Cite as: Keith M. Lundin, Lundin On Chapter 13, § 76.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
The first step in determining a secured claim holder’s entitlement in a Chapter 13 case is identifying the collateral that must be valued for purposes of § 1325(a)(5)(B)(ii). We know from § 506(a) that an allowed claim is a secured claim to the extent the creditor has a lien on property of the estate or a right to setoff under § 553.1 If the collateral that secures a debt is not property of the estate, the lienholder cannot have a secured claim in the Chapter 13 case.
Creditors often think they have secured claims when, in fact, the collateral that secures the debt is owned by someone or by an entity other than the debtor. For example, if the debtor borrowed money and a relative or corporation put up collateral to secure the debt, the creditor has a lien but does not have a secured claim in the Chapter 13 case.2 An especially fertile area for this issue is property interests that are excluded from the bankruptcy estate by specific provisions of the Bankruptcy Code.
For example, § 541(c)(1) as interpreted by the Supreme Court in Patterson v. Shumate3 excludes from the bankruptcy estate the debtor’s interest in many retirement plans and “spendthrift” trusts. Although ordinary creditors typically cannot perfect liens on a debtor’s interest in a spendthrift trust or a retirement plan, state and federal taxing authorities often can. What then becomes of a tax lien on a debtor’s retirement plan in a Chapter13 case? Is it a secured claim that requires valuation of the debtor’s interest to determine the lienholder’s entitlement at confirmation?
The issue has been litigated in several Chapter 13 cases in the context of tax liens on ERISA-qualified pension benefits. The outcome is mixed. A majority of the reported decisions read § 506(a) literally to require that a claim is not secured unless the collateral is property of the estate. Because an ERISA-qualified pension plans is not property of the Chapter 13 estate, a lien on the debtor’s benefits need not be valued for § 1325(a)(5)(B)(ii) purposes. As explained by the U.S. Court of Appeals for the Ninth Circuit in IRS v. Snyder:4
Section 506(a) provides that in order for a claim to be secured in bankruptcy, it must be secured by a lien on “property in which the estate has an interest.” . . . [T]he anti-alienation clause in Snyder’s ERISA plan is enforceable under nonbankruptcy law against everyone except the IRS. This is enough to prevent the transfer of Snyder’s interest in the plan to the bankruptcy estate. . . . Because Snyder’s interest in the plan is not property of the bankruptcy estate, it cannot be used to secure the IRS’s claim under § 506(a).5
If the creditor’s lien is void or avoidable under bankruptcy law, for example, because the lien was perfected in violation of the automatic stay or the transfer was a preference, the claim is not secured for confirmation purposes.6
The validity, extent, priority and perfection of security interests and liens under state law become important. The reach of a creditor’s lien rights under state law often determines the collateral that must be valued for confirmation purposes in a Chapter 13 case.7
Even if the creditor has a lien and the collateral would be property of the estate, the existence, location or possession of the property may determine whether it must be valued for confirmation purposes. A creditor is not secured if it financed the purchase of personal property, but the debtor no longer has possession or control as a result of resale, gift, theft or consumption.8 A creditor has a perfected security interest and is a secured claim holder to the extent of the value of the debtor’s personal property in the creditor’s possession.9 A bank that has a claim against the debtor and also a right of setoff against the debtor’s bank account is a secured claim holder to the extent of the funds in the debtor’s bank account.10 On unusual facts, one court held that a creditor with a lien on a car was not secured for confirmation purposes because the car had disappeared through no fault of the debtor.11 But moving around is not likely to help the debtor deal with secured claims at confirmation—particularly when the creditor asserting a lien is the IRS.12
Debtor’s counsel must look carefully at the security agreements and mortgages to determine exactly what a secured claim holder has as collateral for valuation purposes. For example, one court found that the unearned portion of a credit life insurance premium and the unearned portion of an extended warranty charge should not be valued as part of the creditor’s collateral for confirmation purposes under § 1325(a)(5)(B).13 Several courts have rejected the argument that the value of real property for purposes of § 506(a) and § 1325(a)(5)(B) includes mortgage insurance payable to the mortgage holder in the event of default by the debtor.14 These courts correctly reason that the estate’s interest in real property to which the creditor’s interest must attach for purposes of § 506(a) does not include recourse against a third party insurance carrier. The U.S. Court of Appeals for the Ninth Circuit determined that the value of an extended mechanical service contract is not included in the allowed amount of a car lender’s secured claim, but the secured claim might include the premiums paid for the service contract if the lender can show entitlement to a refund of premiums under its contract with the debtor.15 One reported decision carefully analyzes federal statutes and regulations to determine whether the recapture of home mortgage subsidies exhausted the value of a residence or whether value remained to secure a second mortgage on the property.16
The U.S. Court of Appeals for the Seventh Circuit held that a credit card debt was not a secured claim for confirmation purposes because, under Illinois law, the credit card could not be secured by pension benefits notwithstanding a financing agreement that purported to grant such a security interest.17 “Dragnet clauses” and other cross-collateralization provisions in credit card contracts that purport to secure card charges with the collateral for other loans sometimes are effective but more often do not survive scrutiny as a basis for treating the card balance as a secured claim.18
One court determined that the entire value of property owned as tenancy by the entireties was included in the debtor’s estate and valued at confirmation even when only one spouse filed.19 This holding will not always be accurate of the allowed amount of a claim secured by entireties property. A creditor with a claim against only one spouse and a lien on property that is owned by the debtor as a tenant by the entireties may be limited by the state law rights of the nonfiling spouse. It is true in many jurisdictions that property owned by the entireties is only subject to claims owed jointly by both spouses.20 In some jurisdictions, a lien against the interest of one tenant by the entireties is only a lien on that tenant’s right of survivorship. The right of survivorship would become property of the estate that must be valued for § 506(a) purposes, but its value will be substantially less than the value of the entire fee. One court valued the interest of a joint tenant in homestead property at one-half of the equity in the property at confirmation in a Chapter 13 case.21 The U.S. Court of Appeals for the Ninth Circuit approved the use of “joint-life actuarial tables” to determine the confirmation value of a Chapter 13 debtor’s interest in property owned as a tenant by the entireties.22 After the Supreme Court’s decision in United States v. Craft,23 bankruptcy courts have struggled to value the IRS’s lien on a Chapter 13 debtor’s interest as a tenant by the entirety or a tenant in common, typically coming out somewhat less than 50 percent of the value of the equity in the property.24
