§ 145.1 — In Cases Filed before October 22, 1994

Revised: June 16, 2004

[1]

Prior to the Bankruptcy Reform Act of 1994, the battle raged with respect to whether the value of collateral determined during a Chapter 13 case and payments made to secured claim holders pursuant to a confirmed plan affected the rights of lienholders after conversion to Chapter 7. These issues, in cases filed before October 22, 1994, are covered in this section. Unless indicated otherwise, all Code citations in this section are to the Bankruptcy Code before amendment in 1994.

[2]

In 1994, Congress amended § 348(f) of the Code to clarify the effects at conversion of valuations of collateral and payments during the Chapter 13 case. The 1994 amendments to § 348(f) apply only in Chapter 13 cases filed after October 22, 1994.1

[3]

What becomes of a secured claim holder at conversion from Chapter 13? Imagine a creditor with a $1,000 debt and a security interest in a $600 water bed. The confirmed plan splits the debt into a $400 unsecured claim and a $600 secured claim.2 Before conversion, the creditor is paid $500 (with interest) on its secured claim. Prior to amendment in 1994,3 § 348 did not clearly define the rights of the debtor and of the water bed lender or tell us the effect of payments to a secured claim holder before conversion to Chapter 7.

[4]

Several courts have held that if the allowed secured claim was paid in full during the Chapter 13 case, the lien securing the claim is satisfied and at conversion, the debtor is entitled to the collateral free of the lien.4 Some reported decisions hold that after conversion to Chapter 7, the debtor can redeem collateral that was partially paid for during the Chapter 13 case by paying the balance due on the secured portion of the claim.5 These courts reason that the rights of secured claim holders are fixed at confirmation, and to allow the creditor to be paid through the plan and a second time by redemption after conversion produces a windfall that is inconsistent with § 722.6

[5]

There is some support for this view in the legislative history of the 1978 Code. Section 1325(a)(5) defines the rights of lienholders at confirmation. Under § 1325(a)(5)(B), a debtor can satisfy an allowed secured claim by providing that the holder retains its lien and receives the present value of its collateral through the plan.7 The effect of payments under § 1325(a)(5)(B) was described by Congressman Edwards and Senator DeConcini as follows:

Of course, the secured creditors’ lien only secures the value of the collateral and to the extent property is distributed of a present value equal to the allowed amount of the creditor’s secured claim, the creditor’s lien will have been satisfied in full. Thus the lien created under § 1325(a)(5)(B)(i) is effective only to secure deferred payments to the extent of the amount of the allowed secured claim.8
[6]

From the debtor’s perspective, this is a fair outcome. 11 U.S.C. § 722 provides that an individual debtor in a Chapter 7 case can redeem tangible personal property from a lien securing a dischargeable consumer debt “by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien.” At least prior to Dewsnup v. Timm,9 it was conventional wisdom that the “allowed secured claim” for purposes of § 722 was limited to the value of the collateral or the amount of the debt, whichever was smaller. Limiting a secured claim holder to one recovery of the present value of its collateral through the combination of payments in a Chapter 13 plan and redemption under § 722 after conversion to Chapter 7 mathematically provides the secured claim holder with the maximum that it would have been entitled to had the debtor filed a Chapter 7 case in the first instance and immediately sought redemption under § 722. The debtor could have redeemed the water bed in the example for $600. Having been paid the present value of $500 through the Chapter 13 plan, the creditor is entitled to no more than $100 on account of redemption after conversion.

[7]

On the other hand, the creditor’s lien secures its entire $1,000 debt notwithstanding that it has a secured claim only to the extent of $600. Redemption in installments is not permitted in Chapter 7 cases. This logic led one court to refuse a Chapter 7 debtor’s motion to redeem personal property subject to liens at the balance remaining on the allowed secured claim after conversion from Chapter 13:

Debtors are attempting to achieve by converting their case to one under Chapter 7 that which they could not have achieved had they originally filed under Chapter 7. . . . [W]hile Debtors can, under the provisions of § 722, redeem certain collateral in a Chapter 7 case by paying its fair value, such a redemption cannot be made in installments over the objection of the creditor. By filing first under Chapter 13, paying off the allowed secured claim portion of [the creditor’s] bifurcated claim over a period of time under the Chapter 13 plan and then converting to Chapter 7, Debtors would again be achieving by conversion that which could not be achieved directly in a Chapter 7 proceeding. . . . [T]o so permit Debtors to free their property from the liens of secured creditors by converting from Chapter 13 to Chapter 7 would be to provide Debtors with an incentive to so convert as soon as the allowed amount of a bifurcated secured claim is paid, which in many cases, would be before any payments have been made to unsecured creditors. To permit the expectations of the unsecured creditor to be defeated in this manner would provide a built-in incentive for debtors to abuse the bankruptcy process.10
[8]

The effect of conversion on secured claims in Chapter 13 cases may be clouded by the Supreme Court’s decision in Dewsnup. In Dewsnup, the Supreme Court held that a Chapter 7 debtor cannot use § 506(d) to strip down an undersecured lien on real property to the value of the collateral. Although the majority opinion in Dewsnup instructs that its construction of § 506(a) and (d) should be narrowly applied, Dewsnup could be interpreted to disrupt redemption at conversion from Chapter 13.11

[9]

Redemption from a lien under § 722 at the value of collateral determined under § 506(a) is different in process but similar in effect to the lien “voidance” under § 506(d) addressed by the Supreme Court in Dewsnup. If a Chapter 7 debtor cannot void the portion of a lien that is not secured by collateral, can that debtor accomplish the same thing by first filing a Chapter 13 case and then offering to redeem collateral subject to a lien at the balance remaining on the allowed secured claim after conversion to Chapter 7?

[10]

There is language in Dewsnup that any increase in the value of collateral during a bankruptcy case “rightly accrues to the benefit of the creditor, not to the benefit of the debtor.”12 If collateral has increased in value between confirmation of a Chapter 13 plan and conversion to Chapter 7, does Dewsnup entitle the creditor to the higher valuation at redemption, notwithstanding partial (or full?) payment of the allowed secured claim during the Chapter 13 case? What happens in the more likely situation in which collateral depreciates between confirmation and conversion to Chapter 7? Are payments during the Chapter 13 case credited against the depreciated value at redemption? Can the creditor end up owing the debtor a refund?

[11]

Dewsnup can be interpreted to prohibit redemption at any amount less than the lienholder’s total debt, including the portion of an undersecured claim that exceeds the value of the collateral. If Dewsnup is so interpreted, at conversion from Chapter 13 to Chapter 7, property that has been partially paid for through the Chapter 13 plan could only be redeemed by paying the balance of all debts “secured” by the collateral, including those claims that became unsecured under § 506(a) at confirmation of the Chapter 13 plan.

[12]

Relying in part on Dewsnup and in part on pre-Code law, the U.S. Court of Appeals for the Sixth Circuit, in an unpublished opinion, concluded that at conversion a lienholder is entitled to have its collateral revalued; the debtor must then pay the lesser of the balance of the debt or the (new) value of the collateral to redeem under § 722. In Liberty National Bank & Trust Co. v. Burba (In re Burba),13 the confirmed plan treated the bank as secured to the extent of $9,775, the fair market value of its collateral, to be paid in full with 10.25 percent interest. The Chapter 13 case converted to Chapter 7 after the debtor had paid $9,775 of principal but before payment of any interest.14 The debtor moved to redeem the car in the Chapter 7 case under § 722. The bankruptcy and district courts ruled that the debtor could redeem by paying the interest due on the bank’s allowed secured claim. The Sixth Circuit reversed:

