In Re Strange
MEMORANDUM OPINION
This matter comes before the Court on objections to confirmation by Fidelity Bank and CitiFinancial Auto Credit, Inc. This is a core matter within the meaning of 28 U.S.C. § 157(b)(2)(L). After considering the pleadings, the evidence, and the applicable authorities, the Court enters the following findings of fact and conclusions of law in conformance with Federal Rule of Bankruptcy Procedure 7052.
Debtor Tara Strange filed a Chapter 13 petition on June 23, 2009. Her plan proposed to pay secured creditors CitiFinan-cial Auto Credit, Inc. and Fidelity Bank the value of their collateral, with no dividend for unsecured claims. CitiFinancial is secured by a 2007 Chevrolet Suburban, which Debtor valued at $25,000. 1 She owes approximately $44,000 on the note for the Suburban. Fidelity Bank is secured by a 2007 Kia Optima, which Debtor valued at $10,000. She owes approximately $23,000 on the note for the Kia.
Debtor is married with five minor children, ranging in age from 5 to 17. Her husband, Stacy Strange, has not filed for bankruptcy. Debtor’s bankruptcy case was precipitated by the incarceration of Mr. Strange for a parole violation and the resulting loss of his income.
Debtor and Mr. Strange both are registered nurses. Debtor works at a hospital in Griffin, Georgia, near the family home. Mr. Strange works for a hospice in Marietta, Georgia, which is approximately 60 miles from the home. Mr. Strange has worked for the hospice for eight years and will return to work there after completing all his obligations related to his parole violatiоn.
Debtor testified that at the time she purchased the Suburban in July 2007, it was intended for her use. After the purchase, she drove it daily to work. Furthermore, it is the only vehicle that can accommodate all five children, so she also drives it when necessary to transport the entire family.
Debtor and Mr. Strange both testified that they purchased the Kia in May 2008 to replace a prior car that was no longer reliable. They specifically wanted a fuel-efficient car because thеy intended Mr. Strange to drive it to and from work in Marietta. Mr. Strange testified that he had driven the Suburban to work a couple of times, but the fuel costs made it impractical for him to use for commuting. Debt- or and Mr. Strange purchased the Kia together because, of the two, Mr. Strange had the higher income and Debtor had the better credit rating. After purchasing the Kia, Mr. Strange did use it to commute. In addition, Debtor used it on Mr. Strange’s days off and while he was incarcerated to take advantage of its fuel economy.
CitiFinancial and Fidelity Bank filed objections to confirmation of Debtor’s plan on the ground that the Bankruptcy Code prohibits bifurcation and cramdown of their claims. The Court held a hearing on the objections on December 8, 2009. At the conclusion of the hearing, the Court invited the parties to file briefs. Having considered the evidence and the law, the Court finds Fidelity Bank’s claim as to the Kia is not subject to the hanging paragraph and, consequently, may be crammеd down. However, CitiFinaneial’s claim as to the Suburban falls within the scope of the hanging paragraph and cannot be crammed down. Therefore, the Court will sustain CitiFinancial’s objection to confirmation and overrule Fidelity Bank’s objection. The Court will further order Debtor to modify her plan in accordance with this ruling.
Conclusions of Law
At issue in this case is whether or not Debtor can cram down the debts on the Suburban and the Kia — by bifurcating them into secured and unsecured claims— over the objection of the respective creditors. Section 1325(a)(5)(B) of the Bank
if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt wаs incurred within the 910-day [period] preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle ... acquired for the personal use of the debtor[.]
11 U.S.C. § 1325(a)(:|:). Thus, the hanging paragraph applies if four elements are satisfied with regard to (1) type of security interest (purchase money); (2) type of collateral (motor vehicle); (3) time of acquisition (within 910 days before the petition date); and (4) purpose of acquisition (pеrsonal use of the debtor). Neither Debtor nor the creditors have disputed the first three elements. Therefore, the only issue in this case is whether or not the Kia and Suburban were acquired for the personal use of Debtor.
Framework for Interpreting the Hanging Paragraph
Since its enactment in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), the hanging paragraph has been the subject of numerous judicial opinions, including three cases decided by the Eleventh Circuit Court of Appeals. The circuit court has described the language of the hanging paragraph as “plain and unambiguous,” while also finding that applying the language as written may lead to an absurd result.