When real property is owned by the debtor and the debtor’s nonfiling spouse in a community property state, § 541(a)(2) may include the entire value in the Chapter 13 estate for § 506(a) purposes.25 When the debtor and a nondebtor to whom the debtor was not married were co-tenants of real property, the mortgage holder’s secured claim for confirmation purposes was held to be one-half of the value of the property (less priority tax liens).26
Exemptions may affect the extent of collateral that must be valued for § 1325(a)(5) purposes. If, under applicable state or federal exemptions, a debtor could limit the collateral that would be available to a creditor upon execution, then the exemption is properly deducted from the value of the collateral in determining the creditor’s “interest” under § 506(a). In one reported decision, a Chapter 13 debtor was precluded from reducing the allowed amount of a secured claim to reflect a homestead exemption because, under state law, the exemption was not available to the debtor.27 One court found that the debtor’s assignment of a vested interest in a “thrift and savings plan” was not valued as part of the security for a creditor’s claim under § 1325(a)(5) because a spendthrift provision in the savings plan prohibited any creditor from relying on the assignment as collateral for a loan.28
There are conflicting decisions about the extent to which exemptions affect the allowed amount of the secured claim of the IRS when the IRS perfected a lien on the debtor’s property before the filing of the Chapter 13 case.29 When the IRS has a lien on personal property such as household goods or wearing apparel, federal law limits the Service’s right to administrative levy by granting the taxpayer certain (minimal) exemptions. One bankruptcy court held that household goods and wearing apparel must still be valued to determine the allowable amount of the IRS’s secured claim because the IRS could choose to enforce its lien by procedures other than administrative levy.30
An action under Truth-in-Lending,31 RESPA32 or HOEPA33 to rescind or void a lien or mortgage may reduce or eliminate a secured claim.34 If the creditor has a non-purchase money, nonpossessory security interest in consumer goods of the sort described in 11 U.S.C. § 522(f), the debtor can void the creditor’s security interest, claim an exemption in the collateral and escape paying an allowed secured claim for purposes of § 1325(a)(5).35 The Chapter 13 trustee has standing, and may have a duty to avoid a vulnerable security interest when the effect is to unsecure a debt and increase the disposable income available for unsecured claim holders at confirmation.36
The extent of collateral that will be valued for confirmation purposes also depends on what the debtor is willing to surrender.37 Section 1325(a)(5)(C) allows a Chapter 13 plan to satisfy an allowed secured claim if the debtor “surrenders the property securing such claim.”38 If the creditor has a lien on two cars and the debtor needs only one car, surrendering one car will reduce the secured claim by the value of the surrendered car, and only the value of the car the debtor keeps must be retired through the plan to satisfy § 1325(a)(5)(B). The partial surrender of collateral to control the extent of property that must be valued for confirmation purposes has been questioned.39
Equitable interests—both of the debtor and of creditors—become entangled in determining whether a creditor is secured and, if so, to what extent collateral must be valued in a Chapter 13 case. Equitable interests of the debtor in property at the petition become property of the Chapter 13 estate.40 Likewise, the debtor’s rights of ownership and possession of property that ordinarily come into the bankruptcy estate can arrive impressed with the equitable interests of others. Value of property of the estate to determine the allowable amount of a secured claim may go up or down depending on the push or pull of an equitable interest.
For example, in Carlson Orchards, Inc. v. Linsey (In re Linsey),41 based on the debtor’s prepetition embezzlement, the bankruptcy court concluded that two cars were subject to a constructive trust and the debtor’s homestead was impressed with an equitable lien in favor of the victim. Both holdings affected confirmation of a plan. In Thiel v. Thiel (In re Thiel),42 a prepetition judgment determined that the debtor committed conversion and actual fraud by transferring money that belonged to the debtor’s father and using the proceeds to pay personal debts. Based on that judgment, the bankruptcy court imposed an equitable lien on the debtor’s homestead, creating a secured claim in favor of the father. The existence and extent of equitable liens and constructive trusts in bankruptcy cases can quickly become very complicated issues.43
1 11 U.S.C. § 506(a).
2 See Premier Capital Funding, Inc. v. Earle (In re Earle), Case No. 01-15875, Adv. No. 02-1053 (Bankr. S.D. Ala. May 13, 2002) (Text available at www.alsb.uscourts.gov) (Plan does not fail § 1325(a)(5) that treats a judgment creditor as unsecured because real property held in a family trust is not drawn into the bankruptcy estate, thus there is no property of the Chapter 13 estate to which the judgment lien can attach.); In re Rodio, 257 B.R. 699, 701 (Bankr. D. Conn. 2001) (Tractor owned by a limited liability company, in which the debtor is a member/shareholder, is not valued for purposes of § 506(a), and lienholder is not a secured creditor. The debtor had possession of the tractor, but “such possession is only on behalf of” the limited liability company. “Having determined that the debtor’s estate has no interest in the tractor, except for the debtor’s stipulated present possession of the tractor, the court concludes that, for the purposes of § 506(a), the creditor’s claim arising under the debtor’s guaranty of [the limited liability company’s] note is not ‘secured by a lien on property in which the estate has an interest.’ . . . Accordingly, the court concludes that such claim is wholly unsecured, and § 506(a) is inapplicable.”); In re Whitelock, 122 B.R. 582 (Bankr. D. Utah 1990) (Loan secured by debtor’s mother’s real property is an unsecured claim.). But see In re Kaskel, 269 B.R. 709 (Bankr. D. Idaho 2001) (Motorcycles are items to be valued that are subject to the IRS’s prepetition lien notwithstanding debtors’ assertion that the motorcycles belong to their children, aged six and nine years.). See also § 18.1 [ Joint Obligations of Spouses and Codebtors; Collateral That Is Not Property of the Estate ] § 17.3 Joint Obligations of Spouses and Codebtors; Collateral That Is Not Property of the Estate for cases holding that claims secured by property that is not property of the estate may be secured debts for eligibility purposes.
