James D Payne and Kileen N Payne

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re 	: 	Case No. 06-50029
James D. Payne
Kileen N. Payne 	: 	Chapter 13
Debtor(s) 	: 	Judge C. Kathryn Preston
MEMORANDUM OPINION ON OBJECTION TO
CONFIRMATION OF HONDA FEDERAL CREDIT UNION
This 	cause 	came 	on 	for 	hearing 	on 	March 	9, 	2006, 	to 	consider
confirmation of the Chapter l3 Plan (Doc. #2) filed by James and Kileen
Payne (the “Debtors”), and the Objection to confirmation (Doc. #20) filed
on behalf of Honda Federal Credit Union. 	Present at the hearing were the
Chapter l3 Trustee Frank Pees, his counsel John Kennedy, counsel for the
Debtors 	John 	Cannizzaro, 	and 	counsel 	for 	Honda 	Federal 	Credit 	Union
(“Credit Union”) David Whittaker.
This Court has jurisdiction over this matter pursuant to 28 U.S.C.
§ 1334, and the general order of reference entered in this District. This
matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) and (L).
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: July 10, 2006
____________________________________________________________
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1 The Debtors filed an Amended (sic) Chapter 13 Plan (Doc. #18) which amended only the amount of Debtors’
payments into the Plan and had no effect on the provision at issue.
2
The Debtors’ Chapter l3 Plan, as amended 1 (the “Plan), proposes that
the Debtors surrender the vehicle in full satisfaction of the claim of
Honda Federal Credit Union, who holds a lien on the vehicle. 	The Credit
Union objects to this treatment, pointing to § 1325(a)(5), as revised by
the 	Bankruptcy 	Abuse 	Prevention 	and 	Consumer 	Protection 	Act 	of 	2005
(“BAPCPA”).
The parties entered into a stipulation of the facts relevant to this
matter as follows:
On 	or 	about 	January 	31, 	2004, 	Debtor 	Kileen 	Payne 	borrowed
approximately 	$27,140.00 	from 	the 	Credit 	Union 	for 	the 	purpose 	of
purchasing 	a 	2002 	Ford 	Explorer 	(the 	“Vehicle”) 	for 	her 	personal 	use.
Consistent with the typical financing transaction, Ms. Payne executed a
note 	agreeing 	to 	pay 	the 	Credit 	Union 	upon 	the 	terms 	and 	conditions
contained therein, and a security agreement granting the Credit Union a
lien on the vehicle. 	The Credit Union properly perfected its security
interest 	by 	having 	its 	lien 	noted 	on 	the 	title 	of 	the 	vehicle. 	The
Debtors 	filed 	a 	joint 	petition 	for 	relief 	under 	Chapter 	l3 	of 	the
Bankruptcy Code on January 5, 2006, less than 910 days after the purchase
of the Vehicle. 	At the time of filing of the Petition for Relief, the
Debtor/Wife 	owed 	the 	Credit 	Union 	approximately 	$23,340.00. 	If 	the
Vehicle 	is 	liquidated, 	in 	all 	likelihood 	the 	proceeds 	of 	sale 	will 	be
insufficient to pay the balance due to the Credit Union in full. 	The
Debtors’ 	Plan 	proposes 	that 	the 	Debtors 	surrender 	the 	Vehicle 	to 	the
Credit Union in full satisfaction of the Credit Union’s claim.
Section 	1325(a)(5) 	offers 	three 	alternatives 	for 	treatment 	of
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allowed secured claims under a Chapter l3 plan. 	As revised by BAPCPA,
section 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–
(I) 	the 	holder 	of 	such 	claim 	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; and
(II) if the case under this chapter is dismissed or
converted without completion of the plan, such lien
shall also be retained by such holder to the extent
recognized by applicable nonbankruptcy law; 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; and
(iii) if –
(I) 	property 	to 	be 	distributed 	pursuant 	to 	this
subsection 	is 	in 	the 	form 	of 	periodic 	payments,
such payments shall be in equal monthly amounts;
and
(II) the holder of the claim is secured by personal
property, the amount of such payments shall not be
less than an amount sufficient to provide to the
holder of such claim adequate protection during the
period of the plan; or
(C) the debtor surrenders the property securing such claim to
such holder;
. . . .
