In Re Murray
MEMORANDUM OPINION
This matter came before the Court for hearing on April 4, 2006, for confirmation of Debtors’ Chapter 13 plan and the Objection to Confirmation filed by creditor Nu-vell Financial Services Corp. (hereinafter, “Nuvell”) on January 11, 2006. At the conclusion of the hearing, the Court took the issue of confirmation under advisement, specifically, to consider the meaning of the “hanging paragraph” added to
The Court entered a memorandum opinion and order on June 6, 2006 interpreting the hanging paragraph of
Debtors posed four arguments in support of their motion to reconsider: (1) The language of
In the case of
In re
Barber,
4
the Court set forth the standard applied when addressing motions to reconsider. A motion for reconsideration, which is treated as a motion to alter or amend a judgment, is governed by
Consistent with the discussion in Barber, the Court, at the July 18, 2006 hearing, orally granted Debtors’ motion to reconsider a portion of its June 6, 2006 memorandum opinion. The basis for the Court’s ruling was Debtors’ contention that the Court misapplied the case of In re Johnson in reaching its conclusion that creditor Nuvell held a purchase money security interest in Debtors’ vehicle. The Court has carefully considered Debtors’ other contentions of error and the case law and argument presented in favor of each, but holds that only the discussion of creditor Nuvell’s purchase money security interest shall be revisited. The substance of the June 6 memorandum opinion shall remain unchanged otherwise. Brief mention of Debtors’ other arguments will be made in this introduction. For the reasons given below, the Court, consistent with its final conclusion on the issue in its original opinion, finds that creditor Nuvell does, in fact, hold a purchase money security interest in Debtors’ vehicle. The final outcome as reached in the June 6 opinion will not be changed, therefore.
Regarding Debtors’ first contention that the Court misinterpreted
As to Debtors’ third contention that the court did not consider the argument raised by Debtors at the April 4, 2006 hearing that the secured claim of Nuvell could still be bifurcated under the grant of authority in § 1322, which states that a Chapter 13 plan may modify the rights of a secured creditor, the Court holds that such argument has no basis. Congress adopted
Debtors’ fourth contention was presented in a letter brief submitted to the Court following the July 18 hearing on their motion. In their brief, Debtors challenged the holding of the Court that the “prime plus risk factor” interest rate set forth by the United States Supreme Court in
Till
should be paid on claims qualifying under
As said above, the Court is not convinced of an error in its interpretation that
The following will be the opinion of the Court, substantively identical to that opinion issued in this case on June 6, 2006 but for the discussion regarding the purchase money security interest of Nuvell. As stated above, although the discussion is amended, the end result remains unchanged.
FINDINGS OF FACT
On August 1, 2004, Debtors Anthony and Gail Murray purchased a 2003 Oldsmobile Alero automobile (hereinafter, the “vehicle”) from Bill Heard Chevrolet Co. (hereinafter, “Bill Heard”) pursuant to the terms of a retail installment contract (hereinafter, the “Contract”). Bill Heard assigned its interest in the Contract to Nuvell. The vehicle was acquired for the “personal, family or household” 12 use of Debtors. As evidenced by the Contract, the purchase of the vehicle included a $700 payment for an extended service contract, a documentary fee of $344, and a government certificate of title fee of $18. The vehicle is subject to a secured claim held by Nuvell. A Georgia Certificate of Title was issued on September 2, 2004, indicating Nuvell holds a first priority purchase money security interest in the vehicle.
Debtors filed their petition for Chapter 13 protection on November 15, 2005. 13 Debtors purchased the vehicle within 910 days prior to filing their petition for bankruptcy. Nuvell filed a proof of claim on November 28, 2005 contending that the net amount due to Nuvell, as of the petition date, was $10,498.63. No objection to Nu-vell’s proof of claim was filed.
The scheduled value of the vehicle as of the date of Debtors’ petition was $8,612.00. On December 19, 2005, Debtors proposed a Chapter 13 plan providing that the secured claim of Nuvell should be paid to the extent of $8,612.00 plus interest at eight percent per annum, thus attempting to “cram down” the value of Nuvell’s secured claim. On January 11, 2006, Nuvell objected to the confirmation of Debtors’ proposed plan on the basis that Nuvell’s claim qualified under
DISCUSSION AND CONCLUSIONS OF LAW
The issue before the Court is whether Debtors can “cram-down” the lien of a secured creditor considering the terms of
I. Qualification under BAPCPA
Although the ultimate issue of this inquiry is the meaning the Court will give to
Although requirements (2) and (3) are clearly met, Debtors argue that Nuvell’s claim does not qualify for treatment under
As Debtors mention in their response brief, whether a creditor’s security interest is one in purchase money is a determination to be made under state law. 16 Official Code of Georgia Annotated § 11-9-103 provides the following, in relevant part, as regards “purchase money security interests”:
Purchase money security interest; application of payments; burden of establishing
(a) Definitions. As used in this Code section, the term:
(1) “Purchase money collateral” means goods or software that secures a purchase money obligation incurred with respect to that collateral.