3 504 U.S. 753, 112 S. Ct. 2242, 119 L. Ed. 2d 519 (1992).
4 343 F.3d 1171 (9th Cir. 2003).
5 343 F.3d at 1178–79. Accord IRS v. Wingfield (In re Wingfield), 284 B.R. 787, 790 (E.D. Va. 2002) (Applying § 541(c)(2) and Patterson v. Shumate, 504 U.S. 753, 112 S. Ct. 2242, 119 L. Ed. 2d 519 (1992), although debtor’s 401(k) plan is subject to IRS lien, “[t]he debtor’s interest in his 401(k) plan is not property of the estate for the purposes of establishing the IRS’s secured claim.”); In re Robinson, 301 B.R. 461, 464 (Bankr. E.D. Va. 2003) (“[A] debtors’ interest in an ERISA qualified pension plan is not property of the bankruptcy estate for the purpose of establishing a secured claim by the IRS. This determination is buttressed by the decision in the Ninth Circuit Court of Appeals in [IRS v. Snyder, 343 F.3d 1171 (9th Cir. 2003)].”); In re Keyes, 255 B.R. 819, 822 (Bankr. E.D. Va. 2000) (IRS lien on ERISA qualified-stock plan is not a secured claim for confirmation purposes in a Chapter 13 case. “[T]he court is dealing with property that both parties agree is excluded from the bankruptcy estate under [Patterson v. Shumate, 504 U.S. 753 (1992)]. While it is clear that an asset of the debtor is subject to the IRS lien as provided for by statute, there is simply no statutory authority for granting it a ‘split personality’ to include it in the bankruptcy estate simply for purposes of securing the IRS’s lien. The property pursued by the IRS is not property of the debtor’s estate and never came under the control of this Court, as mandated by 506(a) and Patterson, and the Court cannot exercise control over such property for the purpose of determining distributions to secured creditors. . . . [T]he IRS’s claim cannot be treated as secured because it does not have a ‘lien on property in which the estate has an interest,’ as required by 506(a).”). Contra In re McIver, 262 B.R. 362, 365 (Bankr. D. Md. 2001) (After remand, see 255 B.R. 281 (D. Md. 2000), IRS has an allowed secured claim to the extent of the present value of the debtor’s TIAA/CREF annuities. “If this court were writing this decision on a clean slate, it would adhere to the position that 11 U.S.C. § 506(a) means what it says, and that a secured claim arises from a lien upon property upon which the estate has an interest. Therefore, the IRS would not have a secured claim against the TIAA/CREF annuities in this bankruptcy case . . . . [T]he court will nonetheless adhere to the law of the case and find that the IRS has an allowed secured claim against the TIAA/CREF annuities to the extent of their value. The value is to be fixed at the present value of the future stream of payments to be received by the Debtor with respect to the annuities.”). See also In re Berry, 268 B.R. 819 (Bankr. E.D. Tenn. 2001) (IRS is fully secured because prepetition lien on retirement account is not excluded from the estate by § 541(c)(2).).
6 See Eubanks v. Personal Fin. Co. (In re Eubanks), 2001 WL 1159140 (Bankr. S.D. Ill. Sept. 20, 2001) (opinion withdrawn) (Car lender is an unsecured creditor because an incomplete application for title was not sufficient to perfect the lender’s lien and that unperfected lien is avoidable by the debtor.); In re Prine, 222 B.R. 610 (Bankr. N.D. Iowa 1997) (Bank does not have a lien on debtor’s mobile home that would be valued as part of its allowed secured claim because bank perfected its lien in violation of the automatic stay in prior Chapter 13 case and that attempt at perfection is void. Dismissal of prior case and refiling of second Chapter 13 case does not change this result.); In re Warren, 217 B.R. 538 (Bankr. S.D. Tex. 1997) (On debtor’s objection to secured proof of claim, creditor was not secured because judgment was filed in real property records seven days after filing of Chapter 13 petition and act of recording was barred by the automatic stay.).
