§ 75.5 — Surrender in Full Satisfaction?

Revised: February 25, 2010

[1]

The peculiar wording of the hanging sentence at the end of § 1325(a)1 has produced a fractious debate with respect to the effect of surrender of collateral securing a hanging-sentence debt. There is irony here because no one doubts that the hanging-sentence architects intended only good things for car lenders and other lienholders.2 Had the lobbyists who drafted the hanging sentence3 asked anybody knowledgeable about Chapter 13, they would have been told that disabling § 5064 is not a smart route to avoiding cramdown of car claims in Chapter 13 cases. But disable § 506 they did and fractious describes the result.

[2]

At this writing, more than half a hundred decisions have been reported addressing the effect of surrender of hanging-sentence collateral. Between October of 2005 and July of 2007, the cases were irreconcilably split with decent arguments all around.5 Beginning in July of 2007, the courts of appeals waded into the debate, and since then the U.S. Courts of Appeals for the Fourth,6 Fifth,7 Sixth,8 Seventh,9 Eighth,10 Tenth11 and Eleventh12 Circuits and the Bankruptcy Appellate Panel for the Ninth Circuit13 have agreed that surrender of collateral does not eliminate the (unsecured) deficiency claim of a creditor that is protected from § 506 by the hanging sentence. In the last 18 months, many contrary decisions from the lower courts (collected below) have been reversed.

[3]

To frame the debate, review the hanging sentence at the end of § 1325(a):

For purposes of [§ 1325(a)(5)], section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest . . . the debt was incurred within the 910-day[s] preceding the date of the filing of the petition, and the collateral . . . consists of a motor vehicle . . . acquired for the personal use of the debtor, or if collateral . . . consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.14
[4]

The problem that should have been foreseen is that § 1325(a)(5) contains several alternatives—only one of which has come to be known as “cramdown.”15 Section 1325(a)(5)(A) contemplates that an allowed secured claim provided for by the plan can be managed by acceptance of the plan.16 And § 1325(a)(5)(C) has always provided that a Chapter 13 debtor can surrender the property securing an allowed secured claim.17

[5]

If we speculate that the drafters of the hanging sentence intended to target only the bifurcation and cramdown of undersecured cars and other collateral in Chapter 13 cases,18 it would have been simple to limit the opening phrase of the hanging sentence to “paragraph (5)(B).” But they didn’t. Ordinary canons of statutory construction require that when a debt falls within the hanging sentence, § 506 shall not apply with respect to whatever § 1325(a)(5) treatment the allowed secured claim is provided by the plan.

[6]

BAPCPA served up the convoluted question: how does surrender of collateral under § 1325(a)(5)(C) impact a hanging-sentence claim to which § 506 shall not apply? In the pre-BAPCPA world, the easy answer was that an undersecured debt was a secured claim to the extent of the value of the creditor’s interest in the estate’s interest in the collateral and an unsecured claim for the balance.19 Upon surrender of all collateral in a Chapter 13 case, the allowed secured claim was satisfied entirely because, under § 506, an allowed claim was a secured claim only to the extent of the value of the collateral and without collateral, there was no allowable secured claim. The unsecured portion of the debt was already sheared from its secured sibling under pre-BAPCPA law and that unsecured debt was unaffected by surrender of the collateral—at least in the sense that it was allowable without regard to treatment of the secured portion.

[7]

But the hanging sentence disrupts this picture by precluding the use of § 506 to split an undersecured debt into its secured and unsecured components. A strong majority of courts interpreting the hanging sentence have concluded that when § 506 does not apply, the allowed claim becomes a “fully secured” claim which must be managed under § 1325(a)(5) as if the collateral was worth the full amount of the debt.20 In other words, by precluding the use of § 506 to value collateral and split claims, the hanging sentence creates a new species of debt in Chapter 13 cases that must be treated as fully secured even when it is not.21

[8]

So what happens in a Chapter 13 case when the debtor surrenders all the collateral that secures a debt that is (artificially) treated as if it is fully secured because of the hanging sentence at the end of § 1325(a)? Perhaps the closest Bankruptcy Code analogue to this effect of the hanging sentence is the election in § 1111(b) by which some undersecured claim holders in Chapter 11 cases have an option to be treated as fully secured “notwithstanding section 506(a).”22 When a creditor makes the § 1111(b) election in a Chapter 11 case and is treated as fully secured, the creditor risks surrender of its collateral in full satisfaction of the debt.23 Although the language in the hanging sentence is not the same as § 1111(b)(2), does the same outcome attend the surrender of collateral to a hanging-sentence creditor when § 506 shall not apply?

