Timothy Alan Robinson and Katheryn Mary Robinson

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re 	: 	Case No. 06-52826
Timothy Alan Robinson
Katheryn Mary Robinson 	: 	Chapter 13
: 	Judge Preston
Debtor(s)
MEMORANDUM OPINION ON OBJECTION TO CONFIRMATION
BY AMERICREDIT FINANCIAL SERVICES
This cause came on for hearing on September 28, 2006, 	to
consider confirmation of the Debtors’ Amended Chapter l3 Plan (Doc.
#20), and the Objection thereto by AmeriCredit Financial Services
(hereinafter “AmeriCredit”), as supplemented (Doc. #11, 18). 	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)(L).
The facts germane to resolution of this dispute are undisputed
and may be summarized as follows: 	On or about March 28, 2005, Debtor
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: December 11, 2006
____________________________________________________________
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1 According to AmeriCredit, at the time of filing of the case, the prime rate
was 8% and therefore AmeriCredit is entitled to interest of 11%.
2
Katheryn Fair, now known as Katheryn Robinson, purchased a 2005 Honda
Civic for her personal, family and household use, financing the sum of
approximately $19,840.00. 	On June 10, 2006, (less than 9l0 days after
purchase of the vehicle) Katheryn and her spouse Timothy Robinson
(collectively the “Debtors”) filed a petition for relief under Chapter
l3 of the Bankruptcy Code.
In due course, the Debtors filed an Amended Chapter l3 Plan,
utilizing the form plan preferred in the Columbus Division of the
Southern District of Ohio. 	The Debtors included the debt to
AmeriCredit in the section titled “Claims to which 11 U.S.C. § 506
valuation is not applicable,” recognizing the AmeriCredit debt as a
claim secured by a purchase money security interest in a motor vehicle
for which the debt was incurred within 910 days of the Debtors’
petition. 	The Plan provided that the estimated claim of AmeriCredit
(in the amount of $l8,698.00) would be paid without interest, in equal
monthly installments over the life of the Plan. 	AmeriCredit objected
to confirmation of the Debtors’ proposed plan, on the basis that the
Supreme Court decision of Till v. SCS Credit Corporation, 541 U.S.
465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004), mandates payment of
interest to secured creditors at the prime rate of interest plus a
risk factor. 1 	The Debtors countered AmeriCredit’s objection, pointing
to the provision of § 1325(a) of the Bankruptcy Code, known by some as
the “Hanging Paragraph”. 	Debtors argue that by virtue of the Hanging
Paragraph, § 506 of the Code does not apply to claims of the kind
described in the Hanging Paragraph; therefore, such claims are not
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2 The Court supplies this word which was presumably inadvertently omitted by the
drafters of the statute.
3
“allowed secured claims” and are not entitled to interest pursuant to
the provisions of § 506 and 1325(a)(5).
The issues are, first, what is an “allowed secured claim” and
second, what is the impact of the Hanging Paragraph on treatment of
allowed secured claims as specified by § 	1325(a)(5). 	The Court has
considered the cases of In re Wampler, 345 B.R. 730 (Bankr. 	D. Kan.
2006) and In re Carver, 338 B.R. 521 (Bankr. S.D. Ga. 2006). 	However,
the Court finds more persuasive the line of cases which represent the
majority on this issue, including In re DeSardi, 340 B.R. 790 (Bankr.
S.D. Tex. 2006), and In re Brown, 339 B.R. 818 (Bankr. S.D. Ga. 2006).
The Hanging Paragraph of Section 1325(a) states in pertinent part
as follows:
For 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
subject of the claim, the debt was incurred within 9l0-day
[period] 2 preceding the date of the filing of the petition,
and the collateral for that debt consists of a motor
vehicle...acquired for the personal use of the debtor....
(bracketed material added).
It is this provision, the Debtors assert, that essentially
diffuses AmeriCredit’s allowed secured claim because § 506 defines the
term “allowed secured claim”, the Hanging Paragraph prohibits
application of § 506 and therefore the provisions for payment of
allowed secured claims under § 1325(a)(5) do not apply. 	However,
Debtors misinterpret § 506. 	Section 506 is not a definitional
provision; section 506 merely provides a mechanism for bifurcating an
under-secured claim into secured and unsecured components. 	The
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3 This is bolstered by the language utilized in § 506, which lacks language
typically found in other provisions of the Bankruptcy Code in which definitions are
found. 	See, e.g. 	28 U.S.C. §§102, 547, 548.
4
provision solely focuses on the determination of value of the secured
claim and the effect thereof. 3 	Subsection (a) allows for judicial
determination of the value of a creditor’s interest in a debtor’s
property. Subsection (d) implements the bifurcation that is
articulated in subsection (a), by voiding the lien of the under-
secured creditor to the extent under-secured. 	See 4 COLLIER ON
BANKRUPTCY ¶¶ 506.01, 506.03 (15 th ed. rev. 2005).