[E]ven if it is possible to lien strip in Chapter 13 as the majority of the bankruptcy courts hold, lien stripping has not occurred in the present case. The secured portion of Creditor’s claim has not been satisfied because the interest on it has not been paid. Under Chapter 13, pursuant to § 1325(a)(5)(B), a creditor retains a lien on the collateral until the value of the property, as of the effective date of the plan, has been distributed under the plan to the creditor. In the present case, the present value of the collateral ($9775), as of the effective date of confirmation of the plan, . . . has not been paid to [the creditor] because the annual 10.25% interest has not been paid. . . . Because the interest has not been paid, the Bank’s lien was not extinguished during the pendency of the Chapter 13 plan. . . . After the Supreme Court decision in [Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992)], the lower courts have split on the issue of whether a debtor may bifurcate a secured claim in Chapter 13, strip down the lien to the value of the collateral, and then convert to Chapter 7 and redeem the property based on the “stripped down” value obtained in Chapter 13. . . . [W]e agree with the latter line of cases which hold that bifurcation of a claim pursuant to § 506(a) and stripping down the lien to the value of the collateral in a Chapter 13 proceeding does not survive for redemption purposes upon conversion to Chapter 7. The court in Smith v. No. 2 Galesburg Crown Finance Corp., 615 F.2d 407 (7th Cir. 1980) . . . found that actions taken under Chapter XIII do not survive when the debtors fail to comply with the terms of the Chapter XIII plan, . . . and convert to a straight bankruptcy. . . . [W]e believe that its rationale is applicable to cases brought under the current Bankruptcy Code. . . . A debtor cannot use the provisions of the confirmed Chapter 13 plan to convert secured debt into unsecured debt if the debtor has not completed the plan and received a discharge under 11 U.S.C. § 1328. We are cognizant of the argument . . . [that] a debtor who wishes to redeem collateral under § 722 will have to pay the value of the collateral twice and the creditor will receive a windfall at the expense of unsecured creditors. . . . We believe the application of § 506(a) in Chapter 13 is a security reduction provision that should accrue to the benefit of the debtor only if the Chapter 13 plan is completed. In other words, a creditor’s lien rights are not altered irrevocably under Chapter 13, if the Chapter 13 plan is not completed. . . . [W]e believe that when a debtor fails to complete a Chapter 13 plan, for purposes of redemption the creditor’s original lien rights stand and upon conversion to Chapter 7, the collateral can be redeemed through § 722 only upon payment of the current value of the collateral or the remainder of the debt, whichever is less. . . . [A] Chapter 7 debtor, in contrast to a Chapter 13 debtor, does have lien rights beyond the value of the collateral according to Dewsnup. Therefore, we believe that although the payments made under the defunct Chapter 13 plan have reduced the debt, they cannot be said to have satisfied the creditor’s allowed secured claim and extinguished the lien for Chapter 7 redemption purposes unless the Chapter 13 plan has been successfully completed. . . . [R]edemption must be made by a lump sum payment, not by installment payments. . . . [A] creditor who has received partial payment, through installments, of a Chapter 13 allowed secured claim, is allowed, upon conversion to Chapter 7, to have the collateral revalued for purposes of a redemption in a lump sum payment pursuant to § 722. . . . [I]f we were to decide to the contrary, Chapter 13 debtors would be receiving an incentive to convert as soon as the allowed secured claim was paid, thus encouraging abuse of the bankruptcy process and defeating the expectations of unsecured creditors who may not yet have received any payments under the Chapter 13 plan. . . . In Chapter 13 , a debtor may retain his property free of a lien if he pays the amount of the allowed secured claim and completes the provisions of the Chapter 13 plan, which may include payments on the unsecured portion of the claim.15
[13]

The Sixth Circuit’s reliance in Burba on the Seventh Circuit’s pre-Code decision in Smith v. No. 2 Galesburg Crown Finance Corp.16 is questionable. Smith involved Truth-in-Lending litigation in Chapter XIII cases converted to straight bankruptcies under the former Bankruptcy Act. In Smith, one debtor argued that confirmation bound a partially secured claim holder to the value of collateral determined in the Chapter XIII case. The Seventh Circuit rejected this argument because there was no evidence in the record before the court of appeals that the bankruptcy court had ever valued collateral in the Chapter XIII case. In an alternative holding, the Seventh Circuit observed that, in a case converted from Chapter XIII to straight bankruptcy under the former Bankruptcy Act, no discharge of debt was available until “compliance by the debtor with the provisions of the plan and upon completion of all payments to be made thereunder.”17 The Seventh Circuit cited a (repealed) bankruptcy rule which provided that upon conversion, the straight bankruptcy should be conducted “as if no petition commencing a Chapter [XIII] case had been filed.”18