11 U.S.C. § 1325(a)(5). 	In short, for purposes of this discussion, this
provision affords the chapter 13 debtor three alternatives for treatment
of a secured creditor’s claim through the chapter 13 plan: (1) treatment
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2 Section 1325(a)(9) requires a debtor to file all applicable federal, state and local tax returns for the previous four
years before a plan can be confirmed.
3 The Court supplies this word which was presumably inadvertently omitted by the drafters of the statute.
4
to which the secured creditor consents, (2) retention of the creditor’s
collateral 	and 	payment 	of 	the 	value 	of 	that 	collateral 	as 	a 	secured
claim, with any balance treated as an unsecured claim (often referred to
as “cramdown”), and (3) surrender of the collateral. The last alternative
is the one selected by the Debtors in the instant case.
The 	final 	sentence 	of 	§ 	1325(a), 	which 	was 	added 	by 	BAPCPA, 	is
inserted after § 1325(a)(9), a provision not otherwise relevant to the
matter under consideration. 2 	Given its awkward placement and lacking any
identifying number or letter, the sentence has been termed by many as the
“hanging 	paragraph.” 	It 	places 	special 	conditions 	on 	the 	options 	for
treatment of secured claims that meet certain criteria:
For purposes of paragraph (5), section 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
subject of the claim, the debt was incurred within the 9l0-day
[period] 3 preceding the date of the filing of the petition,
and the collateral for that debt consists of a motor vehicle
(as 	defined 	in 	section 	30102 	of 	title 	49) 	acquired 	for 	the
personal use of the debtor....
11 U.S.C. § 1325(a) “hanging paragraph”. 	All of the key factors that
trigger application of the “hanging paragraph” of § 1325(a) are present
in the instant case.
The 	relevant 	portion 	of 	section 	506 	was 	unchanged 	by 	BAPCPA 	and
states:
(a)(l) 	An 	allowed 	claim 	of 	a 	creditor 	secured 	by 	a 	lien 	on
property in which the estate has an interest...is a secured
claim to the extent of the value of such creditor’s interest
in 	the 	estate’s 	interest 	in 	such 	property, 	... 	and 	is 	an
unsecured 	claim 	to 	the 	extent 	that 	the 	value 	of 	such
creditor’s interest...is less than the amount of such allowed
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claim. 	Such value shall be determined in light of the purpose
of 	the 	valuation 	and 	of 	the 	proposed 	disposition 	or 	use 	of
such property....
11 U.S.C. § 506.
The Debtors argue, in short, that the statute is plain and simple:
That 	the 	“hanging 	paragraph” 	applies 	to 	all 	claims 	which 	fall 	under 	§
1325(a)(5), and as a result, excepts all such claims from the influence
of § 506.
The 	Credit 	Union 	argues 	that 	Congress 	obviously 	intended 	the
“hanging paragraph” to apply only to claims subject to § 1325(a)(5)(B)
and 	not 	to 	claims 	subject 	to 	subparagraph 	(C). 	The 	Credit 	Union
suggests, 	not 	inaccurately, 	that 	through 	the 	BAPCPA 	amendments 	to 	§
1325(a)(5), Congress was attempting to remedy a perceived abuse by those
who buy vehicles on credit on the eve of bankruptcy and then utilize the
cramdown provisions of the Bankruptcy Code to pay the secured creditor
a lesser amount than its full claim. 	So, to avoid this potential abuse,
at least in Chapter 13 cases, Congress modified § 1325 with the “hanging
paragraph” 	to 	address 	such 	a 	situation. 	Further, 	the 	Credit 	Union
suggests 	that 	Congress 	did 	not 	need 	to 	say 	more 	to 	effectuate 	limited
application 	of 	the 	“hanging 	paragraph” 	inasmuch 	as 	§ 	506 	does 	not 	and
never has applied in a liquidation setting, but rather that this process
is governed by Article 9 of the Uniform Commercial Code (as adopted in
Chapter 1309 of the Ohio Revised Code). 	Thus, § 506 has never applied
to subparagraph (C) of 	§ 1325(a)(5) and the “hanging paragraph” has not
changed 	this. 	The 	Chapter 	l3 	Trustee 	agrees 	with 	the 	Credit 	Union’s
interpretation of the statute.