7 See, e.g., Empresas Berrios v. Esteves Ortiz (In re Esteves Ortiz), 295 B.R. 158 (B.A.P. 1st Cir. 2003) (Plan need not treat creditor as secured because installment sales contract did not create a security interest under Puerto Rico law.); Calender v. American Gen. Fin. (In re Calender), 262 B.R. 777, 780 (B.A.P. 8th Cir. 2001) (Methodology to determine an allowed secured claim is to value the collateral and then subtract the encumbrances that have priority under state law. Homestead was worth $95,400. The first mortgage had a balance of $92,329.45. American General filed a $13,938.11 claim asserting second position. There was also a disputed mechanics lien. Bankruptcy court erred when it allowed American General’s claim as fully secured.); In re Williams, 297 B.R. 462 (Bankr. W.D.N.C. 2002) (Future advances clause was effective under state law to secure both first and second loans; pickup was collateral for both loans.); In re Streeter, No. 5:02-BK-15923 E, 2002 WL 32114477 (Bankr. E.D. Ark. Oct. 28, 2002) (unpublished) (Future advances clause in mobile home mortgage did not extend security interest to later loans because security agreement required disclosure of any dwelling used as collateral and mobile home was not described though it was used as a dwelling.); Ocwen Fin. Servs. v. Gilmore (In re Gilmore), 284 B.R. 801, 806 (Bankr. E.D. Va. 2002) (Based on mutual mistake, deed of trust is reformed to add codebtor’s signature with the result that Ocwen is secured by debtors’ residence and “[a]ny interest of the trustee will subordinate to Ocwen’s reformed first deed of trust.”); In re Murin, 283 B.R. 588 (Bankr. D. Ariz. 2002) (Plan cannot be confirmed because it treats a lienholder as an unsecured creditor. Whatever defect there was in the security interest the debtor granted without his co-tenant’s signature was cured by the subsequent vesting of title in the debtor during divorce proceeding. Creditor had an unavoidable lien against the debtor’s house and had to be treated as secured in the Chapter 13 case.); Chaffin v. Gladney (In re Chaffin), 276 B.R. 203 (Bankr. S.D. Ohio 2001) (Mechanic’s lien on real property was invalid because creditor failed to include the first date of performance of work or furnishing of materials; claim is allowed as a general unsecured claim.); In re Smink, 276 B.R. 156 (Bankr. N.D. Miss. 2001) (Applying conflicting Mississippi case law, because dragnet clause in deed of trust unambiguously also secures subsequent loan for truck, deficiency on truck loan is fully secured by the debtors’ homestead.); In re Brooks, 274 B.R. 495 (Bankr. E.D. Tenn. 2002) (Visa card debt is not secured by home mortgage because “other debts clause” does not apply to the separate debt of one spouse and other debts clause in mortgage was not incorporated into credit card agreement.); In re Wollin, 249 B.R. 555 (Bankr. D. Or. 2000) (Applying Oregon law, dragnet clauses in car loans do not secure antecedent personal loans and do not secure advances under credit cards issued after the car loan.); In re Grant, 242 B.R. 800 (Bankr. D.N.H. 1999) (Under New Hampshire law, warranty service contract was an insurance contract and a security interest can be perfected in an insurance contract without a separate filing of the financing agreement; however, car lender’s interest is limited to premium refunds arising only upon termination or cancellation of the insurance contracts.); In re Bosak, 242 B.R. 400, 405 (Bankr. N.D. Ohio 1999) (Creditor is secured by a valid agricultural product lien perfected under Ohio law and prior bankruptcy case tolled two year effective period for the lien. Debtors failed to prove that “no lien proceeds or value exist upon which the lien could attach.”); GAF Linden Employees Fed. Credit Union v. Robertson (In re Robertson), 232 B.R. 846 (Bankr. D. Md. 1999) (Car lender has unsecured claim because it failed to perfect under state law and UCC § 9-301 automatically subordinates lender to the Chapter 13 estate.); Kildow v. EMC Mortgage Corp. (In re Kildow), 232 B.R. 686 (Bankr. S.D. Ohio 1999) (Mortgage holder entitled to reformation of deeds to correct mutual mistake; accordingly, mortgage holders are secured and debtor cannot treat mortgagees as unsecured creditors.); In re Chappell, 224 B.R. 507 (Bankr. M.D. Ga. 1998) (Applying Georgia law, security interest in 1966 truck was perfected by filing Uniform Commercial Code financing statement because car is more than 15 years old; perfection continued in 1967 truck for which debtor traded the 1966 truck and lender must be treated as a secured claim holder to extent of value of 1967 truck.); In re Harnish, 224 B.R. 91 (Bankr. N.D. Iowa 1998) (Applying Iowa Uniform Commercial Code, Sears does not have a security interest in garage door openers that the debtor installed in customers’ homes in the ordinary course of business, thus Sears’s secured claim does not include the value of those garage door openers.); James v. Blackhawk Credit Union (In re James), 221 B.R. 760 (Bankr. W.D. Wis. 1998) (“Dragnet” clause in credit card contract is enforceable under Wisconsin law; credit card claim is secured by car financed by same credit union that issued credit card and must be treated as a secured claim for purposes of confirmation. Credit card and automobile loans pass the “class and relatedness” requirements for enforcement of dragnet clause.); Northrup v. Ben Thompson Enters. (In re Northrup), 220 B.R. 855 (Bankr. E.D. Pa. 1998) (Repairperson’s possessory “common law lien” under Pennsylvania law does not extend to storage charges not included in any contract for repair of car. Secured claim of repairperson is limited to value of the repairs done, $2,809.18, and does not include storage charges of $5,100 (measured at $30 per day).); In re Immerfall, 216 B.R. 269 (Bankr. D. Minn. 1998) (Revolving charge card agreement with Sears does not identify the debt that would be secured by Sears’s asserted lien, fails to identify the duration of that security interest and otherwise does not constitute a security agreement for purposes of Minnesota law. Sears does not have an allowable secured claim for purposes of valuation, confirmation and distributions under the plan.); In re Lott, 196 B.R. 768 (Bankr. W.D. Mich. 1996) (A mechanic who repaired the debtor’s tractor has lien under Michigan law that is superior to first recorded lienholder. Debtor must provide for the artisan’s lien and cannot avoid it under § 545. Tractor was twice repaired by the same mechanic. The mechanic surrendered possession of the tractor after the first repair but refused to surrender possession after the second. Charges for second repair are an artisan’s lien with priority over bank that financed the original purchase of the tractor.).
