586 B.R. 55
Bankr. S.D. Cal.2018Background
- Ricol and Kimberly Royal filed chapter 13 after converting from chapter 7; Royal listed a 2011 Infiniti G37 (the Vehicle) purchased June 2015 and valued at $9,000; SOL Acceptance, LLC holds a purchase-money lien and proof of claim for $27,946.79.
- Royal testified he bought the Vehicle to support his work as an executive recruiter (entertaining clients/candidates; to project an upscale persona) and negotiated purchase over the phone; the retail contract left the "business or commercial" box unchecked.
- Newport (Royal’s employer) advanced $3,000 as a 0% loan for the down payment (characterized in writing as a personal loan).
- Before a March 2016 accident that left Royal disabled, he used the Vehicle to drive to some business appointments, but he did not keep mileage logs, seek reimbursement, or claim vehicle expenses on tax returns.
- SOL objected to confirmation of Royal’s chapter 13 plan because the plan proposed to bifurcate (cram down) SOL’s secured claim; the court held an evidentiary hearing to decide whether the Vehicle was "acquired for personal use" under §1325(a)’s Hanging Paragraph.
Issues
| Issue | Plaintiff's Argument (SOL) | Defendant's Argument (Royal) | Held |
|---|---|---|---|
| Whether the Vehicle was "acquired for personal use" within the §1325(a) Hanging Paragraph | Vehicle was acquired for personal use so Hanging Paragraph forbids bifurcation | Vehicle was acquired predominantly for business use (executive recruiting), so Hanging Paragraph does not apply | Held: Vehicle was not shown to be predominantly for business; Hanging Paragraph applies; bifurcation prohibited |
Key Cases Cited
- In re Welsh, 465 B.R. 843 (9th Cir. BAP 2012) (debtor bears burden to prove elements required for plan confirmation)
- In re Solis, 356 B.R. 398 (Bankr. S.D. Tex. 2006) (personal use includes use satisfying personal wants/needs such as commuting, errands, recreation)
- In re Hill, 352 B.R. 69 (Bankr. W.D. La. 2006) (test focusing on whether vehicle enabled significant contribution to income)
- In re Ozenkoski, 417 B.R. 794 (Bankr. E.D. Mo. 2009) (criticizes overly broad definitions of business use; endorses fact-intensive analysis)
- In re Grimme, 371 B.R. 814 (Bankr. S.D. Ohio 2007) (construing "personal use" as non-business use)
- In re McGinness, 586 B.R. 14 (Bankr. E.D. Tenn. 2018) (adopts totality-of-circumstances test to determine predominant business vs personal use)