[14]

The Sixth Circuit in Burba does not explain how the alternative holding in Smith survived the enactment of the Bankruptcy Code in 1978. There was no analogue in the former Bankruptcy Act to § 1327(b) and (c) of the Bankruptcy Code.19 In Chapter 13 cases under the 1978 Code, except as provided in the plan or order of confirmation, property vests in the debtor at confirmation “free and clear of any claim or interest of any creditor provided for by the plan.”20 Although discharge occurs in a Chapter 13 case at the completion of payments under the plan (or earlier for a “hardship” discharge),21 the rights of lienholders are affected by confirmation of a Chapter 13 plan in ways that were unthinkable under the former Bankruptcy Act. The statutory context for Smith is too dissimilar to support the outcome of Burba.

[15]

The Sixth Circuit’s broad reading of Dewsnup violates the Supreme Court’s own admonition that Dewsnup be confined to its facts.22 Dewsnup involved the use of § 506(d) to void liens in a Chapter 7 case. Burba did not involve § 506(d) at all. The issues in Burba were the effect of confirmation on the lien rights of a secured claim holder and the related effect of payments to a secured claim holder during a Chapter 13 case prior to conversion. In Chapter 13 cases, it is § 1327—not § 506(d)—that defines the rights of secured claim holders after confirmation.23

[16]

Burba travels far beyond Dewsnup to conclude that, at conversion, collateral is “revalued” to determine the extent of secured claims, with payments made during the Chapter 13 case credited first against the unsecured portion of an undersecured claim. This interpretation of the rights of secured claim holders at conversion is aggressively hostile to the fundamental policy that consumer debtors should be encouraged to attempt Chapter 13 cases. The source of this hostility is not clear. The Sixth Circuit’s stated fear of “abuse of the bankruptcy process” is not based on any empirical evidence, makes no economic sense24 and is addressed by other provisions of the Code—for example, § 707(b).25

[17]

Burba seems to say that a Chapter 13 debtor can release the lien of a secured claim holder only by completing payments to all creditors under the plan and receiving a discharge. Would the outcome in Burba be different had the plan provided that liens were satisfied upon completion of payment of the allowed secured claim? If notice was adequate and no lienholder objected, would not such a plan provision be binding at confirmation under § 1327?26

[18]

Burba was good news for creditors. Burba permits secured claim holders to keep the payments received during the Chapter 13 case and demand a second full payment up to the “new” value of the collateral at conversion to Chapter 7. Burba is good reason for every Chapter 13 debtor with secured claims to pause before conversion to consider modifications of the plan that might avoid paying for collateral again after conversion.

[19]

The good news for debtors is that most of Burba was overruled by the 1994 amendments to § 348.27 Burba was decided by the Sixth Circuit after the enactment of the Bankruptcy Reform Act of 1994, but the Chapter 13 case at issue was filed before October 22, 1994. The original slip opinion made no mention of the 1994 Act and was recommended for full-text publication. Subsequently, the opinion was amended to footnote that the 1994 amendments to § 348 were not applicable. The Sixth Circuit then withdrew Burba from publication. The precedential effect of Burba is limited. At least one court has found legislative history to the 1994 amendments that Congress intended to embrace the interpretation of pre-1994 law rejected by the Sixth Circuit in Burba.28


 

1  See § 320.1 [ In Cases Filed after October 22, 1994 ] § 145.2  In Cases Filed after October 22, 1994.

 

2  See § 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

3  See § 320.1 [ In Cases Filed after October 22, 1994 ] § 145.2  In Cases Filed after October 22, 1994.

 