8 In re Walker, No. 4:03-BK-17741E, 2003 WL 22794522 (Bankr. E.D. Ark. Oct. 31, 2003) (unpublished) (Credit union’s claim is unsecured because none of its collateral was in the possession or control of the debtor at the petition; that one van was repossessed by another creditor and two other vans were abandoned as unusable might suggest negligence, but credit union remains unsecured.); In re O’Connor, 280 B.R. 907, 908 (Bankr. S.D. Ala. 2002) (Purchase money lender does not have a secured claim when debtor gave the collateral—an engagement ring—to fiancée before the petition. “The creditor would only have a secured claim to the extent of the estate’s interest in the property. The ring was not in the debtor’s possession at the time of filing and remains in the possession of a third party, debtor’s wife. The estate’s interest in the ring is zero.”); In re Kaplan, 94 B.R. 620 (Bankr. W.D. Mo. 1989) (When debtor contemporaneously resold property to a third party for cash, creditor is not secured by property of the estate for the purchase price of the property.).
9 In re Fish, 128 B.R. 468 (Bankr. N.D. Okla. 1991) (Creditor had perfected security interest in debtor’s jewelry because creditor had possession of the collateral.).
10 See In re Ross, 161 B.R. 36 (Bankr. C.D. Ill. 1993) ($420 in bank accounts of the debtor subject to a creditor’s statutory lien must be valued as security for confirmation purposes under § 1325(a)(5).). See also In re Brigance, 219 B.R. 486, 493 (Bankr. W.D. Tenn. 1998), aff’d, 234 B.R. 401, 405 (W.D. Tenn. 1999) (Although a personal check can be collateral subject to a security interest, a “deferred presentment service provider” never became a secured creditor for confirmation purposes merely by holding post-dated checks written by the debtor. “Since the check itself represents only an unsecured order to pay, if EZ Cash chose to enforce the check, it had only an unsecured claim. On the other hand, if EZ Check chose instead to enforce the underlying obligation, it lost the option to sue on the check and therefore lost its security interest in the check. Thus, either choice results in EZ Cash being unsecured.”).
11 Magna Bank v. Gilsinn (In re Gilsinn), 224 B.R. 710, 713 (Bankr. E.D. Mo. 1997) (Although creditor is secured by a car titled in the debtor’s name, claim is not secured for confirmation purposes because car has disappeared. In 1994, debtor bought a Chevrolet Cavalier for a corporation in which the debtor was president. Debtor signed security agreement and installment contract both in his individual name and as president of the corporation. Debtor’s name appears on the car’s title. Because of physical handicap, debtor could not drive the car. In late 1995, debtor left corporation and left car behind. Corporation dissolved, and car disappeared. Debtor attempted to locate the car but was not able to do so at the time of the Chapter 13 filing. “Magna continues to have a security interest in the missing automobile. However, . . . a party holding a security interest in property which the debtor cannot produce is not a secured creditor in the debtor’s bankruptcy. . . . Gilsinn does not have the 1994 Cavalier. The Court is also convinced that Debtor utilized his best efforts to locate the car . . . . Because the car cannot be produced, Magna may not be treated as a secured creditor in Gilsinn’s bankruptcy.”). Accord In re Walker, No. 4:03-BK-17741E, 2003 WL 22794522 (Bankr. E.D. Ark. Oct. 31, 2003) (unpublished) (Credit union that loaned money to buy vans for use in the debtor’s business was not secured at the petition because one of the vans had been repossessed by another creditor and two other vans had been worn out by the debtor and abandoned as unusable.).
12 See, e.g., In re Eschenbach, 267 B.R. 921 (Bankr. N.D. Tex. 2001) (IRS lien recorded in Florida creates a secured claim to the extent of all personal property, whether acquired before or after the debtors moved from Florida to Texas.).
13 In re Rogers, 6 B.R. 472 (Bankr. S.D. Iowa 1980).
14 See Lomas Mortgage USA v. Wiese (In re Wiese), 980 F.2d 1279, 1283 (9th Cir. 1992) (Value of real property for purposes of confirmation in a Chapter 13 case does not include mortgage insurance that might be payable to the mortgage holder upon default by the borrower. “‘[A]greements between the creditor and third parties should not affect the valuation. . . . The availability . . . of recourse against third parties with respect to the claim should not affect the value attributed to the property. . . . The court is not required to afford protection with respect to the creditor’s contractual rights against third parties.’”); Hammond v. Commonwealth Mortgage Co. of Am. (In re Hammond), 156 B.R. 943 (E.D. Pa. 1993) (Allowed secured claim equals value of real property notwithstanding mortgage insurance coverage under the National Housing Act. The “value” that should be used to determine secured status is the fair market value of the collateral, not the amount that the creditor could receive pursuant to a government mortgage insurance program if it were allowed to foreclose on the property.); Union Planters Nat’l Bank v. Sainz-Dean (In re Sainz-Dean), 143 B.R. 784 (D. Colo. 1992) (The value of real property that must be protected at cramdown in a Chapter 13 case does not include FHA insurance. The value of the creditor’s interest is limited to the value of the collateral, and the value of the collateral does not include any benefits the mortgage holder may be entitled to by virtue of FHA insurance.); Lomas Mortgage USA v. Roberts (In re Roberts), 137 B.R. 343 (D. Alaska 1992); Lomas Mortgage USA v. Fischer (In re Fischer), 136 B.R. 819, 828 (D. Alaska 1992) (The value of real property that must be paid under § 1325(a)(5) does not include mortgage insurance that the creditor has with HUD. “[A]greements between the creditor and third parties should not affect the valuation of the subject property. . . . [T]he proper value is wholesale or market value, the value the creditor could expect to recover from the debtor, not amounts the creditor could receive from third parties. . . . The value of the property in question should not include the mortgage insurance.”).
