William R. Sawyer, United States Bankruptcy Judge.
This Chapter 13 case came before the Court for an evidentiary hearing on September 19, 2019, to resolve the Objection to Confirmation of Chapter 13 Plan filed by Ford Motor Credit Company, LLC. (Doc. 18). For the reasons set forth below, the Court overrules the objection and confirms the Plan as amended. (Doc. 21).
On March 24, 2018, the Debtor, Jamarus T. Butler, purchased a new 2017 Ford Focus from Stivers Ford Lincoln, Inc., in Montgomery, Alabama for $22,192.93. (Claim No. 2). Butler testified that he purchased the Ford Focus for his girlfriend because she was only 18 at the time, and could not, under Alabama law, enter into a binding contract.
Butler further testified that the $700 cash down payment as recited in the sales
Several months after the purchase, the romance between Butler and his girlfriend cooled. When Butler learned that his now former girlfriend had stopped making the contract payments, he insisted that she return the vehicle to him, which she eventually agreed to do. Since that time, Butler has maintained possession of the automobile and is its primary user. Butler caught up the past due payments and has faithfully maintained payments under the contract.
Butler filed a petition in bankruptcy pursuant to Chapter 13 in this Court on March 29, 2019. (Doc. 1). He filed a Chapter 13 Plan with his petition and amended his Plan on June 12, 2019. (Doc. 21). In his amended Plan, Butler proposes to limit the value paid to Ford Credit on its secured claim pursuant to 11 U.S.C. § 1322(b)(2), to $13,125, which Butler contends is the value of the Ford Focus.
This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334(b) and the District Court's General Order of Reference dated April 25, 1985. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(L). This is a final order.
The Court will divide its discussion here into three parts. In Part 1, the Court will discuss secured claims and lien modification in cases under Chapter 13. In Part 2, the Court will discuss the "hanging paragraph" of § 1325(a), which prevents debtors from modifying certain liens under a Chapter 13 Plan. In Part 3, the Court will consider whether the hanging paragraph prevents the Debtor from modifying the lien of Ford Motor Credit in this case.
Section 506(a) of the Bankruptcy Code provides, in part, that:
11 U.S.C. § 506(a).
In this case, Ford Credit holds an indebtedness in the amount of $18,954.59, which is secured by a Ford Focus with a value of $13,125. By operation of § 506(a), Ford Credit holds a secured claim in the amount of $13,125, and an unsecured claim for the balance, which is $5,829.59. This process, of taking one undersecured indebtedness and converting into one secured and one unsecured claim is called "bifurcation."
With exceptions to be discussed below, a Chapter 13 plan may "modify the rights of holders of secured claims." 11 U.S.C. § 1322(b)(2). It is well established that this "modification" means that the secured claim is paid in full with interest over the life of the plan, while the unsecured claim is treated as other unsecured claims, which can mean the holders of unsecured claims receive nothing.
In this case, Butler is required under his contract to make payments in the amount of $409.19 for 72 months. If lien modification (or cramdown) is allowed, Ford Credit will receive adequate protection payments of $131.25 per month and then specified monthly payments of $308 for the remainder of the 56-month term of Debtor's Plan.
Congress amended the Bankruptcy Code in 2005 to provide a new paragraph which was inserted below § 1325(a)(9) and above § 1325(b). Some refer to this unnumbered paragraph as § 1325(a)(*) while others call it the hanging paragraph. This Court will use the terminology "hanging paragraph." Whatever one chooses to call it, it provides that:
11 U.S.C. § 1325(a)(9) (hanging paragraph).
The Eleventh Circuit has interpreted the effect of the hanging paragraph as follows:
In re Graupner, 537 F.3d 1295, 1298 (11th Cir. 2008) (internal citations omitted).
In the case at bar, three of the four requirements to implicate the hanging paragraph are not in dispute. The Debtor does not dispute that Ford Credit has a purchase money security interest in the Ford Focus, that the debt was incurred within 910 days before the filing of the petition in bankruptcy, and that the Ford Focus in question is a motor vehicle within the meaning of the hanging paragraph. The only point in dispute is whether the motor vehicle in question was "acquired for the personal use of the debtor." The dispute here is a narrowly focused one.
