570 B.R. 293
Bankr. E.D. Wis.2017Background
- Debtor Jamiela Flournoy and non-debtor Vernon Shaw jointly purchased a 2005 Dodge Durango and granted a lien to secure a retail installment contract assigned to Credit Acceptance Corporation; both signed the contract and are jointly liable.
- Flournoy filed a Chapter 13 bankruptcy alone and proposed a plan paying Credit Acceptance $10,375.06 at 5.5% interest with monthly payments, and providing that the creditor retain its lien until either the debt is paid under nonbankruptcy law or Flournoy receives a Chapter 13 discharge.
- The plan reduces the contractual interest rate (23.99% contract rate) to 5.5%, so the plan does not pay the full contractual interest owed by Flournoy and Shaw under nonbankruptcy law.
- Credit Acceptance objected, arguing the plan impermissibly eliminates its lien as to Shaw’s interest in the vehicle and that § 524(e) prevents discharge-affecting non-debtor liability.
- The bankruptcy court construed the plan as modifying only Credit Acceptance’s lien on Flournoy’s interest (not Shaw’s) and overruled the objection, permitting confirmation on that basis.
Issues
| Issue | Plaintiff's Argument (Flournoy) | Defendant's Argument (Credit Acceptance) | Held |
|---|---|---|---|
| Whether § 524(e) bars a Chapter 13 plan provision that ends a lien on debtor’s property at discharge | Plan provision is authorized by § 1325(a)(5)(B)(i)(I); discharge ends debtor’s personal liability and plan, not discharge, governs lien treatment | § 524(e) prevents any plan/discharge from affecting non-debtor (Shaw) in rem liability | § 524(e) does not bar plan modification of creditor’s lien on debtor’s interest; discharge remains in personam and plan modifies lien rights under § 1325(a)(5) |
| Whether debtor may modify secured creditor’s rights in co-owned collateral under § 1322(b)(2) | Debtor may modify creditor’s rights as to claims against her and her property interest | Plan cannot eliminate creditor’s ability to enforce lien against non-debtor co-owner’s share; creditor’s rights related to Shaw are outside reach of § 1322(b)(2) | Debtor can modify creditor’s rights only as to the claim against her and her interest; creditor’s lien on Shaw’s undivided interest remains intact |
| Whether creditor’s right to collect from co-owner’s interest is a "claim" subject to plan modification | Creditor’s rights that arise from the lien on debtor’s interest are a claim against the debtor and estate | Rights to collect from Shaw’s interest are not a claim against Flournoy or her property and thus not modifiable | Right to collect from Flournoy’s interest is a claim subject to modification; rights against Shaw’s interest are not subject to Flournoy’s plan |
| Whether confirming plan would improperly allow underpayment of secured collateral value when property is co-owned | Plan complies with § 1325(a)(5) and paying value of debtor’s interest is sufficient | Allowing elimination of lien on co-owned collateral without full payment of collateral value would undermine § 506 protections | Court construes plan to pay creditor for its lien on Flournoy’s interest; creditor retains rights against Shaw and his interest, preserving § 506 principles |
Key Cases Cited
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (discharge is in personam and generally leaves liens intact)
- Dewsnup v. Timm, 502 U.S. 410 (1992) (bankruptcy discharge does not eliminate liens absent statutory authority)
- Nobelman v. American Sav. Bank, 508 U.S. 324 (1993) (Chapter 13 plan may modify secured creditors’ rights)
- In re Penrod, 50 F.3d 459 (7th Cir. 1995) (reorganization plans can extinguish creditors’ interests to the extent provided by the plan)