(2) “Purchase money obligation” means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.
(b) Purchase money security interest in goods. A security interest in goods is a purchase money security interest:
(1) To the extent that the goods are purchase money collateral with respect to that security interest;
(2) If the security interest is in inventory that is or was purchase money collateral, also to the extent that the security interest secures a purchase money obligation incurred with respect to other inventory in which the secured party holds or held a purchase money security interest; and
(3) Also to the extent that the security interest secures a purchase money obligation incurred with respect to software in which the secured party holds or held a purchase money security interest .... 17
The meaning of the term “price” as used in the Section’s definition of “Purchase money obligation” is brought to issue by Debtors’ argument that the simultaneous purchase of the extended service contract, the documentary fee, and the governmental certificate of title fee disqualified Nuvell’s security interest from being one in purchase money. Considering all portions of
As used in subsection (a)(2), the definition of “purchase-money obligation,” the “price” of collateral or the “value given to enable” includes obligations for expenses incurred in connection with acquiring rights in the collateral, sales taxes, duties, finance charges, interest, freight charges, costs of storage in transit, demurrage, administrative charges, expenses of collection and enforcement, attorney’s fees, and other similar obligations. 18
The documentary fee and the governmental certificate of title fee are clearly “expenses incurred in connection with acquiring rights in the collateral,” easily labeled as finance or administrative charges. The question of whether the cost of the extended service contract fits within this category of expenses incurred in connection with acquiring rights in the collateral does require closer consideration.
The Court’s inclination that such an added expense should be considered part of the price of the vehicle is supported not only by the Court’s varied experience with transactions of this type, but also by the fact that there is no case law, either cited by Debtors or found by the Court while conducting its own research, holding that the purchase of an extended service contract or warranty contemporary with the purchase of the collateral would disqualify a security interest from being one in purchase money. In fact, Debtors cite to a case in their brief that indirectly holds otherwise. In In re Staley, 19 the District Court considered, on appeal, whether a creditor retained its purchase money security interest in a stereo when the debtor subsequently purchased a freezer and warranty, signing a new, but identical security agreement, and on two other occasions purchased automobile maintenance and service under the same agreement. 20 The language of the security agreements granted the creditor a security interest in each item of merchandise purchased or thereafter purchased. 21 There was a proviso in the agreements, however, stating that the creditor would retain such security interest in each item only until it was paid for in full. 22 The agreements then set forth a formula for how the installment payments would be applied to each of the items purchased. 23
The Bankruptcy Court below in Staley held that the creditor had a security interest only in the freezer, relying on the case of In re Manuel 24 for its conclusion. The *348 District Court reversed, holding that “[b]e-cause the collateral secured only debt representing its price, the security agreement did create a purchase money security interest which, being in a consumer good, did not need to be filed in order to be perfected.” 25 The reason this case is so helpful in deciding the issue before this Court is that in the District Court’s recitation of facts, it is expressed that “the debtor purchased on credit a stereo, extended warranty contract, and credit life insurance ” from the creditor. 26 In its holding, the Court stated that the creditor did have a purchase money security interest “[bjecause the collateral secured only debt representing its price ....” 27 Granted, the debtor apparently did not argue in Staley that a finding of a purchase money security interest was precluded by the purchase of additional items, the Court can infer from the recitation of facts and the final conclusion of the District Court that the purchase of the extended warranty contract and credit life insurance were considered and did not disqualify the security interest from purchase money status. 28 This is understandable being that an extended service contract or warranty is so inextricably related to the collateral that the purchase of these or similar items would be considered part of the price of the collateral.
In trying to convince the Court otherwise, Debtors, in their arguments and case citations, attempt to implicate the “transformation” rule, which holds that a “purchase money security interest used to secure the purchase price of goods sold in a particular transaction is ‘transformed’ into a nonpurchase money security interest when antecedent or after-acquired debt is consolidated with [a] new purchase under one contract.” 29 The rule evolved in response to attempts by creditors to secure combined debts with items purchased at different times. 30 In this circumstance, each item of collateral would secure not only its purchase price, but also the purchase price of the other goods. 31 The transformation rule may also apply in cases of refinancing where the creditor increases the interest rate and increases the loan amount. 32
The general rules adopted for “transformation” scenarios are simply of no help to the issue the Court must decide today, i.e., whether Debtors’ additional purchases should be included as part of the “price” of their vehicle. Debtors cite the case of In re Lee 33 for the rule that “A purchase money security interest cannot exceed the price of what is purchased in the transaction wherein the security interest is creat *349 ed.” 34 Applying this general rule requires the Court to determine what is meant by the term “price.” In Lee, the court was considering a multiple transaction scenario, and as such, the court in Lee was certainly considering “price” in terms of the price of the initial purchase compared with the price of the subsequent purchases. The court was not considering whether additional items purchased with the collateral prevented the creation of a purchase money security interest in the collateral.
