483 B.R. 708
Bankr. E.D. Ark.2012Background
- Deere filed Objection to Confirmation of the Debtors' Chapter 12 Plan on January 4, 2012, regarding cross-collateralization of Deere's loans.
- Debtors and Deere resolved most issues at a March 1, 2012 hearing, leaving only cross-collateralization as to be resolved.
- Agreed Order Withdraw Conditions withdrew objection except for cross-collateralization; an Agreed Briefing Schedule set the issue for the Court.
- Debtors filed a Chapter 12 petition on September 19, 2011, and Deere asserted three secured claims tied to cross-collateralized farm equipment.
- The Debtors proposed that the Plan sever cross-collateralization so each loan would be secured only by its respective equipment.
- The Court ultimately held that bankruptcy law does not permit severing cross-collateralization through the Plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Plan may sever cross-collateralization | Deere argues liens extend across all cross-collateralized collateral. | Debtors contend §1222(b)(2) allows modification to sever cross-collateralization. | No; lien retention applies to cross-collateralized property and cannot be modified. |
Key Cases Cited
- In re Butler, 97 B.R. 508 (Bankr.E.D.Ark.1988) (strict lien-retention interpretation under §1225(a)(5))
- In re Hanna, 912 F.2d 945 (8th Cir. 1990) (strict lien-retention; livestock-specific exception narrowly applied)
- In re Michels, 301 B.R. 9 (Bankr.N.D.Iowa 2003) (denied modification of lien where collateral differed from plan’s treatment)
- In re Clark, 288 B.R. 237 (Bankr.D.Kan.2003) (plan cannot modify lien when it would violate §1225(a)(5))
- In re Kerwin-White, 109 B.R. 626 (D.Vt.1990) (§1222(b)(2) does not override §1225(a)(5) limitations)
- In re Harmon, 101 F.3d 574 (8th Cir. 1996) (strict interpretation of Chapter 13 lien retention informs Chapter 12)