15 GMAC v. Mitchell (In re Mitchell), 954 F.2d 557 (9th Cir.), cert. denied, 506 U.S. 908, 113 S. Ct. 303, 121 L. Ed. 2d 226 (1992). Accord In re Grant, 242 B.R. 800, 802–05 (Bankr. D.N.H. 1999) (Cancellation value of extended warranty service contract and unearned premiums for credit life, accident and health insurance are not valued as part of car lender’s secured claim because contract language triggers lien rights only upon cancellation or termination, a condition precedent that had not occurred at the petition. Under the proposed plan, the debtor would retain an extended warranty service contract and credit insurance policies. The retail installment contract provided, “You also grant to Creditor a security interest in and agree to assignment of any money received by Creditor as proceeds, rebate or refund of, credit insurance premiums or service contract charges financed in this contract due to cancellation or termination.” Under New Hampshire law, the warranty service contract was an insurance contract, and a security interest can be perfected in an insurance contract without a separate filing of the financing agreement. However, “Chrysler’s security interest is limited to proceeds or refunds arising after occurrence of a condition precedent: the termination or cancellation of the Insurance Contracts. Chrysler’s security interest cannot attach until the condition precedent occurs. Under the terms of the retail installment contract in this case, Chrysler has no right to cause the condition precedent to occur through termination or cancellation of the Insurance Contracts. . . . [D]espite the holdings in [In re Smith, 167 B.R. 895 (Bankr. E.D. Mo. 1994), In re Watts, 132 B.R. 31 (Bankr. W.D. Mo. 1991), and In re Cooper, 104 B.R. 774 (Bankr. S.D. W. Va. 1989)], the court finds that Chrysler does not have a security interest in the Debtor’s Insurance Contracts, nor in their cancellation values, unless and until the premiums are rebated or refunded to Chrysler due to cancellation or termination of the Insurance Contracts. Accordingly, . . . Chrysler is not entitled to have the value of the unearned premiums or the Insurance Contracts treated as a secured claim under 11 U.S.C. § 1325(a)(5). . . . However, Chrysler is entitled to retain its lien on the proceeds of the Insurance Contracts and any refund or rebate of any unearned premiums in the event of any future cancellation or termination of one or more such Insurance Contracts.”); In re Sharon, 200 B.R. 181 (Bankr. S.D. Ohio 1996) (The value of extended service contract is not included in car lender’s allowed secured claim.); In re Dews, 191 B.R. 86, 91–92 (Bankr. E.D. Va. 1995) (Extended service contract is not additional collateral. “[T]he retail installment contract purports to grant a security interest in proceeds, rebates, or refunds from service contract charges financed if such contract is canceled or terminated. . . . We do not see from the language of the installment sales contract that Chrysler has any claim to a security interest in the extended service warranty contract itself. We therefore decline to find that the value of the contract is an enhancement of the overall value of the vehicle. If the parties wish to cancel the extended service warranty contract, then Chrysler is entitled to any proceeds, refund, or rebates therefrom as a credit to the secured portion of the debt owed by the debtors to Chrysler.”); In re Loos, 189 B.R. 495, 498–99 (Bankr. D. Ariz. 1995) (Bank has a security interest in premiums for service contract sold with the car. Financing agreement stated, “‘You also give us a security interest in the proceeds of any physical damage insurance policy on the vehicle and any insurance premiums we finance which are refunded.’. . . The bank has a security interest in return premiums but not the service contract itself. The bank must show entitlement to a premium refund after repossession before that sum is included in collateral valuation. The bank claims entitlement to such a refund. . . . Based on [an affidavit from a bank officer], the bank has shown it can claim a refund from the insurer if it repossesses a vehicle and that it could do so here. Creditor has met the requirement of [GMAC v. Mitchell (In re Mitchell), 954 F.2d 557 (9th Cir.), cert. denied, 506 U.S. 908, 113 S. Ct. 303, 121 L. Ed. 2d 226 (1992)], establishing entitlement to a premium refund following repossession. Therefore, the unrefunded premiums are included in the valuation of the vehicle.”).
16 Therriault v. Schaefer (In re Therriault), Nos. 00-11001, 00-1063, 2002 WL 31767813 (Bankr. D. Vt. Jan. 31, 2002) (unpublished) (Applying 42 U.S.C. § 1490a(a)(1)(D)(i), FMHA’s secured claim exhausts the value of the residence because FMHA is entitled to recapture all of the subsidies the debtor received since 1984; a second mortgage is wholly unsecured and can be stripped off.).
17 Clark v. Chicago Mun. Employees Credit Union (In re Clark), 119 F.3d 540 (7th Cir. 1997) (On Chapter 13 debtor’s objection to claim of credit union, cash advance on a signature loan and financing agreement to buy a Buick LeSabre were secured by any refunds the debtor might receive from her pension fund upon termination of employment; however, VISA credit card line of credit was a “line of credit” not a “loan” for purposes of the Illinois Credit Union Act, and the credit union cannot have a security interest in any pension refund with respect to the credit card debt.).
