In Re Wilcox
ORDER ON DEBTOR’S MOTION TO MODIFY
Background Facts
Dеbtor filed her Chapter 13 Petition and Plan on May 21, 2001. The Court confirmed her Plan on August 27, 2001. Included among property retained wаs Debt- or’s 1996 Chrysler Van (hereinafter the “Vehicle”), for which she had obtained financing from Arcadia Financial Ltd. (hereinafter “Arcadia”) in return for the granting of a purchase-money security interest. As confirmed, and pursuant to the agreement оf the parties, the Plan valued the Vehicle at $11,000, thus effecting a cram-down of Arcadia’s claim in the amount of $1,786. As an accommodation to Debtor, Arcadia agreed the claim could be paid at 15% interest rather than the contract interest rate of 19.95%.
By December 2001 Debtor was unable to make her home mortgage payments outside the plan, as originally contemplated, and moved to modify her Plan. On February 27, 2002, the Court approved the modification оf Debtor’s Plan that provided for payment of Debtor’s home mortgage inside the plan and the curing of the post-petition arrearage.
In September 2001 Debtor again sought to modify her plan, this time to surrender the Vehicle in full satisfaction of Arcadia’s
Issue Presented
The issue before the Court is whether a debtor may modify a confirmed Chaрter 13 plan to provide that certain collateral will be surrendered in full satisfaction of that creditor’s claim as valued in the confirmed plan.
Applicable Law and Discussion
Both parties agree that Debtor could have surrendered the Vehicle in full satisfaction of the claim had she done so in the original plan under authority of § 1325(a)(5)(c). So what permits-or prohibits-her from accomplishing the identical result in a modification? There is a decisive split among the courts on this issue. The eases сited by the parties well represent the opposing viewpoints.
Debtor’s Position
Debtor relies primarily on
In re Hernandez,
After confirmation, the debtors modified their рlan once to increase payments due to the mortgage lender’s filing of a proof of claim which excеeded the amount provided for by the plan. Thereafter, due to increased medical expenses, the debtors sought a second modification to surrender their vehicle to Household in full satisfaction of Household’s claim. Household objected to such modification on legal grounds, but did not allege that the current value of the vehicle was less than the amount of the secured claim debtors had proposed to pay in their original confirmed plan.
The Hernandez cоurt brought logic into the argument: could not the debtors simply dismiss or allow the case to be dismissed, promptly refile, and then surrender the vehicle in full satisfaction of the claim? The court concluded they could, absent a finding of “cause” within the meaning of § 349(a) that would prohibit refiling. The Hernandez court noted the split in authority, referenced the treatises that address this issue, then dеtermined it was persuaded to adopt Judge Lundin’s position that a debtor may surrender a vehicle in satisfaction of a secured claim. Keith M. Lundin, Chapter 13 Bankruptcy, § 264.1 (3d ed.2000).
Creditor’s Position
Creditor asserts that Debtor is asking for, in effect, a
double
cram down, and relies on
In re Nolan,
a debtor cannot modify a plan under section 1329(a) by: 1) surrendering the collateral to a creditor; 2) having thecreditor sell the collateral and apply the proceeds toward the claim; and 8) having any deficiency classified as an unsecured claim. Section 1329(a) only permits modification of the amount and timing of payments, not the total amount of the claim. This principle holds true as to the portion of a claim that is secured, where the claim is partially instead of fully secured.
Id. at 535 (emphasis in original) (citation omitted) (footnote omitted).
Discussion
A good argument can be made — as it was in Hernandez — that the debtor’s ability to surrender secured property in full satisfaction of the debt at the time of confirmation as authorized in § 1325(a)(5)(C), if done in good faith, is also mаde applicable to subsequent modifications of the plan under § 1329(b)(1), which provides that: “[s]ections 1322(a), 1322(b), and 1323(c) of this titlе and the requirements of section 1325(a) of this title apply to any modification under subsection (a) of this section.”
In reviеwing § 1329, which provides for modification of a plan after confirmation, the Court notes that subsection (a)(1) allows for modification of the “amount of payments on claims” and subsection (a)(3) allows the modified plan to “alter the amоunt of the distribution to a creditor ... to take account of any payment of such claim other than under the plan.” However, the specific language of § 1329(b) incorporates three full sections (§§ 1322(a), 1322(b), and 1323(c)), but only the “requirements” of § 1325(а). It can certainly be interpreted that surrender of property pursuant to § 1325(a)(5)(C) is not a requirement, but only an option оf the debt- or. To make surrender a requirement does not make logical sense.
Accordingly, logic — however cоnvincing — does not trump the letter of the law. This Court finds more
legally
convincing the reasoning of the Sixth Circuit Court of Appeals in
Nolan.
Decision
Based upon the foregoing, this Court adopts the reasoning of the Nolan Court. Therefore, Debtor’s Motion to Modify is denied.