Christopher Lee LaDeaux and Holly Lyn LaDeaux

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: 	: 	Case No. 07-51004
Christopher Lee LaDeaux
Holly Lyn LaDeaux 	: 	Chapter 13
Debtor(s) 	: 	Judge Preston
ORDER OVERRULING OBJECTION TO CONFIRMATION OF
DEBTORS’ CHAPTER 13 PLAN
This cause came on for hearing on May 25, 2007 to consider confirmation of the
Chapter 13 Plan (Doc. #5) proposed by Christopher Lee LaDeaux and Holly Lyn
LaDeaux (collectively, “Debtors,” or “Mr. LaDeaux” and “Mrs. LaDeaux”), and the
Objection thereto (Doc. #26) interposed by Regional Acceptance Corporation
(“Regional”). Present at the hearing were counsel for the Debtors Robert Ellis, the
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 26, 2007
____________________________________________________________
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Debtors, and counsel for Regional Christopher A. Conley. The Debtors’ Plan proposes to
pay Regional the value of its collateral, plus interest, over the life of the Plan. Regional
objects on the basis that its claim is not subject to such treatment by virtue of § 1325(a),
inasmuch as the collateral, a vehicle, was purchased within 910 days prior to
commencement of this case.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the
general Order of Reference entered in this District. This is a core proceeding pursuant to 28
U.S.C. § 157 (b)(2)(B) and (L).
Based upon arguments presented and evidence adduced at the hearing, the Court
finds and concludes as follows:
The Debtors are married and with their son, have a household of three. About
five years ago, they began caring for foster children. While there are times that there are
no foster children in their home, they usually have at least one under their care, and often
have more than one. As of the hearing date, they had one foster child in their household,
and were expecting two more in the near future. The Debtors receive the sum of twenty
dollars ($20) per day for each child in their care.
In order to transport the foster children to appointments for medical attention,
counseling and other needs, the Debtors purchased a 2004 Toyota Matrix on July 19,
2006. Although they had a vehicle at the time, a 1992 Geo Prism, they needed a larger
vehicle in order to accommodate the needs of the foster children. The Toyota is more
spacious than the Prism. But for the foster children, the Debtors would not have
purchased it. The Debtors financed the purchase of the Toyota, granting a purchase
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money security interest to the seller. The transaction is evidenced by a signed Retail
Installment Contract (the “Contract”), which was prepared by the seller and which was
immediately assigned to Regional. Among the many other details, the Contract indicated
that the vehicle was primarily for personal use. At the time of purchase, Mr. LaDeaux
had described the intended use of the Toyota to the salesperson: transporting foster
children. She advised him that transport of foster children does not constitute
commercial use.
On rare occasions, the Toyota is used by Mrs. LaDeaux to travel to and from
work, but generally, the Debtors commute to and from work together in the Prism.
Although the Debtors have one child, he is eighteen years of age and has a truck that he
purchased for his transportation needs. When the Debtors do not have any foster children
under their care, they seldom use the Toyota.
The Debtors filed a Petition for Relief under Chapter 13 of the Bankruptcy Code
on February 16, 2007, within 910 days from the date of the purchase of the Toyota..
According to the Debtors’ Schedules, the Toyota is now worth $10,000.00. Regional has
filed a Proof of Claim indicating a balance due of $18,243.30.
The Debtors assert that the vehicle was acquired and is being used for business.
Pursuant to §§ 506, 1322(b)(2) and 1325(a)(5) of the Bankruptcy Code, the Debtors
propose to pay the secured portion of Regional’s claim, i.e., $10,000, plus interest, over
the life of the Plan, with the remaining balance to be paid as an unsecured claim.
According to the Debtors, based on the business use of the Toyota, Regional’s claim is
not subject to the special provisions set forth in § 1325(a) for vehicles purchased within
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1 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.
2The Court supplies this word which was presumably inadvertently omitted by the drafters of the
statute.