[9]

The first reported Chapter 13 decision to address surrender in the hanging-sentence context was In re Ezell.24 Judge Stair concluded in Ezell that surrender of a car that falls within the hanging sentence fully satisfies the claim because § 506 is not available to rescue the unsecured portion of the debt. Judge Stair’s careful analysis deserves extended quotation:

[W]hen the creditor files its claim as secured, the Anti-Cramdown Paragraph precludes the use of Revised § 506(a) to reduce or bifurcate that claim into secured and unsecured components. . . . [T]he creditor’s allowed secured claim is fixed at the amount at which the claim is filed. . . . Accordingly, under Revised § 1325(a)(5), a creditor holding a secured claim falling within the scope of the Anti-Cramdown Paragraph is fully secured for the amount of its claim . . . . If the property is to be retained pursuant to Revised § 1325(a)(5)(B), the debtor must treat the entire claim as secured . . . . It only stands to reason that the same analysis is true when applied to surrender under Revised § 1325(a)(5)(C)—the creditor is fully secured, and surrender therefore satisfies the creditor’s allowed secured claim in full. . . . The court has no choice but to interpret the Anti-Cramdown Paragraph as written, i.e., that it applies to both Revised § 1325(a)(5)(B) and (C). . . . [A] creditor whose claim falls within the scope of the Anti-Cramdown Paragraph is fully secured under Revised § 1325(a)(5)(C), regardless of the amount it might realize from the liquidation of its collateral upon surrender. Because application of § 506(a) is entirely removed from the picture, there can be no deficiency balance, either secured or unsecured, and surrender satisfies an allowed secured claim in full.25
[10]

After publication of Ezell, dozens of courts reported decisions addressing the surrender of collateral in the hanging-sentence context and a strong majority embraced the logic that a Chapter 13 debtor can surrender hanging-sentence collateral in full satisfaction of the debt.26 Almost all of these decisions have been reversed on appeal.27

[11]

A minority of relevant bankruptcy and intermediate appellate court decisions earnestly concluded that surrender of all collateral to a hanging-sentence claim holder did not necessarily satisfy the underlying debt and the claim holder could file an unsecured claim for the deficiency. The minority courts—including some in districts reporting contrary decisions—reasoned that nonbankruptcy law entitles a hanging-sentence claim holder to assert an unsecured claim notwithstanding that § 506 shall not apply. As explained by the bankruptcy court in In re Particka:28

[T]he bifurcation process of § 506 does not, and never did, apply to determine a secured and unsecured portion of a secured creditor’s allowed claim where the estate does not have an interest in the property securing such claim. Once a debtor surrenders property to a secured creditor, there is no longer any reason to apply § 506(a) to determine the allowed amount of such creditor’s secured claim because the estate no longer holds an interest in the property. . . . Because § 506 does not apply to a vehicle surrendered under § 1325(a)(5)(C), the specific direction of the hanging paragraph that § 506 no longer apply to § 1325(a)(5) does not cause any change in the outcome where a debtor surrenders a vehicle under § 1325(a)(5)(C) to a 910 creditor and the estate no longer retains an interest in such vehicle. . . . Upon surrender, the 910 secured creditor still is entitled to enforce its right to payment and, after disposition of the collateral, that right to payment can still be filed and allowed as an unsecured deficiency claim under § 502. . . . By definition, “surrender” terminates the estate’s interest in the property, thereby rendering § 506(a) entirely inapplicable. . . . [T]here is not the slightest suggestion in the legislative history to the hanging paragraph that it was intended to somehow convert recourse claims of 910 creditors into non-recourse claims upon surrender and prevent them from asserting deficiency claims where their collateral has depreciated below the amount of the debt. . . . Congress is presumed to have known that a surrender of property under [§ 1325(a)(5)(C)] has never been held to extinguish an allowed claim of a secured creditor. . . . BAPCPA did not add any provision to § 502 . . . which provides the exclusive grounds to disallow a claim, that would now disallow an unsecured deficiency claim of a 910 creditor holding a recourse obligation by converting it into a non-recourse obligation.29
[12]