DaimlerChrysler Fin. Servs. Ams. LLC v. Barrett (In re Barrett),
None of the cases decided by the court of appeals addressed the issue raised in this case.
3
However, in each of its decisions, the circuit court was guided by its conсlusions about congressional intent. The court has stated that the “legislative history leaves little doubt” about Congress’ intent,
Graupner,
The circuit court also has rejected attempts to limit the reach of the hanging paragraph. For example, in Graupner, the circuit court suggested that an overly narrow reading of the hanging paragraph that serves to exclude a significant number of common transactions in the realm of car sales (loans that include financing of negative equity) would nеcessarily lead to an absurd result.
If Congress did not intend for the hanging paragraph to apply to a trade-in’s negative equity, as the Debtor ultimately contends, it would have the effect of excluding a substantial number of lawful auto finance transactions that were industry practice when BAPCPA was enacted (a practice that Congress is presumed to have known about). This would be an absurd result given that it is recognized that the “architects [of the hanging paragraph] intended only good things for car lenders and other lien-holders.”
Graupner,
Personal Use of the Debtor
With the understanding that the Eleventh Circuit cases indicate the hanging paragraph should be construed in favor of the 910 creditor, the Court turns to interpreting the phrase “personal use of the debtor.” As a preliminary matter, it is well-established that the relevant time period for analyzing the personal use question is the time of acquisition of the vehicle at issue.
In re Lorenz,
The Court previously parsed the phrase “personal use of the debtor” in
In re Jackson,
Since
Jackson
was decided, a growing body of case law has emerged on the personal use issue. Such cases generally can be divided into two categories: (1) those in which the debtor argues the vehicle was purchased for business rather than person
Personal Use:
The Bankruptcy Code does not define “personal use.” Consequently, courts have looked to other sources to give some meaning to the phrase. In doing so, they have often sought guidance in the reasoning of
Cypher Chiropractic Center v. Runski (In re Runski),
By analogizing to
Runski,
most courts have concluded that “personal use” in the context of the hanging paragraph simply means any non-business use.
See In re Phillips,
Of the Debtor: Next the Court must consider the meaning of “of the debtor.” Section 101(13) of the Bankruptcy Code defines “debtor” as the “person ... concerning which a case under this title has been commenced.” 11 U.S.C. § 101(13). There is no reason to believe that Congress intended “debtor” to mean something different in the context of the hanging paragraph. Therefore, to be “of the debtor,” Debtor must have intended to use the vehicles at the time of their acquisition. However, even with this understanding of the language, the statute cannot be applied without adding some qualifier as to the extent of Debtor’s use.
Courts have taken varying approaches to filling the gap. For example, in
Jackson,
this Court focused on whether the debtor was the primary user, noting that “the vehicle must have been acquired for the use of a particular person — Debtor— for the hanging paragraph to apply.”
Other courts have adopted the “significant and mаterial use” test set forth in
In re Solis,
Even though they often apply slightly different tests, courts have reached consistent results when deciding whether the personal use is “of the debtor.” As a general rule, when someone other than the debtor is the exclusive user of a vehicle, the vehicle does not fall within the scope of the hanging paragraph. In addition, courts often find that when a non-filer is the primary user of the vehicle, the hanging paragraph does not apply.
In re Lewis,
On the other hand, when courts find that a car was purchased primarily for the use of the bankruptcy debtor, they conclude it is subject to the hanging paragraph.
In re Bolze,
No. 06-40036,
The weight of authority suggests that the debtor’s use of the car must be more than incidental but not necessarily exclusive. However, when judicially rewriting a statute to fill a gap left by Congress, as courts seem compelled to do in the case of careless draftsmanship, the Court must consider more than mere weight of authority. In this case, the provision at issue upends one of the foundational policies behind bankruptcy law, as well as lоng-standing practice: providing equal treatment of similarly situated creditors. The hanging paragraph allows a preferred class of un-dersecured creditors to be treated as fully secured. Thus, the unsecured portion of their claims are paid in full with interest. Not only does the hanging paragraph provide special treatment to 910 creditors over other unsecured creditors — who only receive a pro rata share of their claim — it also diminishes the poоl of money available to pay the other unsecured creditors. The Supreme Court has indicated that, “absent clear[] textual guidance” to the contrary, statutes generally should be interpreted to harmonize with rather than disrupt longstanding practices and policies.
