§ 73.7 — Secured Priority Claims?

Revised: September 24, 2010

[1]

There is the possibility in a Chapter 13 case that a claim will be entitled to priority under 11 U.S.C. § 507 and to full payment under 11 U.S.C. § 1322(a)(2)1 and also be a secured claim under 11 U.S.C. § 506(a).2 This combination of characteristics creates some confusion because most priority claims can be paid in full in a Chapter 13 case without interest3 but secured claim holders typically are entitled to “present value” interest to confirm a plan.4

[2]

Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),5 there were two kinds of debts that could qualify for both priority and secured status. In Chapter 13 cases filed after October 22, 1994,6 and before October 17, 2005—the effective date of BAPCPA—alimony, maintenance or support debts described in former § 507(a)(7) could be both priority and secured.7 Prior to BAPCPA, most of § 507(a) afforded priority only to unsecured claims of narrowly defined character;8 but former § 507(a)(7) described a priority debt for “allowed claims . . . for alimony . . . maintenance . . . or support.”9 There was no “unsecured” qualification in former § 507(a)(7), and thus, before BAPCPA, there could be secured claims for alimony, maintenance or support that were also priority claims.

[3]

Debts for alimony, maintenance or support in Chapter 13 cases filed after October 22, 1994, and before BAPCPA were, at least theoretically, entitled to full payment through the plan under § 1322(a)(2) and to present value in the form of interest under § 1325(a)(5). This possibility did not generate any useful body of case law.

[4]

Administrative expenses that arose after the petition under § 503 were assigned first priority under § 507(a)(1) prior to BAPCPA.10 Most Chapter 13 plans and many reported decisions treat administrative expenses the same as priority claims, though there is no clear cross-reference to administrative expenses in § 1322(a)(2).11 It was possible in pre-BAPCPA cases for a Chapter 13 debtor to incur an administrative expense secured by a lien—for example, postpetition financing for a debtor engaged in business, or a junior mortgage to secure postpetition repairs to a debtor’s home. The status of postpetition secured lending to a Chapter 13 debtor could be confused by the special provision for postpetition claims in § 1305.12

[5]

Other secured claims that had attributes of priority under § 507 typically were secured claims and not priority claims. For example, prepetition tax claims that were also secured under § 506(a) are not also priority claims either before or after BAPCPA.13 As a secured claim holder, a taxing authority is entitled to postpetition interest on deferred payments.14 This is more favorable treatment than deferred payments without interest under § 1322(a)(2). If the claim is partially secured and partially unsecured,15 the unsecured portion could be a priority claim entitled to full payment in deferred payments (without interest) under § 1322(a)(2) while the secured portion receives payment in full with interest (present value) under § 1325(a)(5).

[6]

BAPCPA eliminated the possibility that a claim for alimony, maintenance or support could be both secured and entitled to priority. Detailed elsewhere,16 BAPCPA redefined “domestic support obligation” in § 101(14A) and created a new first priority in § 507(a)(1) for “allowed unsecured claims for domestic support obligations.”17 After BAPCPA, support obligations cannot be priority debts if they are also secured.

[7]

BAPCPA did not eliminate the possibility that an administrative expense under § 503(b) could also be a secured debt. In fact, BAPCPA amended § 503(b)(1)(B) to specifically identify as an administrative expense a tax “incurred by the estate, whether secured or unsecured, including property taxes for which liability is in rem, in personam or both.”18 A tax of the sort described in § 503(b)(1)(B)(i) would seem to be entitled to priority under § 507(a)(2) and to be treated as a secured claim under § 1325(a)(5).

[8]

BAPCPA added one new kind of debt that can be both priority and secured. Detailed elsewhere,19 BAPCPA amended § 507(a)(10) to create a priority for “allowed claims for death or personal injury resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug or another substance.20 There is no “unsecured” limitation in new § 507(a)(10). A qualifying DWI debt could be secured by a lien. A secured debt that falls within the new § 507(a)(10) priority would have to be paid in full with present value interest if both §§ 1322(a)(2) and 1325(a)(5) apply at confirmation.21


 

1  See § 98.1 [ Plan Must Provide Full Payment ] § 73.1  Plan Must Provide Full Payment.

 

2  See §§ 300.1 [ Secured Priority Claims? ] § 136.18  Secured Priority Claims before BAPCPA and 521.1 [ Secured Priority Claims ] § 136.19  Secured Priority Claims after BAPCPA.

 

3  See § 100.2 [ Interest Not Required, with Exceptions ] § 73.5  Interest Not Required, with Exceptions.

 

4  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.