Debtors also cite the case of In re Fickey for the general rule that “[t]o the extent an item of collateral secures some other kind of debt, the security interest in the item is not purchase money.” 35 Debtors failed to include the example of “some other kind of debt” given by the court in Fickey, which was “antecedent debt.” 36 The court in Fickey developed its rule in the context of a multiple transaction scenario. The court was not considering whether the cost of additional items purchased with the collateral was “some other kind of debt,” such that would render a security interest nonpurchase money. The rule in Fickey, therefore, is also not helpful to the Court in its inquiry.
Finally, Debtors cite the cases of
Southtrust Bank of Alabama, Nat’l Ass’n v. Borg-Warner Acceptance Corp.
37
and
In re
Hillard
38
for the rule that a purchase money security interest cannot exceed the price of what is purchased in the transaction wherein the security interest is created. Again, this rule begs the question of what meaning the term “price” should be given. None of the cases cited by Debtors involves the scenario before the Court today. The instant case clearly does not involve a “transformation” scenario or even a refinancing scenario. As such, this case is clearly distinguishable from the cases cited by Debtors and the rules developed in each are not applicable. The Court, therefore, concludes that because of the nature of the additional items purchased and the relationship between those items and the collateral, which were purchased at the same time and in the same transaction as the collateral, Nuvell does indeed hold a purchase money security interest in Debtors’ vehicle. This conclusion is supported by the facts and conclusion of
In re Staley,
39
a case decided in this District. The Court’s finding that Nuvell holds a purchase money security interest satisfies the only remaining requirement for application of
II. The Meaning of BAPCPA
The requirements for confirmation of a Chapter 13 plan are set forth in
For purposes of paragraph (5), section 506 shall not apply to a claim described *350 in that paragraph 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 preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debt- or, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.... 41
Section 506, as referenced in
Prior to the enactment of BAPCPA and
Debtors in this case argue that the language of
Since the effective date of BAPC-PA in October of 2005, several courts across the nation have considered the meaning of
In particular, the Court agrees with the reasoning and conclusion set forth in
In re Brown.
44
There, the court considered ar
*351
guments similar to the arguments now before this Court. The several debtors in
Brown
all purchased vehicles for personal use within 910 days before filing a Chapter 13 petition. Creditors with liens on those vehicles filed proofs of claim stating that the debts for the vehicles were 100% (percent) secured. No objections were made to the proofs of claim, nor was it argued that the vehicles were not purchased for personal use. The debtors’ proposed plans that estimated the claims, listing them as “fully secured allowed claims,” and proposed repayment at zero percent interest. The 910-day creditors objected to confirmation of the debtors’ Chapter 13 plans, arguing that the creditors holding allowed secured claims should be paid the present value of their claims in accordance with
The court in
Brown
was not persuaded by the debtors’ argument that
The court in Brown stated, and this Court agrees, that if a debtor contends that without the operation of § 506 an “allowed secured claim” cannot exist, then that debtor “misunderstands the purpose and operation of § 506.” 46 The discussion of this issue in Brown begins with a citation to the United States Supreme Court case of Dewsnup v. Timm 47 where the Supreme Court agreed with the argument that:
the words “allowed secured claim” in § 506(d) need not be read as an indivisible term of art defined by reference to § 506(a), which by its terms is not a definitional provision. Rather, the words should be read term-by-term to refer to any claim that is, first, allowed, and, second, secured. 48
The court in
Brown
stated that “the relationship between § 506(a) and ‘allowed secured claim’ in § 506(d), [established in
Dewsnup
], also applies to the relationship between § 506(a) and ‘allowed secured claim’ in
As stated both in Brown and by counsel in briefs, § 502(a) determines whether a claim is deemed “allowed.” 51 Section 502(a) provides in relevant part: “(a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case *352 under chapter 7 of this title, objects.” 52 As in Brown, no objections have been filed in this case to the Nuvell proof of claim. In accordance with § 502(a), therefore, the 910-day claim of Nuvell is deemed “allowed.”
The Court must look to § 101(37) to determine whether a debt is “secured” by a lien. 53 Section 101(37) provides: “The term ‘lien’ means charge against or interest in property to secure payment of a debt or performance of an obligation.” 54 As in Brown, there is no argument that Nuvell does not hold a valid lien against Debtors’ vehicle that secures payment of the underlying debt. As such, the claim of Nuvell is “secured.”