BFP v. Resolution Trust Corp.,
The Court is mindful that, as discussed earlier, the Eleventh Circuit Court of Appeals has found — based on the legislative
While exclusive use by the debtor represents one extreme for interpreting the hanging paragraph, incidental or de minimis use by the debtor lies at the other extreme. And, it is an equally unsuitable interpretation. Congress imposed four express statutory limits on 910 claims, which provides textual evidence that it did not intend to sweep еvery non-business car within reach of the hanging paragraph. As the weight of authority dictates, it is more reasonable to assume Congress intended it to reach vehicles purchased with the expectation that the debtor would make some regular use of the vehicle— whether that use is defined as “primary use” or “significant and material use” or some other qualifier. Whether the debt- or’s intended use of the vehicle is sufficient to bring it within the hanging paragraph must therefore depend оn the court’s subjective consideration of the totality of the circumstances rather than a clearly defined statutory standard. 8
Evaluation of the Suburban and the Kia
The evidence in this case is limited to the unrefuted testimony of Debtor and Mr. Strange. As to the Suburban, Debtor testified she purchased the vehicle to provide for her transportation and for those occasions when she needed to transport the entire family. In other words, the Suburban is used by Debtor, and in some cases the entire family, for nonbusiness purpоses. The only evidence about any other person driving the car is Mr. Strange’s testimony that he drove it to work a couple of times. Based on these facts, the Court finds Debtor purchased the Suburban intending to be its primary user and that she intended to use it for personal purposes. Therefore, CitiFinan-cial’s claim in this case is protected by the hanging paragraph and cannot be crammed down.
As to the Kia, both Debtor and Mr. Strange testified it was purchased for Mr. Strange to drive to and from work. Mr. Strange used it for that purpose. Debtor also used the car on Mr. Strange’s days off and to run errands. In addition, she drove it as her primary vehicle while Mr. Strange was incarcerated. However, there is no evidence that Debtor foresaw
Conclusion
The Court finds both the Kia and the Suburban were acquired for personal, rather than business, use. Furthermore, the Court finds the Suburban was acquired for use primarily by Debtor, while the Kia was acquired for use primarily by her non-filing husband. Based on thesе findings, the Court concludes CitiFinancial holds a 910 claim, while Fidelity Bank does not. As a result, CitiFinancial’s objection to confirmation will be affirmed, and Fidelity Bank’s objection will be overruled. Debt- or shall amend her Chapter 13 plan in accordance with this Opinion.
An Order in accordance with this Opinion will be entered on this date.
SO ORDERED.
Notes
. There is some dispute as to the value of the Suburban. That dispute is not relevant because even the most generous valuation is substantially less than the amount of the dеbt.
. The hanging paragraph is so called because it was inserted by The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 as a separate, unenumerated paragraph following § 1325(a)(9). It is commonly cited as § 1325(a)(*).
. In
Barrett,
the court held that when a debtor surrenders a 910 vehicle, the creditor may pursue a deficiency claim if allowed by state law.
.It is unclear which specific legislative history the circuit court relies on for its conclusions as to congressional intent. However, the court makes a passing reference to the headings to Section 306 of BAPCPA, which provided for the amendment of § 1325.
See Barrett,
.
See In re Heglar,
No. 09-51077,
.
See In re Bethoney,
.
Grimme
is an aberration, because it does not consider the identity of the user to be determinative so long as the vehicle is acquired for a non-business purpose.
. The line here between reasonable interpretation of a statute’s plain language and outright judicial redrafting is close at hand. Reading “personal use of the debtor” to mean “primarily of the debtor” or "significantly and materially of the debtor” may be the kind of judicial excess that could be fairly criticized by constitutional purists. In a landscape free of judicial precedent, I would construe the provision narrowly rather than expansively because of the inequality of treatment it creates among creditors.