Cite as: Keith M. Lundin, Lundin On Chapter 13, § 74.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
BAPCPA changed many things about the management of secured claims in Chapter 13 cases. Consistent, perhaps, with the general direction of commercial law over the last two or three decades, BAPCPA grants new rights and new protections to lienholders in Chapter 13 cases that will reduce the returns to unsecured creditors. In the run up to BAPCPA,1 some secured lenders were more influential than others. Car lenders, in particular, were heard loud and clear. Personal property lenders, pawn brokers and the builders of manufactured homes were heard.
Section 1325(a)(5)—the Code section that most defines the rights of secured claim holders at confirmation2—was modified by BAPCPA in several conspicuous ways. There are new provisions for lien retention that protect secured claim holders from the release of liens until completion of payments under the plan or full payment of the underlying debt—without regard to when the allowed secured portion of a claim is paid in full.3 Every Chapter 13 plan after BAPCPA must provide that liens are retained in the event of conversion or dismissal before completion of payments under the plan.4 If a Chapter 13 plan pays an allowed secured claim in periodic payments, the installments now must be equal monthly amounts.5 After BAPCPA, claims secured by personal property are entitled to “adequate protection” during the life of the plan.6
There are new valuation rules in § 506(a) that mandate “replacement value” for personal property in Chapter 13 cases. Replacement value is further defined to mean retail for some property.7 BAPCPA created a new species of “secured” debt to which “section 506 shall not apply”: a purchase money debt incurred within 910 days of the petition secured by a motor vehicle acquired for the personal use of the debtor, or a purchase money debt incurred within one year of the petition that is secured by any other thing of value.8 This perplexing new kind of debt may be an exception to cramdown in Chapter 13 cases, but the birthing provision dangling at the end of § 1325(a) is so poorly framed that only years of litigation will determine its content for certain.
The pre-BAPCPA provisions for acceptance of a plan by a lienholder and for surrender of collateral were not modified by BAPCPA.9 Because of the valuation rule changes and the new 910-day PMSI motor vehicle debt, it is likely that debtors will make greater use of acceptance and surrender as tools for dealing with lienholders in Chapter 13 cases.10
The economic reality of an individual debtor’s financial circumstances has been divorced by BAPCPA from the requirements for confirmation of plans. The new statutory valuation standards for personal property so exceed the real value of personal property that many more Chapter 13 debtors will embrace surrender of collateral as a more reasonable choice than paying an unreasonable price to confirm a plan. Motor vehicles acquired for the personal use of a debtor within 910 days of the petition will rarely be worth the full amount of the outstanding debt to a car lender. The gap between economic reality and what BAPCPA awards some car lenders will inspire competent debtors’ counsel to advise their clients to surrender cars or offer a less than greedy valuation with periodic payments and interest through the plan. Pure dollars and sense will drive many creditors to accept something less than the overindulgence of BAPCPA rather than repossess another used car.
1 See § 361.1 [ A Short History, Including “Legislative History,” of BAPCPA ] § 2.2 Brief History, Including “Legislative History,” of BAPCPA.
3 11 U.S.C. § 1325(a)(5)(B), discussed in § 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13 Lien Retention after BAPCPA, Including in No-Discharge Cases.
4 11 U.S.C. § 1325(a)(5)(B)(i)(II), discussed in § 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13 Lien Retention after BAPCPA, Including in No-Discharge Cases.
5 11 U.S.C. § 1325(a)(5)(B)(iii)(I), discussed in § 448.1 [ Equal Monthly Installments ] § 74.14 Equal Monthly Installments after BAPCPA.
6 11 U.S.C. § 1325(a)(5)(B)(iii)(II), discussed in § 449.1 [ “Adequate Protection” after Confirmation ] § 74.15 “Adequate Protection” after Confirmation after BAPCPA.
7 11 U.S.C. § 506(a)(2), discussed in § 450.1 [ New Valuation Standards ] § 76.7 Valuation after BAPCPA.
8 Hanging sentence at end of 11 U.S.C. § 1325(a), discussed beginning at § 75.1 In General: Modification Without § 506.
9 See 11 U.S.C. § 1325(a)(5)(A) and (C), discussed in §§ 101.2 [ Acceptance of Plan ] § 74.3 Acceptance of Plan before BAPCPA and 102.1 [ Surrender or Sale of Collateral ] § 74.5 Surrender or Sale of Collateral before BAPCPA. See also §§ 445.1 [ Acceptance of Plan ] § 74.4 Acceptance of Plan after BAPCPA, 446.1 [ Surrender of Collateral ] § 74.6 Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA and 451.5 [ Surrender in Full Satisfaction? ] § 75.5 Surrender in Full Satisfaction?.
10 See § 445.1 [ Acceptance of Plan ] § 74.4 Acceptance of Plan after BAPCPA for further discussion of acceptance; see §§ 446.1 [ Surrender of Collateral ] § 74.6 Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA and 451.5 [ Surrender in Full Satisfaction? ] § 75.5 Surrender in Full Satisfaction? for further discussion of surrender.