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910 days of commencement of the bankruptcy case. Regional objects to this treatment,
claiming that the vehicle is primarily used for the personal benefit of the Debtors, and
therefore, is subject to the limitations on modification of certain secured claims
articulated in § 1325(a).
Typically, a secured claim may be treated in a chapter 13 plan in one of three
ways: (1) the debtor may surrender the collateral, (2) the debtor may pay the allowed
secured claim, as determined pursuant to § 506, plus interest, or (3) the claim may be
treated in such manner to which the secured creditor agrees. 11 U.S.C. § 1325(a)(5).
However, the final sentence of § 1325(a), which was added by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (“BAPCPA”), places limitations on the
options for treatment of secured claims under § 1325(a)(5). This provision is inserted
after § 1325(a)(9), a provision not otherwise relevant to the matter under consideration.1
Given its awkward placement and lacking any identifying number or letter, the sentence
has been termed by many as the “hanging paragraph;” it provides:
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 910-day
[period]2 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”.
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It is uniformly accepted that the debtor’s intended use at the time the vehicle
was purchased should be examined to determine whether the “hanging paragraph”
applies to a particular secured claim. In re Lorenz, 2007 Bankr. LEXIS 1445, at *21
(Bankr. E.D. Va., April 19, 2007) (citing In re Phillips, 362 B.R. 284, 302 (Bankr. E.D.
Va. 2007); In re Solis, 356 B.R. 398, 408-09 (Bankr. S.D. Tex. 2006)); In re Hill, 352
B.R. 69, 73 (Bankr. W.D. La. 2006). Personal use is one of the lynchpins that determines
applicability of the “hanging paragraph.”
The debtor’s actual usage of the vehicle in question is persuasive evidence of the
debtor’s actual intent at the time of acquisition. Some courts have determined
applicability of the “hanging paragraph” by the predominant use of the vehicle, weighing
how much a debtor uses the vehicle for personal benefit versus business purposes. If
there is a substantial and material amount of personal use by a debtor, courts have held
the vehicle is subject to the limitations of the “hanging paragraph” of § 1325(a). In re
Lorenz, 2007 Bankr. LEXIS 1445, at *27 (Bankr. E.D. Va., April 19, 2007) (although the
debtor also used the vehicle for business purposes, he used the vehicle to meet his
personal needs in a material and significant way); In re Wilson, 2006 Bankr. LEXIS
3325 (Bankr. D. Kan. Dec. 6, 2006). 	However, this Court need not analyze the propriety
of this approach today because there is no question that the vehicle was acquired solely
for the care of foster children. The question then becomes whether foster care
constitutes business or personal use.
The Bankruptcy Code does not define the term “personal use.” Some courts have
attempted to define what constitutes business use and what constitutes personal use. In
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In re Hill, the court held that usage is for business purpose if it enables a debtor to make a
significant contribution to the family income. 	In re Hill, 352 B.R. at 73. The court
found that the vehicle was acquired to transport the debtor to and from work, enabling the
debtor to create family income; thus, when analyzing the totality of the circumstances,
the court found the vehicle was not acquired for the personal use of the debtor. Hill, 352
B.R. at 73.
Requiring a bit more, the court in In re Joseph held that in order to establish that a
vehicle is used for a business purpose, a debtor must show that the vehicle is used to
perform the functions of a business or a trade. In re Joseph, 2007 Bankr. LEXIS 1049, at
*11 (Bankr. W.D. La., Mar. 20, 2007). The court concluded there are many factors that
are relevant to this determination, including:
the nature of the debtor’s work, how the debtor’s vehicle is used to perform the
debtor’s job duties, whether or not the debtor’s employer requires the debtor to
use his or her vehicle to perform the debtor’s job-related duties, whether the
debtor’s employer reimburses the debtor for mileage, and whether or not the
debtor claims any vehicle-related expenses as business expenses on the debtor’s
tax returns.
Joseph, 2007 Bankr. LEXIS 1049, at *11.