Responding in defense of Ezell, after the decision in Particka, the Bankruptcy Court for the Eastern District of Tennessee, this time through Judge Parsons, answered its critics point by point in In re Gentry:30

The majority of courts considering the issue since Ezell have adopted or agreed with its analysis. . . . [C]ontrary to ECU’s contention, “the bifurcation effected by § 506(a) was the source of the creditor’s right to a deficiency claim prior to BAPCPA.” . . . [T]hat valuation of the collateral was generally determined by UCC liquidation sale rather than by the court is irrelevant. Section 506(a) assigned the formula for the split; the sale was simply the process by which the formula was applied. . . . The decisions in [In re Zehrung, 351 B.R. 675 (W.D. Wis. 2006),] and [In re Particka, 355 B.R. 616 (Bankr. E.D. Mich. 2006),] were based on the proposition that “[s]ection 506 has application only when the estate retains an interest in the collateral, a circumstance which disappears with surrender.” . . . However, . . . the pre-BAPCPA version of § 506(a) was not limited to the retention scenario. By its terms, it plainly addressed both the retention and surrender situations . . . . The applicability of § 506(a) to § 1325(a)(5)(C)’s surrender option was expressly recognized by the United States Supreme Court in Rash . . . . Under § 1325(a)(5)(C), an allowed secured claim is paid by the surrender of the collateral. Previously, the unsecured portion of a secured creditor’s claim, that is, its right to a deficiency was preserved by § 506(a). The Hanging Paragraph’s directive that § 506 has no application to a 910 Claim eliminated this preservation, with the result that there is no longer a provision in the Bankruptcy Code that provides a deficiency to a 910 Claim secured creditor upon the surrender of the collateral in accordance with § 1325(a)(5)(C). The fact that a creditor has certain rights under state law is not necessarily determinative of its rights under the Bankruptcy Code. . . . ECU’s alternative argument . . . that the Hanging Paragraph only prohibits § 506(a)’s bifurcation when applying § 1325(a)(5) and that its secured claim is still bifurcated when determining whether other requirements of confirmation, including § 1325(a)(4), have been met. . . . The problem with this reading is that paragraph (5) is the only paragraph in § 1325(a) that even references “allowed secured claim provided for by the plan” or even allowed secured claim. There is no other provision which could logically be read to mean “for this purpose” or “in this paragraph” section 506 shall apply to allowed secured claims since no other section governs the treatment of secured claims in a chapter 13 plan. . . . [S]uch a construction would be inconsistent with the statute’s legislative history which states simply that a new paragraph has been added to § 1325(a) providing that § 506 does not apply to a 910 Claim. . . . There is no suggestion in the legislative history that this directive only applies to § 1325(a)(5) or that Congress intended for a 910 Claim to be bifurcated for purposes of applying all other Code sections. . . . [T]he impact of the Hanging Paragraph is that allowed secured claim is no longer defined by § 506. Instead, it now appears that § 1325(a)(5)’s “allowed secured claim” simply means a claim that is secured under state law and otherwise allowed under federal bankruptcy law. . . . This allowed secured claim is satisfied in full by the surrender option set forth in § 1325(a)(5)(C). Thus, it is no longer necessary or required that the secured claim be bifurcated in the first instance. . . . [T]he Hanging Paragraph clearly provides that § 506 “shall not apply” to a 910 Claim. The natural result of this directive is that no bifurcation of a 910 Claim ever occurs or that it has no effect even if it does take place.31
[13]

The first court of appeals to consider surrender in full satisfaction under the hanging sentence adopted the minority position. In Giles-Wright v. Santander Consumer USA Inc. (In re Wright),32 the United States Court of Appeals for the Seventh Circuit through Judge Easterbrook held that a Chapter 13 debtor could not surrender a 910-day PMSI car claim in full satisfaction of the debt because the deficiency was protected by state law. Citing Butner v. United States,33 Judge Easterbrook reasoned that the Bankruptcy Code did not supply a federal rule with respect to the rights of a 910-day PMSI car claim creditor when § 506 did not apply:

[T]he question at hand is what happens when § 506 does not apply. The fallback under Butner is the parties’ contract . . . rather than non-recourse secured debt . . . or no security interest. . . . [T]here is no debate about how the parties’ contract works: the secured lender is entitled to an (unsecured) deficiency judgment for the difference between the value of the collateral and the balance on the loan.34
[14]

Wright suffers the same infirmities as other minority position cases. Judge Easterbrook neglected to mention that the Bankruptcy Code does deal with nonrecourse secured debt in the analogous treatment of partially secured creditors electing to be fully secured in Chapter 11 cases under § 1111(b). Default to Butner is certainly appropriate to determine that a creditor has a debt under state law; Butner does not compel allowance of the unsecured portion of that claim when the creditor elects to forgo its unsecured claim in favor of fully-secured status through the Chapter 13 plan.

[15]

The Seventh Circuit’s decision in Wright opened the flood gates. Notwithstanding fundamental shortcomings in what was the minority position, after Wright every court of appeals to address the question has held that surrender of the collateral securing a claim protected from § 506 by the hanging sentence does not preclude allowance of an unsecured deficiency claim.35

[16]

This robust debate is not over, but the “minority” position has been winning handily on appeal notwithstanding arguments with fine purchase on both sides. So far, the courts of appeals have been unwilling to accept the possibility that Congress broke the usual rules for partially secured 910-day PMSI car lenders but only if the debtor keeps the collateral during the Chapter 13 case. Oddly, the courts of appeals cast the hanging sentence as a “have your cake and eat it, too” opportunity for car lenders. Of course, it is the unsecured creditors that provide the cash to fund the deficiency claims that result after surrender of hanging-sentence collateral.

[17]

Not yet well developed in the reported decisions is the question whether the deficiency remaining after surrender of collateral for a hanging-sentence claim is an “ordinary” unsecured claim or something else. There would be no reason to even ask this question but for pre-BAPCPA case law in at least one circuit that manufactured special treatment for the deficiency after surrender of collateral to a secured creditor.

[18]

Detailed elsewhere,36 in Chrysler Financial Corp. v. Nolan (In re Nolan),37 the U.S. Court of Appeals for the Sixth Circuit reached the controversial conclusion that upon surrender of collateral after confirmation, the debtor could not modify the plan to treat any deficiency as an unsecured claim. Nolan raises the specter that an artificially secured claim after BAPCPA—a claim that must be treated as fully secured to confirm a plan because of the hanging sentence—is forever a “secured” claim for purposes of distributions notwithstanding surrender and liquidation of all collateral. Keep in mind that the fully secured status of a hanging-sentence claim results not from some mistake in valuation but from a statutory change that compels all Chapter 13 debtors to treat all debts that fall within the hanging sentence as if they were fully secured to confirm a plan.38 The fundamental mistake by the Sixth Circuit in Nolan is amplified grotesquely by the possibility that every hanging-sentence claim must continue to be paid as fully secured—presumably, with postconfirmation interest—notwithstanding that all collateral is surrendered to the lienholder. It is hoped that courts in the post-BAPCPA context will not compound the Nolan mistake but will instead treat the deficiency after surrender of hanging-sentence collateral as an ordinary unsecured claim to be paid whatever other unsecured creditors are receiving through the plan.39

[19]

In circuits that have not yet decided the surrender issue, the “majority” position arms Chapter 13 debtors with the potential to wipe out an undersecured car lender’s claim in full by surrender of the car. This potential empowers Chapter 13 debtors to negotiate an economically rational valuation and payment through the plan else the creditor eats steel. Car lenders and other creditors that fall within the hanging sentence have a choice in such districts: retrieve the collateral in full satisfaction of the debt or negotiate a value and interest rate through the plan that is perhaps better than what the creditor would realize upon surrender. The recognition of surrender in full satisfaction by the majority of trial courts brought some economic sanity to the hanging sentence—a sanity that has rapidly dissipated with decisions by the courts of appeals.