Admittedly, the Bankruptcy Code does not define the term “allowed
secured claim”, or the term “secured claim”. 	It does, however, define
the term “claim” as “right to payment, whether... secured, or
unsecured ....(emphasis added.)” 	Section 502 of the Bankruptcy Code
addresses allowance of claims, and states that claims are allowed
except to the extent that the amount sought by the claimant falls
within certain parameters described in that section, which are not
relevant here. 	The section does not purport to create a distinction
between allowance of secured and unsecured claims. 	It is well settled
that the validity of claims and whether a claim is secured is governed
by state law. 	Nobelman v. American Savings Bank, 508 U.S. 324, 113
S.Ct. 2106, 124 L.Ed.2d 228 (1993); In re Montoya, 341 B.R. 41 (Bankr.
D. Utah 2006).
There has been no objection to AmeriCredit’s claim or to the
validity of its security interest or lien. Thus, AmeriCredit’s claim
remains an “allowed secured claim” but is protected from the
bifurcation procedure allowed by § 506. 	Since AmeriCredit retains its
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allowed secured claim, it is entitled to treatment set forth in §
1325(a)(5).
The Court’s conclusion as to the effect of the Hanging Paragraph
in this context is further supported when one resorts to the language
of that provision. 	Had Congress wanted to effect a different result,
it easily could have done so, by specifying such in the Hanging
Paragraph or elsewhere, as it did when addressing § 506; it is telling
that the drafters of the Hanging Paragraph did not write “§ 506 and §
1325(a)(5)shall not apply to a claim described in that paragraph ...”
but rather wrote “For purposes of paragraph (5) [of §1325(a)], § 506
shall not apply to a claim described in that paragraph ...”
recognizing that the courts will still apply § 1325(a)(5) when
evaluating a debtor’s treatment of secured claims in his or her
Chapter l3 plan. To give meaning to this phrase, the Court must
consider § 1325(a)(5) when contemplating confirmation. 	To hold
otherwise renders this introductory phrase meaningless, in violation
of basic tenets of statutory construction. 	See, In re Montoya, 341
B.R. at 44.
That being the case, § 1325(a)(5) of the Bankruptcy Code remains
applicable to allowed secured claims. 	With respect to treatment of
allowed secured claims addressed in a debtor’s proposed plan, §
1325(a)(5)(B) provides that the Court shall confirm the plan if it
provides, among other things, that the value, as of the effective date
of the plan, of property to be distributed under the plan on account
of the secured claim is not less than the allowed amount of such
claim.
The Supreme Court in Till recognized that this provision
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“requires bankruptcy courts to insure that the property to be
distributed to a particular secured creditor over the life of a
bankruptcy plan has a total ‘value as of the effective date of the
plan,’ that equals or exceeds the value of the creditor’s allowed
secured claim....” 	Till, 541 U.S. at 474, 124 S.Ct. at 1958, 158
L.Ed. 2d at 797. 	The Supreme Court, as has all lower courts,
recognized that this requires payment of appropriate rate of interest.
Till decided that the appropriate rate of interest is the prime rate
of interest plus a risk factor. 	The Hanging Paragraph of § 1325 does
not emasculate this application of § 1325(a)(5)(B).
The Court notes, however, that the amendments wrought by BAPCPA
do not prohibit modification of the claims described in the Hanging
Paragraph. 	Neither the Hanging Paragraph nor any other provision of
BAPCPA dilute the application of § 1322(b)(2) which allows
modification of the rights of holders of secured claims as well as
other claimants. 	Therefore, although the Debtors may not bifurcate
the claim of AmeriCredit into secured and unsecured components, the
Debtors may modify the interest rate to be paid to AmeriCredit,
subject to the mandate of Till. The parties did not present any
evidence at the confirmation hearing regarding the risk factors in
this case, limiting their argument to the effect of the Hanging
Paragraph; therefore, at this time, the Court cannot determine the
specific interest rate payable to AmeriCredit for inclusion in the
Debtors’ plan.
A separate order will be in entered in accordance with the
foregoing.
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IT IS SO ORDERED.
Copies to:
Timothy 	A. 	Robinson, 	Katheryn 	M. 	Robinson, 	1673 	Churchill 	Downs 	Road,
Apt. A, Newark, OH 43055
James E. Nobile, Attorney for Debtors (Electronic Service)
Brian D. Wood, Attorney for Creditor (Electronic Service)
Frank M. Pees, Chapter 13 Trustee (Electronic Service)
Office of the U.S. Trustee (Electronic Service)
# # #
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