; the Debtors disagree and believe
that the Plan may provide for the partial surrender of the collateral securing the Bank’s claim.
The Debtors offer three arguments in support of their position. First, they assert that the
Bankruptcy Code must be interpreted to promote a debtor’s fresh start, and to the extent any portion
of the Code is ambiguous or unclear, it should be applied in a manner favorable to the debtor.
Second, the Debtors argue that the Supreme Court’s admonition to apply statutory directives in
accordance with their plain meaning, coupled with the rule of construction set forth in 11 U.S.C.
§ 102(5)—“that ‘or’ is not exclusive,”—require the Court to conclude that use of the word “or”
between sub-parts (B) and (C) of § 1325(a)(5) permits a debtor to choose some combination of the
options for the treatment of a secured claim delineated in those subparts. Third, the Debtors urge
the Court to adopt the reasoning of the court in In re McCommons, 288 B.R. 594 (Bankr. M.D. Ga.
2002), which held that the provisions of § 1325(a)(5) are not mutually exclusive and ruled that
where multiple items of collateral secure a creditor’s claim, a debtor may elect to surrender some
items while retaining others.
The Bank, on the other hand, asserts that the holding in Williams v. Tower Loan, Inc. (In re
Williams), 168 F.3d 845 (5th Cir. 1999) is controlling. In Williams, the Fifth Circuit concluded that
Congress did not intend, by using the word “or” between sub-parts (B) and (C) of § 1325(a)(5), to
create a hybrid alternative for the treatment of secured claims in Chapter 13 plans. The Williams
court relied heavily on the following language from the Supreme Court’s decision in Associates
Commercial Corp. v. Rash, 520 U.S. 953 (1997):
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If a secured creditor does not accept a debtor’s Chapter 13 plan, the
debtor has two options for handling allowed secured claims:
surrender the collateral to the creditor, see § 1325(a)(5)(C); or, under
the cram down option, keep the collateral over the creditor’s
objection and provide the creditor, over the life of the plan with the
equivalent present value of the collateral, see § 1325(a)(5)(B). The
“disposition or use” of the collateral thus turns on the alternative the
debtor chooses – in one case the collateral will be surrendered to the
creditor, and in the other, the collateral will be retained and used by
the debtor.
Id. at 962. The court found that “[t]his language strongly indicates that a debtor cannot combine
subsections (B) and (C) to create a fourth option.” Williams, 168 F.3d at 847.
The same rationale was relied upon by the bankruptcy court in In re Covington, 176 B.R. 152
(Bankr. E.D. Tenn. 1994). There, the debtor proposed a Chapter 13 plan calling for her surrender
of a mobile home and retention of a stove and refrigerator installed in the mobile home. 	The
appliances were included as part of the purchase price of the mobile home and were pledged to the
lender along with the mobile home as collateral. The Covington court ruled that permitting the cram
down of only a portion of a secured claim “would be tantamount to a finding that a creditor in a
Chapter 13 case who has a single claim may, at the whim of the debtor, be compelled to bifurcate
the secured portion of its claim into as many individual claims as it has items of property securing
its claim. Clearly this interpretation would be inconsistent with §§ 506(a) and 1325(a)(5).” Id. at
155. Further, “the lack of flexibility within the cram down provisions of § 1325(a)(5)(B) makes it
clear that the bifurcation of [the creditor’s] claim is inappropriate.” Id.
The court reached the same result in In re Schwartz, 1998 WL 37551 (Bankr. E.D. Pa. 1998).
In Schwartz, the debtors attempted to bifurcate the secured claim of the IRS, surrendering real
property and retaining personal property. The court reasoned that “[i]f the legislature had intended
to provide debtors with the option of surrendering only part of the collateral securing a claim, it
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could have included language within the subsection providing that alternative.” Id. at *3. The court
also found that “[a] secured claim is valued by all the collateral that supports it. Severing the claim
into components defined by parts of the collateral package is contrary to the statutory language of
§ 1325(a)(5).” Id. at *4.
The decisions in Williams, Covington and Schwartz are well-reasoned and persuasive. The
presumption in favor of a debtor’s fresh start does not permit a court to rewrite § 1325(a)(5) to
provide relief that is otherwise unavailable. The Court concludes—like the Williams, Covington and
Schwartz courts—that § 1325(a)(5) sets forth mutually exclusive options for the treatment of secured
claims, not alternatives that may be combined to form a composite remedy. As pointed out by the
court in Schwartz, had Congress intended § 1325(a)(5) to permit partial surrender of collateral it
could have done so by drafting part (C) to permit a debtor to surrender all or part of the property
securing a claim. Schwartz, 1998 WL37551 at * 3. The statute, however, does not contain that
language.
Accordingly, the Objection is SUSTAINED and confirmation of the Plan is DENIED. The
Debtors shall have twenty (20) days from the date of the entry of this order within which to file and
serve an amended plan. Failure to timely file a confirmable plan shall result in dismissal of this
case. In the event an amended plan is timely filed, the Chapter 13 Trustee shall re-set this case on
the next available confirmation docket.
IT IS SO ORDERED.
Copies to:
William T. Elkins and Lisa M. Elkins, Debtors, 847 Pennington Road, Waverly, OH 45690
David A. Kruer, Attorney for Debtors, 800 Gallia Street, Suite 28, Portsmouth, OH 45662
David M. Whittaker, Attorney for Vinton County National Bank, 50 W. Broad Street,
Suite 1200, Columbus, OH 43215
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Frank M. Pees, Chapter 13 Trustee, 130 E. Wilson Bridge Road, Suite 200,
Worthington, OH 43085
Office of the U.S. Trustee, 170 N. High Street, Suite 200, Columbus, OH 43215
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