 

5  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

6  See 11 U.S.C. § 507(a)(7) before amendment by BAPCPA. Pre-BAPCPA § 507(a)(7) is discussed in §§ 300.1 [ Secured Priority Claims? ] § 136.18  Secured Priority Claims before BAPCPA and 301.1 [ Alimony, Maintenance and Support in Cases Filed after October 22, 1994 ] § 136.20  Alimony, Maintenance and Support in Cases Filed after October 22, 1994.

 

7  See also § 300.1 [ Secured Priority Claims? ] § 136.18  Secured Priority Claims before BAPCPA.

 

8  See, e.g., In re Schenk, 67 B.R. 137 (Bankr. D. Mont. Nov. 19, 1986) (Peterson); In re Healis, 49 B.R. 939 (Bankr. M.D. Pa. June 10, 1985) (Woodside); In re Frost, 19 B.R. 804 (Bankr. D. Kan. Apr. 20, 1982) (Pusateri); In re Crotty, 11 B.R. 507 (Bankr. N.D. Tex. June 9, 1981) (Flowers). See also discussion of priority claims beginning at § 136.1  Treatment of Priority Claims.

 

9  11 U.S.C. § 507(a)(7) before amendment by BAPCPA.

 

10  See 11 U.S.C. § 507(a)(1) prior to amendment by BAPCPA, discussed in §§ 99.1 [ What Claims Are Priority Claims? ] § 73.2  What Claims Are Priority Claims? and 298.1 [ Miscellaneous Administrative Expenses and Other Priority Claims ] § 136.14  Miscellaneous Administrative Expenses and Priority Claims before BAPCPA.

 

11  See § 73.2  What Claims Are Priority Claims? and § 136.1  Treatment of Priority Claims.

 

12  See §§ 298.1 [ Miscellaneous Administrative Expenses and Other Priority Claims ] § 136.14  Miscellaneous Administrative Expenses and Priority Claims before BAPCPA, 300.1 [ Secured Priority Claims? ] § 136.18  Secured Priority Claims before BAPCPA, 302.1 [ Postpetition Claims ] § 137.1  Postpetition Claims before BAPCPA, 521.1 [ Secured Priority Claims ] § 136.19  Secured Priority Claims after BAPCPA and 524.1 [ Postpetition Claims ] § 137.2  Postpetition Claims after BAPCPA.

 

13  See §§ 292.1 [ Taxes ] § 136.2  Taxes before BAPCPA and 513.1 [ Taxes ] § 136.3  Taxes after BAPCPA. See, e.g., In re Grabow, 323 B.R. 236 (Bankr. W.D. Wis. Apr. 4, 2005) (Kelley) (Real estate taxes secured by a statutory lien are not a priority claim but are a secured claim that must be paid with postpetition interest under §§ 506(b) and 1325(a)(5); plan that treats real estate taxes as a priority claim for full payment without interest cannot be confirmed over the objection of a lienholder whose position will be eroded by accumulating postpetition interest on the tax lien.); In re McKissick, 197 B.R. 206 (Bankr. M.D. Pa. Apr. 18, 1996) (Thomas) (Full-payment requirement in § 1322(a)(2) does not apply to property taxes that are actually secured claims, not priority claims.). See also In re Pace, 257 B.R. 918 (Bankr. W.D. Mo. Dec. 18, 2000) (Koger) (No portion of the IRS’s prepetition general unsecured claim is secured by a right of setoff under § 553 because the debtors’ claim of exemption in the prepetition tax refund under § 522(c) trumps the IRS’s setoff.).

 

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.

 

15  See § 103.3 [ Partially Secured Claims ] § 74.10  Partially Secured Claims.

 

16  See §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

17  11 U.S.C. § 507(a)(1)(A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA, 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA, 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA and 521.1 [ Secured Priority Claims ] § 136.19  Secured Priority Claims after BAPCPA.

 

18  See 11 U.S.C. § 503(b)(1)(B)(i), as amended by BAPCPA, discussed in §§ 292.1 [ Taxes ] § 136.2  Taxes before BAPCPA and 513.1 [ Taxes ] § 136.3  Taxes after BAPCPA.

 

19  See §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA, 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA, 522.1 [ The New DWI Priority ] § 136.22  The Driving or Boating while Intoxicated Priority after BAPCPA and 555.1 [ Boating or Flying while Intoxicated: § 523(a)(9) ] § 159.8  Boating or Flying while Intoxicated: § 523(a)(9).

 

20  11 U.S.C. § 507(a)(10), discussed in § 522.1 [ The New DWI Priority ] § 136.22  The Driving or Boating while Intoxicated Priority after BAPCPA.

 

21  There are also issues with respect to the dischargeability of debts that fall within this new priority. See § 555.1 [ Boating or Flying while Intoxicated: § 523(a)(9) ] § 159.8  Boating or Flying while Intoxicated: § 523(a)(9).