18 See, e.g., In re Williams, 297 B.R. 462 (Bankr. W.D.N.C. 2002) (Future advances clause is enforceable, and pickup secures both first and second borrowing.); In re Streeter, No. 5:02-BK-15923 E, 2002 WL 32114477 (Bankr. E.D. Ark. Oct. 28, 2002) (unpublished) (Collateral description in mobile home mortgage was not specific enough to support future advances clause; mobile home mortgage did not extend security interest to subsequent loan because contract required disclosure of any dwelling used as collateral and mobile home was not described.); In re Brooks, 274 B.R. 495 (Bankr. E.D. Tenn. 2002) (Credit card debt was not secured by home mortgage because “other debts clause” in mortgage was not incorporated into the credit card agreement and other debts clause did not apply to the separate debts of one spouse.); In re Kim, 256 B.R. 793 (Bankr. S.D. Cal. 2000) (On credit union’s motion for relief from the stay or for adequate protection, applying “relationship of loans” and “reliance on the security” tests cross-collateralization clause in car loan does not transform advances on VISA card into claims secured by the car.); In re Gibson, 249 B.R. 645 (Bankr. E.D. Pa. 2000) (Applying “relatedness rule,” dragnet clauses in four mortgage transactions were not cross-collateralized, and thus the collateral for the first loan did not also secure the second, third and fourth lendings.); In re Wollin, 249 B.R. 555, 557–60 (Bankr. D. Or. 2000) (Dragnet clauses in car loans do not secure antecedent personal loans and do not secure advances under credit cards issued after the car loan. Dragnet clause in car loan provided: “The security interest . . . also secures any other advances you have now or receive in the future under the LOANLINER Credit Agreement and any other amount you owe the credit union for any reason now or in the future.” Applying Oregon law, “the future advance to be covered must ‘“be of the same class as the primary obligation . . . and so related to it that the consent of the debtor to its inclusion may be inferred.”’ . . . [T]he Court cannot find the VISA charges (while presumably purchase money), sufficiently related to the Pickup loan. A loan to purchase a vehicle differs both in scope and solemnity from the miscellaneous charges typical of a VISA account. . . . [T]he antecedent debts are not specifically referenced, as such, the vehicles do not secure them.”); In re Gibson, 234 B.R. 776 (Bankr. N.D. Cal. 1999) (VISA card contract should be interpreted under Illinois law consistent with the choice of law clause; Illinois court would not enforce dragnet clause, thus card loan is not secured. Debtor established unsecured VISA card account at credit union in 1993. In 1996, debtor made second loan at credit union secured by cars and shares. Dragnet clause was in very small print in a complicated paragraph on the back of the second loan agreement. VISA claim is unsecured.).
19 In re Jablonski, 88 B.R. 652 (E.D. Pa. 1988).
20 See, e.g., In re Chandler, 148 B.R. 13 (Bankr. E.D.N.C. 1992) (Applying North Carolina law, property owned as tenancy by the entirety would only be subject to the claims of joint creditors of both spouses. Debtors, therefore, are permitted to separately classify the individual debts of one spouse for less favorable treatment than creditors with claims against both spouses.).
21 In re Hermann, 224 B.R. 101 (Bankr. D. Minn. 1998).
22 Pletz v. United States (In re Pletz), 221 F.3d 1114 (9th Cir. 2000).
23 535 U.S. 274, 122 S. Ct. 1414, 152 L. Ed. 2d 437 (2002).
24 See, e.g., Basher v. United States (In re Basher), 291 B.R. 357 (Bankr. E.D. Pa. 2003) (Applying United States v. Craft, 535 U.S. 274, 122 S. Ct. 1414, 152 L. Ed. 2d 437 (2002), IRS claim secured by debtor’s interest as tenant-by-the-entirety is not valued at zero nor is it 50% of the equity in the property.); Basher v. United States (In re Basher), Nos. 02-12328DWS, 02-0346, 2002 WL 31856712 (Bankr. E.D. Pa. Dec. 3, 2002) (unpublished) (Citing United States v. Craft, 535 U.S. 274, 122 S. Ct. 1414, 152 L. Ed. 2d. 437 (2002), IRS has a secured claim based on its lien on debtor’s tenancy in common in rental property; lien on the debtor’s tenancy by the entirety in a residence is worth less than the 50% value asserted by the IRS but more than the $0 asserted by the debtors.).
25 See Highland Fed. Bank v. Maynard (In re Maynard), 264 B.R. 209 (B.A.P. 9th Cir. 2001).
26 Veneziale v. Midfirst Bank (In re Veneziale), 267 B.R. 695 (Bankr. E.D. Pa. 2001).
27 In re Smith, 117 B.R. 326 (Bankr. S.D. Ohio 1990) (Debtor is not entitled to reduce the allowed secured claim of mortgage holder to reflect $5,000 homestead exemption because under Ohio law as interpreted by the Sixth Circuit in Ford Motor Credit Corp. v. Dixon (In re Dixon), 885 F.2d 327 (6th Cir. 1989), a Chapter 13 debtor cannot claim a homestead exemption ahead of a judgment lien creditor unless the real property has been subjected to actual foreclosure, garnishment, or execution.). [Note: Dixon was overruled by 1994 amendments to 11 U.S.C. § 522(f)(2). See § 51.1 [ Limitations on Lien Avoidance ] § 49.3 Limitations on Lien Avoidance.].