The Joseph court also found the retail installment contract should be considered
because it typically indicates whether a debtor is acquiring the vehicle for business or
personal use. Joseph, 2007 Bankr. LEXIS 1049, at *11. The court concluded “if the
debtor’s contract indicates that the debtor acquired the vehicle for personal use, this
factor will weigh heavily in favor of a finding that the vehicle was acquired for personal
use.” Joseph, 2007 Bankr. LEXIS 1049, at *12. However, the court found this “fact
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alone is not dispositive and will be considered in light of the totality of circumstances.”
Joseph, 2007 Bankr. LEXIS 1049, at *12. The court also observed that “personal . . . use
is a use that ‘benefits the debtor(s) such as transportation that satisfies personal wants
(such as recreation), transportation that satisfies personal needs (such as shopping or
seeking medical attention or other errands), and transportation that satisfies family and
other personal obligations, whether legal or moral.’” Joseph, 2007 Bankr. LEXIS 1049,
at *7-8 (citing In re Solis, 356 B.R. 398, 410 (Bankr. S.D. Tex. 2006)).
In the instant case, the vehicle enables the Debtors to make a significant
contribution to their income. Although the Debtors did not itemize their foster care
income separately on Schedule J, the Debtors almost always have under their care one
foster child, and often more, for which they receive income of twenty ($20) dollars a day
per child. This amounts to earnings of approximately six hundred dollars or more in the
average month, or about twenty percent of the Debtors’ total monthly income. Because
the Debtors acquired the vehicle solely to care for the foster children, the vehicle enables
the Debtors to create twenty percent of their income. This is a significant contribution.
The Court also finds the vehicle was acquired for business use because the
vehicle is used to perform the functions of a business, foster care. Although it may seem
cold-hearted to characterize foster care as a business, it is, nonetheless, in the nature of a
business. While much like caring for one’s own children, it is more akin to a day-care
business or working as a nanny, but with greater responsibility. If the Debtors were in
fact running an extended day-care operation or working as a nanny, one would be hard
pressed to seriously assert that it did not constitute a business. The vehicle allows the
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Debtors to care for the foster children by transporting the children to appointments for
medical attention, counseling and other needs. Thus, the vehicle enables the Debtors to
meet the needs of the foster children and therefore perform the necessary functions and
duties of foster care.
Finally, there is no evidence that the Toyota is used for any of the purposes that
are the hallmarks of personal usage described by the court in Joseph. Although the
Contract signed by the Debtors indicated the vehicle was for personal use, this fact alone
is not dispositive: the Contract was prepared by the seller of the Toyota in spite of the
Mr. LaDeaux’s explanation regarding its intended use, and therefore the Contract cannot
be construed against him. When the totality of the circumstances are examined, the
Court concludes the vehicle was acquired for business purposes.
Therefore, because the vehicle was acquired solely for the use of the foster
children, the vehicle was acquired for business use and not for personal use as required
by the statute. Thus, the vehicle is not subject to the “hanging paragraph” of § 1325(a),
and Regional’s claim may be treated consistent with § 1325(a)(5). Accordingly, it is
ORDERED AND ADJUDGED that the Regional’s Objection to confirmation of
the Debtors’ Chapter 13 plan (Doc. # 26) is overruled.
IT IS SO ORDERED.
Copies to:
Christopher Lee LaDeaux, Holly Lyn LaDeaux, 1230 Warren Chapel Road, 1230
Warren Chapel Road, Fleming, OH 45729
Robert Ellis, Esq., Attorney for Debtors, 328 4 th Street, Marietta, OH 45750
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Christopher Conley, Esq., Attorney for Creditor, Campbell Woods, PLLC, 1608 Carter
Avenue, PO Box 1862, Ashland, KY 41105-1862;
Frank M. Pees, Chapter 13 Trustee, 130 East Wilson Bridge Road #200, Worthington,
OH, 43085
Office of the U.S. Trustee, 170 North High Street, Suite 200, Columbus, OH 432l5
# # #
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