In
Brown,
the court held that because the 910-day claims were deemed “allowed” under § 502(a) and “secured” under § 101(37), the claims were “allowed secured claims” and
The Court is satisfied that the identification of a claim as “allowed” and “secured” would be sufficient to overcome Debtors’ argument that
In
Montoya,
it is also noted that the grammatical structure of
As pointed out in the case of
In re Turner,
60
the conclusion that
Protections for Secured Creditors. S. 256’s protections for secured creditors include a prohibition against bifurcating a secured debt incurred within the 910-day period preceding the filing of a bankruptcy case if the debt is secured by a purchase money security interest in a motor vehicle acquired for the debtor’s personal use. Where the collateral con *353 sists of any other type of property having value, S. 256 prohibits bifurcation of specified secured debts if incurred during the one-year period preceding the filing of the bankruptcy case. 61
Further, members of Congress dissenting to the enactment of BAPCPA also recognized:
[S. 256] would largely eliminate the possibility of loan bifurcations in chapter 13 cases. Under current law a debtor is permitted to bifurcate a loan between the secured and unsecured portions. The debt is treated as a secured debt up to the allowed value of the property securing the debt. The remainder of the debt is treated as a non-priority unsecured debt. Section 306 of [S. 256] prevents such bifurcation (including with regard to interest and penalty provisions) with respect to any loan for the purchase of a vehicle in the 910 days before bankruptcy, as well as all loans secured by other property incurred within one year before bankruptcy. 62
Considering this legislative history, the grammatical structure of
III. Applicable Interest Rate
Athough Debtors in this case do not, in the alternative, address the appropriate interest rate to be paid should the Court conclude that Nuvell’s claim is an “allowed secured claim,” the Court believes that for direction in this and in other cases concerning similar issues, the applicable post-petition interest rate should be discussed.
Under the authority granted in § 1322(b)(2), a Chapter 13 plan may “modify the rights of any creditor whose claim is secured by an interest in anything other than ‘real property that is the debtor’s principal residence.’ ”
63
This power to modify is, of course, subject to the requirement of
In other cases concerning
CONCLUSION
It is, therefore, the holding of this Court that the security interest of Nuvell is in fact a purchase money security interest qualifying for treatment under
Notes
. Hereinafter, for ease of identification, the "hanging paragraph” of
.
.
.
.
Barber,
.
Id.
(citing
Nosker,
.
Id.
at 924 (citing
In re Christie,
.
. Debtors argue that
. See
In re Sparks,
.
. See Retail Installment Contract at 1, attached to Debtors’ Brief.
. Debtors filed their petition after October 17, 2005, the effective date of the BAPCPA provisions germane to the issue before the Court.
. 11U.S.C.
. Debtors’ Brief at 14-20.
. Debtors’ Brief at 14.
.
.
.
.
Staley,
. Id.
. Id.
. Id.
.
.
Staley,
. Id. at 437.
. Id. at 438.
. In Staley, the District Court considered an older version of the Georgia statute defining "purchase money security interest,” but as Debtors stated in their brief, cases decided under the old statute remain good law under the revised version of the statute.
.
In re Lee,
.
In re Norrell,
. Id.
.
See In re Hillard,
.
. Debtors' Brief at 15 (citing
In re Lee,
.
Id.
(citing
In re Fickey,
.
Fickey,
.
.
.
.
.
. See Debtors’ Brief at 6-7.
.
In re Brown,
.
. Id. at 820.
. Id. at 821.
.
.
Id.
at 415,
.
Brown,
. Id.
. Id. See Debtors’ Brief at 4-5; Creditor's Brief at 5-6.
.
.
See Brown,
.
.
Brown,
.
Montoya,
. Id.
. Id.
. Id.
.
In re Turner,
. H.R. Rep. No. 109-31(1) at 17 (2005), U.S.Code Cong. & Admin.News 2005, pp. 88, 103 (emphasis added). Note that "S. 256” found in the portion of the House Report cited, refers to BAPCPA, which was introduced as Senate Bill 256.
. H.R.Rep. No. 109-31(1) at 554 (2005),
as reprinted in
E-2 Collier on Bankruptcy at App. Pt. 10-903 (Lawrence P. King et al. eds., 15th ed. revised 2005) (emphasis added).
See Turner,
.
Till,
. Id.
.
Id.
at 478-79,
.
See In re Robinson,
.
See Brown,
.
See Wright,
.
See Robinson,
.Robinson,
. It should be noted that the vast majority of cases considering the interest rate issue have held, as this Court does, that a creditor whose claim qualifies under