In the pre-BAPCPA environment, § 506 served to bifurcate the secured
and 	unsecured 	portions 	of 	an 	undersecured 	creditor’s 	claim. 	This 	most
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commonly became an issue in chapters 11, 12, and 13. In an endeavor to
effectuate the provisions of § 506, parties in a pre-BAPCPA bankruptcy
proceeding 	filed 	motions 	requesting 	the 	court 	to 	value 	collateral 	or
determine 	the 	extent 	of 	secured 	claims, 	or 	debtors 	would 	propose
bifurcated treatment of a secured creditor’s claim through their chapter
11, 	chapter 	12 	or 	chapter 	13 	plans. 	Although 	rarely 	addressed 	in 	a
chapter 	7 	by 	way 	of 	a 	motion 	or 	other 	procedural 	mechanism, 	the
undersecured creditor in a chapter 7 case could liquidate its collateral
(after 	modification 	of 	the 	automatic 	stay 	or 	abandonment 	of 	the
collateral) and file an unsecured claim for any deficiency or estimated
deficiency in order to participate in any distribution by the chapter 7
trustee. The BAPCPA amendments changed this approach for those chapter
13 	debtors 	who 	fall 	within 	the 	parameters 	of 	the 	“hanging 	paragraph.”
This provision essentially appears to prohibit the bifurcation of a claim
into secured and unsecured components.
As recognized by both parties, the language of the statute is the
starting 	point 	for 	interpretation 	by 	the 	Court. 	United 	States 	v. 	Ron
Pair Enters., 489 U.S. 235 (1989). 	If the statute is clear, there is no
need for the Court to inquire beyond the plain language of the statute.
Id. 	Furthermore, where the statutory language is clear and unambiguous,
the 	Court 	may 	not 	speculate 	as 	to 	Congress’ 	purpose; 	if, 	however, 	the
language is ambiguous or would lead to an absurd result, the Court may
try to discern legislative intent. 	In re McNabb, 326 B.R. 785 (D. Ariz.
2005).
The Sixth Circuit Court of Appeals addressed a similar dilemma of
statutory interpretation in First Union Mortgage Corporation v. Eubanks
(In 	re 	Eubanks), 	219 	B.R. 	468, 	471 	(B.A.P. 	6 th 	Cir. 	1998). 	The 	Court
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recognized 	that 	the 	determination 	of 	an 	“allowed 	secured 	claim” 	is
achieved through application of § 506(a). 	See also Ron Pair, 489 U.S.
at 	238-39. 	Analogous 	to 	the 	instant 	case, 	the 	Eubanks 	court 	was
addressing 	a 	statutory 	pattern 	whereby 	one 	section 	of 	§ 	1322 	modified
another section of 1322 and referred to the application of yet another
provision 	of 	the 	Bankruptcy 	Code, 	that 	being 	section 	1325(a)(5). 	As
stated 	by 	the 	Eubanks 	court, 	quoting 	the 	Ron 	Pair 	court, 	“The 	plain
meaning of legislation should be conclusive except in the ‘rare cases [in
which] 	the 	literal 	interpretation 	of 	a 	statute 	will 	produce 	a 	result
demonstrably 	at 	odds 	with 	the 	intention 	of 	the 	drafters.’” 	Id. 	at 	471
(alteration in original). 	The Eubanks court went on to again quote the
Supreme Court, stating that “‘If the statutory language is unambiguous,
in the absence of ‘a clearly expressed legislative intent to the contrary
that 	language 	must 	ordinarily 	be 	regarded 	as 	conclusive’” 	Id. 	at 	473,
citing Reves v. Ernst & Young, 507 U.S. 170, 177, 113 S.Ct. 1163, 1169,
122 L.Ed.2d. 525 (1993). 	Unlike that situation presented to the Eubanks
court, there is a dearth 	of legislative history to guide this Court.