28 In re Ross, 161 B.R. 36 (Bankr. C.D. Ill. 1993).
29 See § 292.1 [ Taxes ] § 136.2 Taxes before BAPCPA and 300.1 [ Secured Priority Claims? ] § 136.18 Secured Priority Claims before BAPCPA. See, e.g., Pletz v. United States (In re Pletz), 234 B.R. 800 (D. Or. 1998) (Tax lien attached to the debtor’s joint tenancy interest in real property; bankruptcy court correctly valued that property and sustained the IRS’s objection to confirmation.); In re Martinez, 258 B.R. 364 (Bankr. W.D. Tex. 2000) (The IRS’s right to set off prepetition taxes against tax refund for prepetition year is unaffected by the debtors’ claim of exemption in the refund.); In re Pace, 257 B.R. 918 (Bankr. W.D. Mo. 2000) (IRS does not have a secured claim based on its § 553 right of setoff in a prepetition tax refund because under § 522(c) the debtors’ exemption claim trumps the IRS’s right of setoff except to the extent that the IRS’s claim is entitled to priority. Once the IRS’s priority claim is set off, the balance of the debtors’ prepetition tax refund is fully exempt; thus no portion of the IRS’s general unsecured claim is secured under § 506(a).); In re McFadyen, 216 B.R. 1006 (Bankr. M.D. Fla. 1998) (IRS’s tax lien is fully secured because lien on the debtor’s homestead is not defeated by exemption claim under § 522(c)(2)(B).); In re May, 194 B.R. 853, 857 (Bankr. D.S.D. 1996) (Collateral that secures IRS includes property that is exempt. “[P]roperty in which the estate has an interest” in § 506(a) and “property of the estate” in § 541(a) are not synonymous. “[T]he value of a creditor’s secured claim under § 1325(a)(5) may include the value of the creditor’s interest that is secured by estate property and exempt or abandoned property.”); In re Hall, 118 B.R. 671 (Bankr. S.D. Ind. 1990) (IRS has allowed secured claim to the extent of the value of the collateral subject to its lien notwithstanding that the debtor claims an exemption in that property. The Chapter 13 estate includes exempt property, and § 506(a) provides no basis for defeating the lien of the IRS.); In re Lassiter, 104 B.R. 119 (Bankr. S.D. Iowa 1989) (Allowed secured claim of the IRS does not include the exempt amount of collateral because, though the IRS lien attaches and remains attached to exempt property, the exempt portion of collateral securing the IRS lien is not property of the Chapter 13 estate and thus is not valued for purposes of determining the allowed secured claim of the IRS under § 506(a).).
30 In re Wright, 301 B.R. 348 (Bankr. D. Kan. 2003).
31 15 U.S.C. §§ 1601–1693r.
32 Real Estate Settlement Procedures Act of 1974, 12 U.S.C. §§ 2601–2617.
33 Home Ownership and Equity Protection Act, 15 U.S.C. § 1639.
34 See, e.g., Walker v. Contimortgage (In re Walker), 232 B.R. 725 (Bankr. N.D. Ill. 1999) (Debtor’s complaint that mortgage holder has no allowed secured claim based on violations of Truth-in-Lending Act and Real Estate Settlement Procedures Act survives motion for summary judgment.); Desrosiers v. Transamerica Fin. Corp. (In re Desrosiers), 212 B.R. 716 (Bankr. D. Mass. 1997) (Plan fails confirmation requirement in § 1325(a)(5) that treats mortgage as unsecured when debtors’ adversary proceeding seeking rescission of the mortgage and damages is dismissed.).
35 See discussion of 11 U.S.C. § 522(f) beginning at § 49.1 Available in Chapter 13 Cases . See, e.g., Bache-Wiig v. Fournier (In re Bache-Wiig), 299 B.R. 245 (Bankr. D. Me. 2003) (Mortgage lienholder has a secured claim in the amount of state court judgment notwithstanding that mortgage holder’s separate judgment lien is avoidable under § 522(f).); In re Leftwich, 174 B.R. 54 (Bankr. W.D. Va. 1994) (Plan fails to pay a secured claim holder all to which it is entitled under § 1325(a)(5) because debtor lost argument that successive refinancings defeated the lender’s purchase money security interest. Applying Virginia law, the lender has a security interest in the debtor’s furniture that cannot be avoided under § 522(f) and thus must be valued and provided for under §§ 506(a) and 1325(a)(5)(B)(ii).).
37 See § 102.1 [ Surrender or Sale of Collateral ] § 74.5 Surrender or Sale of Collateral before BAPCPA. After Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), there is some question whether a Chapter 13 debtor can surrender real property to reduce a mortgage holder’s allowed secured claim when that claim is protected from modification by § 1322(b)(2). See §§ 102.1 [ Surrender or Sale of Collateral ] § 74.5 Surrender or Sale of Collateral before BAPCPA and 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1 Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.
38 11 U.S.C. § 1325(a)(5)(C). See § 102.1 [ Surrender or Sale of Collateral ] § 74.5 Surrender or Sale of Collateral before BAPCPA.
39 See § 102.1 [ Surrender or Sale of Collateral ] § 74.5 Surrender or Sale of Collateral before BAPCPA.
40 See §§ 45.1 [ What Is Property of the Chapter 13 Estate? ] § 46.1 What Is Property of the Chapter 13 Estate? and 47.8 [ Miscellaneous Real and Personal Property ] § 46.12 Miscellaneous Real and Personal Property.
41 296 B.R. 582 (Bankr. D. Mass. 2003).
42 275 B.R. 633 (Bankr. M.D. Fla. 2001).
43 See, e.g., Poss v. Morris (In re Morris), 260 F.3d 654, 666 (6th Cir. 2001) (Section 541(d) “does not authorize bankruptcy courts to recognize a constructive trust based on a creditor’s claim of entitlement to one; rather section 541(d) only operates to the extent state law has impressed property with a constructive trust prior to its entry into bankruptcy.”); Kitchen v. Boyd (In re Newpower), 233 F.3d 922 (6th Cir. 2000) (Creditors that initiated proceeding prepetition in state court may be entitled to relief from stay to pursue state court action to judgment, and bankruptcy court may enforce the judgment consistent with state law on effective date of property interest.); McCafferty v. McCafferty (In re McCafferty), 96 F.3d 192 (6th Cir. 1996) (Imposition of constructive trust appropriate when pursuant to state law or prepetition state court order property is not subject to distribution to creditors.); XL/Datacamp, Inc. v. Wilson (In re Omegas Group, Inc.), 16 F.3d 1443, 1449 (6th Cir. 1994) (“[A] claim filed in bankruptcy court asserting right to certain assets ‘held’ in ‘constructive trust’ for the claimant is nothing more than that: a claim.”).