4  In re Cooke, 169 B.R. 662, 666–68 (Bankr. W.D. Mo. 1994) (In re Tluscik, 122 B.R. 728 (Bankr. W.D. Mo. 1991), is still good law, notwithstanding Dewsnup [v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992)]. “Those courts that allow Chapter 13 lien stripping to survive conversion to Chapter 7 do so for two reasons. First, courts have held that valuation for redemption purposes relates back to the original filing of the petition. . . . At the point of redemption, the claim must be bifurcated using the values of the claim as of the petition date, with all Chapter 13 payments credited towards redemption. . . . Dewsnup is not violated under this theory because the lien stripping occurs under § 722 not the prohibited § 506(d). The debtor need only pay the remaining balance of the secured claim to complete the redemption. . . . Second, courts have held that the secured claim is extinguished in the Chapter 13 case upon completion of payments on that claim under the plan. The lien is not revived upon conversion. . . . A secured creditor may have only one bite at the apple. . . . GMAC’s reading of the Code would allow it to also recover its unsecured deficiency in full as a secured claim because of the conversion. . . . [C]rediting Chapter 13 plan payments to a Chapter 7 redemption upon conversion does not violate the ‘lump sum’ rule. However, a debtor may not continue to make installment payments after conversion. Once converted, a debtor must pay the balance of a secured claim as determined in Chapter 13, in a lump sum, to redeem. . . . Any lien stripping that has occurred has been fully completed within the context of the Chapter 13 portion of the case where such practice is explicitly authorized by § 1322.” The court noted that the good-faith test in § 1325 and the substantial abuse dismissal under § 707(b) would prevent any unscrupulous debtors from using Chapter 13 as an “end run” around Dewsnup.); Ford Motor Credit Co. v. Pickett (In re Pickett), 151 B.R. 471, 473–74 (Bankr. M.D. Tenn. 1992) (At conversion from Chapter 13 to Chapter 7, a secured claim holder’s lien does not revive when the creditor’s allowed secured claim was paid in full during the Chapter 13 case. “Based on § 1325(a)(5) and its legislative history, the Debtors, under their Chapter 13 plan, satisfied Ford’s lien in full. . . . [A] lien does not survive in Chapter 7 after full satisfaction in a prior Chapter 13. . . . [Section] 348 is silent as to conversion’s effect on liens, either partially or fully satisfied. . . . The Supreme Court in [Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992)], however, was careful to limit its decision. . . . [T]his case involves Chapter 7 debtors who have satisfied an allowed secured claim on personal property under a preconversion Chapter 13 plan. The question is not whether the Debtors can strip down Ford’s lien, but whether the Debtors already have satisfied Ford’s secured claim under Chapter 13, thereby extinguishing the lien. Therefore, Dewsnup does not support Ford’s position.”); In re Hargis, 103 B.R. 912 (Bankr. E.D. Tenn. 1989) (Once Chapter 13 debtor has paid allowed amount of an undersecured creditor’s claim in full, lien is satisfied and lien does not “spring back into existence” at conversion from Chapter 13 to Chapter 7.); In re Tunget, 96 B.R. 89 (Bankr. W.D. Ky. 1988) (At conversion from Chapter 13 to Chapter 7, if debtor has paid a secured claim holder the value of its collateral in the Chapter 13 case, debtor has redeemed the property. The amount debtor must have paid in the Chapter 13 case appears to be the allowed amount of the secured claim plus accrued interest.); In re Estep, 96 B.R. 87 (Bankr. E.D. Ky. 1988).

 