There 	exists 	a 	general 	comment 	that 	addresses 	the 	application 	of 	the
“hanging 	paragraph” 	to 	§ 	1325(a)(5)(B), 	in 	the 	form 	of 	a 	blanket
statement 	that 	the 	new 	provisions 	of 	§ 	1325(a) 	will 	eliminate 	the
application of § 506 to vehicles acquired within 910 days prior to filing
of the petition for relief. 	However, there is absolutely nothing in the
legislative 	history 	that 	discusses 	the 	interplay 	between 	the 	“hanging
paragraph” and § 1325(a)(5)( C). 	What little legislative history exists
fails 	to 	reflect 	any 	intention 	to 	limit 	the 	scope 	of 	the 	“hanging
paragraph” to only certain provisions of § 1325(a)(5). 	See, H.Rep. 109-
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31, 	Pt.1 	at 	71-72, 	109 th 	Cong., 	lst 	sess. 	(2005)[See, 	Section 	titled
“Title III: Discouraging Bankruptcy Abuse” and Section titled “Highlights
of 	Bankruptcy 	Reforms”]. 	Silence 	in 	the 	legislative 	history 	cannot 	be
utilized to create an ambiguity in the statutory language. 	As Justice
Blackmun 	stated 	in 	Dewsnup 	v. 	Timm, 	502 	U.S. 	410, 	112 	S.Ct. 	773, 	116
L.Ed.2d. 903 (1992), “Of course where the language [of the statute] is
unambiguous, silence in the legislative history cannot be controlling.”
This Court having studied the “hanging paragraph” of § 1325(a) finds
the language unambiguous and clear. 	The “hanging paragraph” of § 1325(a)
does not limit its application to claims treated under § 1325(a)(5)(B).
It states quite simply, that “[f]or purposes of paragraph (5), section
506 shall not apply to a claim described in that paragraph ....” Thus,
it must apply to claims described in § 1325(a)(5)( C) as well. 	The plain
meaning of this statute cannot be overcome by silence in the legislative
history. 	While 	Congress 	may 	have 	intended 	to 	afford 	additional
protections 	to 	creditors 	with 	the 	BAPCPA 	amendments, 	the 	Court 	is 	not
satisfied that it intended a different result with the hanging paragraph
of § 1325(a) than is set forth in the plain language. 	The Court agrees
with 	the 	Credit 	Union’s 	analysis 	that, 	despite 	its 	partial 	moniker 	of
“Consumer 	Protection 	Act”, 	many 	of 	the 	changes 	wrought 	by 	BAPCPA 	were
instigated by the credit industry and Congress did not intend to lessen
the rights of creditors through the BAPCPA amendments. However, the Court
cannot infer limitations on the application of the “hanging paragraph”
which are not present. 	Had Congress intended to limit application of the
statute, it could have easily done so within the language of the “hanging
paragraph” of § 1325(a) or within the language of § 506. 	Congress is
assumed to know and understand the effect of its legislation, and this
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4 While the provisions of BAPCPA were largely to effectuate additional protections for creditors, it is not entirely
bereft of consumer-friendly provisions. See, e.g., provisions pertaining to debt relief agencies, reaffirmation agreements, and
extension or imposition of the automatic stay under § 362(c)(3) and (4).
