| 8th Circuit Bankruptcy Panel Rules Auto Lender Can't Seek Deficiency In Chapter 13
An auto lender was not entitled to assert a deficiency claim in a Chapter 13 case, even though the debtors' vehicle was sold for less than the amount of the debt, the 8th Circuit Bankruptcy Appellate Panel has ruled.
The debtors owed Capital One $20,280 secured by a purchase money security interest in a 2003 Chevrolet pickup truck. They surrendered the vehicle after filing for Chapter 13 protection. Capital One sold the vehicle for $10,363, leaving a deficiency of $9,917.
Capital One contended that it was entitled to assert an unsecured deficiency claim in the debtors' Chapter 13 case because Sect. 506(a) of the Bankruptcy Code authorizes the bifurcation of a secured creditor's claim into secured and unsecured portions when collateral is surrendered.
The debtors argued that, under what is know as the "hanging paragraph" of Sect. 1325(a) of the Bankruptcy Code, their surrender of the truck operated as full payment of the entire debt.
That paragraph prohibits the bifurcation of claims "if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day [sic] preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle acquired for personal use. "
The court agreed that this provision precluded a deficiency claim, given that the debtors here had purchased their truck within 910 days of filing for bankruptcy.
"The bankruptcy court correctly concluded that the plain language of Sect. 1325(a)(5) and the hanging paragraph mandate that, as a matter of law, a secured creditor of the kind described in the hanging paragraph has a secured claim for the full amount due as of the date of filing of the petition, regardless of whether the debtor intends to retain the collateral or to surrender it. That being the case, Capital One is not entitled to a deficiency claim even though the collateral sold for less than the debt," the court said.
It noted that this was the majority view.
Capital One Auto Finance v. Osborn (Lawyers USA No. 9935233) U.S. Bankruptcy Appellate Panel, 8th Circuit No. 06-6061 WM. Feb. 23, 2007.
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