5  In re Archie, 240 B.R. 425, 427–31 (Bankr. S.D. Ala. 1999) (At conversion to Chapter 7, debtors are not entitled to car title notwithstanding payment of allowed secured claim during Chapter 13 case; however, 1994 amendment to § 348(f) clarified that even in cases filed before the effective date of the amendment, debtors can redeem car in the Chapter 7 case at the balance due on the allowed secured claim—here, for zero dollars. “The jurisprudence is split on the issue of the extent to which chapter 13 payments can be credited toward the amount necessary to redeem collateral and whether the valuation of the amount of the allowed secured claim for purposes of redemption is the same as the value set during debtors’ chapter 13 plan. . . . This case was commenced on January 4, 1994, prior to the effective date of § 348(f). Nonetheless, the Court believes that an examination of subsection (f) is important because this 1994 amendment was intended to ‘clarify the Code,’ rather than change it. H.R. 5116, 140 Cong. Rec. H10,770 (daily ed. October 4, 1994). . . . According to § 348(f)(1)(B), the amount of an ‘allowed secured claim’ in a case converted to chapter 7 is the same as the amount of the claim established in the preconversion chapter 13 case. Section 722 explicitly permits redemption by payment to the lien holder the amount of the ‘allowed secured claim.’ The final clause in § 348(f)(1)(B) reduces the ‘allowed secured claim’ in converted chapter 7 cases by amounts paid toward such claim during the preconversion chapter 13 case. Therefore, the amount necessary to redeem pursuant to § 722 is reduced by the amount paid toward the ‘allowed secured claim’ during the preconversion chapter 13 case. . . . If payments made during chapter 13 plans are not credited toward the amount necessary to redeem upon conversion to chapter 7, then creditors will receive a double recovery.” Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), is not offended by this outcome because the Supreme Court recognized in Dewsnup that “allowed secured claim” could have different meanings in different provisions of the Bankruptcy Code and the debtor in Dewsnup “sought to avoid a lien pursuant to 11 U.S.C. § 506(d). In contrast, the Archies moved to redeem their vehicle pursuant to § 722.”); In re Cooke, 169 B.R. 662 (Bankr. W.D. Mo. 1994) (Upon conversion from Chapter 13 to Chapter 7, the debtor can redeem personal property subject to liens under § 722 at the balance remaining on the allowed secured claim, here zero dollars because the allowed secured claim of GMAC was paid in full before conversion.); In re Bunn, 128 B.R. 281 (Bankr. D. Idaho 1991) (After conversion from Chapter 13 to Chapter 7, debtor can redeem car by paying the principal balance of the claim remaining at conversion plus interest through the date of conversion at the rate specified in the confirmed plan. To allow secured claim holder to recover the total principal amount paid through the Chapter 13 plan and the current value of the car at conversion would be a windfall to the secured creditor. Portion of payments made through the confirmed Chapter 13 plan attributable to interest is not credited toward reduction of the balance that must be paid to redeem the car.); In re Tluscik, 122 B.R. 728 (Bankr. W.D. Mo. 1991) (Citing In re Hargis, 103 B.R. 912 (Bankr. E.D. Tenn. 1989) with approval, upon conversion from Chapter 13 to Chapter 7, debtor can redeem a car that was partially paid for in the prior Chapter 13 case by payment of the balance due on the secured portion of the creditor’s claim. GMAC was an undersecured creditor in the Chapter 13 case. Debtor paid all but $135 of the secured portion of GMAC’s claim before conversion to Chapter 7. After conversion, GMAC contended that it was entitled to receive the value of its collateral at conversion before the debtor could redeem in the Chapter 7 case. The court rejected this view, holding instead that GMAC was only entitled to the balance remaining on the secured portion of its claim in the Chapter 13 case. “To rule otherwise would be to afford an undersecured creditor two bites of the same apple.”).

 

6  In re Tluscik, 122 B.R. 728 (Bankr. W.D. Mo. 1991).

 

7  See discussion beginning at § 74.1  General Rules before BAPCPA.

 

8  124 Cong. Rec. H11,107 (daily ed. Sept. 28, 1978) (remarks of Congressman Edwards); S17,423 (daily ed. Oct. 6, 1978) (remarks of Sen. DeConcini).

 

9  502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992). See below in this section and see § 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

10  Gammon v. Chrysler Credit Corp. (In re Gammon), 155 B.R. 15, 17 (W.D. Okla. 1993).

 

11  See Gammon v. Chrysler Credit Corp. (In re Gammon), 155 B.R. 15 (W.D. Okla. 1993) (Relying in part on Dewsnup, after conversion from Chapter 13 to Chapter 7, debtor cannot redeem personal property subject to liens at the balance remaining on the allowed secured claim after payments under the plan.).

 

12  502 U.S. at 417.

 

13  No. 93-6479, 1994 WL 709314 (6th Cir. Nov. 10, 1994) (Table decision at 42 F.3d 1388).

 

14  See §§ 111.1 [ “Value, As of the Effective Date of the Plan” Means Interest ] § 77.1  “Value, As of the Effective Date of the Plan” Means Interest and 112.1 [ Interest Rate Anarchy: Present Value Before Till ] § 77.2  Interest Rate Anarchy: Present Value before Till.