9
Court may not rewrite the statute as enacted by Congress. 	The Supreme
Court 	recognized 	the 	courts 	limitations 	in 	Lamie 	v. 	United 	States
Trustee, 540 U.S. 526, 124 S. Ct. 1023, 157 L. Ed. 2d 1024 (2004), in
which the petitioner sought to constructively insert language into the
statute at issue. 	In declining to do so, the Supreme Court stated, “Our
unwillingness to soften the import of Congress' chosen words even if we
believe 	the 	words 	lead 	to 	a 	harsh 	outcome 	is 	longstanding. 	It 	results
from 	‘deference 	to 	the 	supremacy 	of 	the 	Legislature, 	as 	well 	as
recognition that Congressmen typically vote on the language of a bill.’
United States v. Locke, 471 U.S. 84, 95, 85 L. Ed. 2d 64, 105 S. Ct. 1785
(1985) (citing Richards v. United States, 369 U.S. 1, 9, 7 L. Ed. 2d 492,
82 S. Ct. 585 (1962)).”
From 	a 	practical 	standpoint, 	this 	application 	of 	§ 	1325(a)(5)
requires the creditor to forego the opportunity to take advantage of the
provisions of § 506 should it liquidate the collateral for less than the
amount 	it 	is 	due, 	just 	as 	it 	requires 	the 	debtor 	to 	do 	so 	should 	the
debtor 	decide 	to 	retain 	the 	vehicle. 	While 	this 	may 	appear 	to 	be
inconsistent 	with 	the 	overall 	goals 	of 	BAPCPA 	to 	provide 	greater
protections to creditors, the Court is not prepared to say that this is
an absurd result in light of the sparse guidance from Congress. 4
The 	Credit 	Union’s 	argument 	that 	§ 	506 	has 	never 	applied 	to 	the
surrender and liquidation of collateral is true. 	However, this argument
is inapposite: the issue at hand is not the disposition of collateral;
the 	issue 	at 	hand 	is 	the 	treatment 	of 	claims 	of 	certain 	creditors.
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Article 	9 	of 	the 	Uniform 	Commercial 	Code 	governs 	the 	disposition 	of
collateral, 	responsibilities 	of 	secured 	creditors, 	application 	of
proceeds, and rights to recovery of deficiency claims generally. 	Section
506 	addresses 	the 	allowance 	and 	categorization 	of 	claims 	within 	a
bankruptcy 	proceeding 	held 	by 	creditors 	having 	a 	security 	interest,
including claims in a chapter 13 proceeding and addressed by a plan under
§ 1325. 	Section 506 specifies that a secured claim is determined “in
light of the purpose of the valuation and of the proposed disposition or
use of” the collateral. 	It is pursuant to this provision in the pre-
BAPCPA environment that an undersecured creditor could file an unsecured
claim for any deficiency after liquidation of its collateral. See In re
Ezell, __ B.R. __, 2006 WL 598142 (Bankr. E. D. Tenn. 2006). 	To hold
that 	§ 	506 	does 	not 	apply 	in 	those 	instances 	when 	a 	secured 	creditor
liquidates its collateral would prohibit such a creditor from submitting
an unsecured claim for any deficiency after liquidation, regardless of
the type of bankruptcy proceeding in which a debtor is involved. This is
clearly not the case. 	While the Credit Union’s arguments are compelling
in light of the well known general purposes of BAPCPA, in the absence of
clear language or legislative history, the Court cannot guess or presume
Congress’ 	motives 	regarding 	a 	particular 	statutory 	provision, 	and 	the
Court must give plain meaning to the “hanging paragraph” of § 1325(a).
In accordance with the foregoing, the Objection to Confirmation by
Honda Federal Credit Union must be overruled. A separate Order will be
entered consistent with this Memorandum.
Copies to:
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James D. Payne and Kileen N. Payne, 5444 CR 142, West Mansfield, OH 43358
John F. Cannizzaro, Attorney for Debtors (Electronic Service)
David M. Whittaker, Attorney for Creditor (Electronic Service)
Frank M. Pees, Chapter l3 Trustee (Electronic Service)
Office of the U.S. Trustee (Electronic Service)
# # #
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