Numerous Bankruptcy Court cases have been published on the meaning of the hanging paragraph since its introduction in 2005, which has led to multiple schools of thought as to the meaning of "personal use." Some Courts consider personal use to mean nonbusiness use. See In re Grimme, 371 B.R. 814, 816 (Bankr. S.D. Ohio 2007) ("`[P]ersonal use' means, simply nonbusiness use.");
Other cases turn on the question of whether use by a family member is personal use if that use somehow benefits the debtor. See In re Solis, 356 B.R. 398, 411 (Bankr. S.D. Tex. 2006) ("[S]ignificant and material" intended use of a vehicle by the debtor constitutes "personal use" despite nonfiling spouse's primary use of the vehicle.); In re Lorenz, 368 B.R. 476, 486-87 (Bankr. E.D. Va. 2007) (Vehicle acquired because it was large enough to transport debtor's entire family to school, church, doctor's appointments, etc. was acquired for the "personal use" of the debtor despite debtor's primary use of the vehicle as his work truck.); In re Bethoney, 384 B.R. 24,
This Court held in a prior case involving a debtor and nonfiling spouse that the hanging paragraph did not apply when the vehicle in question was acquired for the use of the nonfiling spouse because it was not acquired "for the personal use of the debtor." In re Davis, Case No. 06-10461, 2006 WL 3613319, *2 (Bankr. M.D. Ala. Dec. 8, 2006) (Williams, J.). This Court's decision in Davis cited In re Jackson, 338 B.R. 923 (Bankr. M.D. Ga. 2006). The Jackson Court, in the course of defining "personal use," turned to a dictionary definition of the term "personal" as meaning "of or relating to a particular person, private." Id. at 926.
In the intervening years, a substantial number of courts facing this issue have followed the logic of the Jackson Court and held as this Court did in Davis. See, e.g., In re Chaney, Case No. 06-50775, 2007 WL 7025107 (Bankr. S.D. Ga. Feb. 7, 2007) (vehicle purchased for the use of a nondebtor spouse was not within the scope of the hanging paragraph and could therefore be crammed down); In re Geddes, Case No. 308-00713, 2008 WL 4490113 (Bankr. M.D. Tenn. June 17, 2008) (vehicle purchased for the use of the debtor's adult daughter did not fall within the hanging paragraph); In re Strange, 424 B.R. 584, 593 (Bankr. M.D. Ga. 2010) (vehicle acquired for the primary use of debtor's nonfiling husband did not fall within the purview of the hanging paragraph).
In In re Pearson, a husband and wife jointly purchased a 2003 GMC Yukon XL for the husband's use. Case No. 07-00478, 2008 WL 687058 (Bankr. E.D.N.C. Mar. 7, 2008). The only reason the wife was a purchaser and co-obligor on the note to Citi Financial was because the husband's credit was too poor for him to qualify for financing by himself. Id. The husband made all of the payments under the contract until the marriage broke down and the two separated. Id. Not wanting to severely damage her credit, the wife took possession of the GMC back from her estranged-husband and started making monthly payments. Id. Less than 910 days after the purchase of the GMC, the wife filed a Chapter 13 bankruptcy petition and proposed to limit the amount of Citi Financial's secured claim to the value of the GMC; Citi Financial objected on the grounds that her plan violated the hanging paragraph. Id. The court overruled Citi's objection holding that the debtor "did not acquire the vehicle for her personal use, but rather, the vehicle was acquired for her husband's use," while also noting that the debtor's "use [of the GMC] as of the petition date is irrelevant to whether the hanging paragraph applies." Id. The relevant date is the date of acquisition.
The hanging paragraph applies only to vehicles acquired for the "personal use of the debtor." 11 U.S.C. § 1325(a)(9) (hanging paragraph) (italics added). The Debtor's girlfriend is not, and was not at the time the Ford Focus was purchased, a member of the Debtor's household. Her use and possession of the Ford Focus was exclusive while she and the Debtor maintained a romantic relationship; therefore, her exclusive use is not, and was not, beneficial to him except in the most indirect way, as any benefit to a loved one is indirectly beneficial to the Debtor. Therefore, it is clear that the Debtor did not acquire the Ford Focus so that he could enjoy "significant and material" use of the vehicle.
The plain language of the hanging paragraph specifically limits its application to motor vehicles acquired for the personal use of the debtor. Because the vehicle here was acquired for the use of the Debtor's girlfriend, who was not a member of the Debtor's household, and not the Debtor, the hanging paragraph does not apply, and he may modify or cramdown the secured claim of Ford Credit. Accordingly, Ford Credit's Objection to Confirmation is overruled. As this was the only remaining impediment to confirmation of Debtor's Plan, his Plan, as amended, will be confirmed. The Court will enter an Order by way of a separate document.
ALA. CODE § 16-64-1(1) (2013) (italics added).