 

15  No. 93-6479, 1994 WL 709314, at *7–16 (6th Cir. Nov. 10, 1994) (Table decision at 42 F.3d 1388).

 

16  615 F.2d 407 (7th Cir. 1980).

 

17  11 U.S.C. § 1060 (repealed).

 

18  Fed. R. Bankr. P. 122(1) (repealed).

 

19  See discussion beginning at § 120.1  11 U.S.C. § 1327: Overview and § 121.3  Failure to Provide For.

 

20  11 U.S.C. § 1327(b), (c). See § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate § 120.4  11 U.S.C. § 1327(c): Free and Clear Effect on Liens and § 120.5  Effects of Confirmation after BAPCPA.

 

21  See discussion beginning at § 160.1  In General.

 

22  See discussion of Dewsnup in § 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

23  See discussion beginning at § 120.1  11 U.S.C. § 1327: Overview.

 

24  Because of 11 U.S.C. § 1325(a)(5), an allowed secured claim holder has to be paid at least the full value of its collateral through the confirmed plan, with interest. See § 74.2  General Rules Changed by BAPCPA§ 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases§ 77.1  “Value, As of the Effective Date of the Plan” Means Interest§ 77.2  Interest Rate Anarchy: Present Value before Till§ 77.3  Present Value after Till and § 78.1  Full Payment of Allowed Secured Claim. If the collateral was surrendered at the beginning of the Chapter 13 case, the secured claim holder realizes no more than the same present value of its collateral. The Sixth Circuit’s fear of abuse is economic nonsense—when a Chapter 13 debtor pays the allowed secured claim in full through the plan, the lienholder receives the full economic value of its collateral through the plan. The only abuse in Liberty National Bank & Trust Co. of Louisville v. Burba (In re Burba), 42 F.3d 1388 (6th Cir. 1994), is that Chapter 13 debtors will have to pay for collateral twice if they convert to Chapter 7.

 

25  11 U.S.C. § 707(b) permits a bankruptcy court to dismiss a Chapter 7 case if granting relief “would be a substantial abuse of the provisions of this chapter.” Any Chapter 13 debtor who “abusively” converts a Chapter 13 case to Chapter 7 faces dismissal under § 707(b).

 

26  See § 74.12  Lien Retention before BAPCPA§ 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and discussion beginning at § 120.1  11 U.S.C. § 1327: Overview.

 

27  See § 145.2  In Cases Filed after October 22, 1994 and § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA. See, e.g., In re Dean, 281 B.R. 912, 914–15 (Bankr. W.D. Tenn. 2002) (Section 348(f) “expressly overrules the [Liberty National Bank & Trust Co. of Louisville v. Burba (In re Burba), 42 F.3d 1388 (6th Cir. 1994),] court’s finding that the redemption value is determined independent of the value given to the collateral in the chapter 13 setting.”).

 

28  See In re Archie, 240 B.R. 425, 427–31 (Bankr. S.D. Ala. 1999) (“[T]he Court believes that an examination of subsection [348](f) is important because this 1994 amendment was intended to ‘clarify the Code,’ rather than change it. H.R. 5116, 140 Cong. Rec. H10,770 (daily ed. October 4, 1994). . . . According to § 348(f)(1)(B), the amount of an ‘allowed secured claim’ in a case converted to chapter 7 is the same as the amount of the claim established in the preconversion chapter 13 case. Section 722 explicitly permits redemption by payment to the lien holder the amount of the ‘allowed secured claim.’ The final clause in § 348(f)(1)(B) reduces the ‘allowed secured claim’ in converted chapter 7 cases by amounts paid toward such claim during the preconversion chapter 13 case. Therefore, the amount necessary to redeem pursuant to § 722 is reduced by the amount paid toward the ‘allowed secured claim’ during the preconversion chapter 13 case. . . . If payments made during chapter 13 plans are not credited toward the amount necessary to redeem upon conversion to chapter 7, then creditors will receive a double recovery.”).