[20]

Even in circuits holding that surrender of hanging-sentence collateral does not preclude a deficiency claim, creditors that sleep on their rights may be bound by a plan that surrenders collateral in full satisfaction.40

[21]

A final related issue soon to rear its head is the amendment of proofs of claim to assert an unsecured deficiency after the surrender of hanging-sentence collateral. Detailed elsewhere,41 the jurisprudence of amending proofs of claim in bankruptcy is packed with discretion and uncertainty. The hanging sentence at the end of § 1325(a) treats many undersecured lenders as if they are fully secured in Chapter 13 cases after BAPCPA.42 The proof of claim form—Official Form 10—clearly contemplates that a lienholder will file a single proof of claim and on that single form must indicate whether the value of collateral is sufficient to fully secure the debt.43 An undersecured creditor is instructed to reveal both the secured and unsecured portion of its claim on the face of the one Official Form 10 that it files in a Chapter 13 case.

[22]

Perhaps ironically, the hanging sentence at the end of § 1325(a) has inspired many lienholders with hanging-sentence collateral to file inaccurate proofs of claim that assert “fully secured” status—not because the value of collateral is sufficient to secure the entire debt but because the hanging sentence itself entitles the lienholder to treatment as if it were fully secured. Mistakenly believing that treatment through the plan at confirmation somehow affects the claim-filing process, many creditors with hanging-sentence collateral are filing “fully secured” proofs of claim even when they are not fully secured creditors.

[23]

You see the problem: if collateral is surrendered, how does the now unsecured creditor accomplish allowance of its deficiency when the only claim on file for the creditor is “fully secured”? If the deficiency claim is filed after the claims bar date—which will typically be the case because the claims bar date for most secured claim holders is 90 days after the first date set for the meeting of creditors44—any unsecured claim for the deficiency will be untimely unless it is treated as an “amendment” of a timely filed claim. When the only timely filed claim was “fully secured,” there are many good arguments that a subsequent unsecured deficiency claim cannot be an amendment because it changes the nature of the claim altogether. The allowance of “amended” claims is an equitable enterprise that puts at issue the bona fides of the filing creditor that may have misrepresented the “fully secured” status of its claim in the first instance. This is a situation full of land mines for the creditor that has received surrender of hanging-sentence collateral.45

[24]

Perhaps the solution for the debtor that intends to surrender property that will be hanging-sentence collateral is to surrender the property before the petition. Surrender before the petition avoids the argument that there is a “secured” deficiency in a jurisdiction that looks favorably on Nolan. Of course, surrender before the petition gives up the argument that surrender can be in full satisfaction of the debt.46


 

1  See text below in this section, and see § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

2  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

3  See § 2.2  Brief History, Including “Legislative History,” of BAPCPA§ 3.1  Understanding Chapter 13 after BAPCPA and § 3.10  Nine: Malice or Incompetence?.

 

4  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

5  See below in this section.

 

6  Tidewater Fin. Co. v. Kenney, 531 F.3d 312 (4th Cir. June 25, 2008) (King, Duncan, Roth).

 

7  DaimlerChrysler Fin. Servs. Ams. LLC v. Miller (In re Miller), 570 F.3d 633 (5th Cir. June 5, 2009) (Smith, Garza, Clement).

 

8  AmeriCredit Fin. Servs., Inc. v. Long (In re Long), 519 F.3d 288 (6th Cir. Mar. 4, 2008) (Merritt, Clay, Cox).

 

9  Giles-Wright v. Santander Consumer USA Inc. (In re Wright), 492 F.3d 829 (7th Cir. July 3, 2007) (Easterbrook, Manion, Wood).

 

10  Capital One Auto Fin. v. Osborn (In re Osborn), 515 F.3d 817 (8th Cir. Feb. 5, 2008) (Wollman, Benton, Doty).

 

11  DaimlerChrysler Fin. Servs. v. Ballard (In re Ballard), 526 F.3d 634 (10th Cir. May 19, 2008) (Tacha, Ebel, McConnell).

 

12  DaimlerChrysler Fin. Servs. Ams. LLC v. Barrett (In re Barrett), 543 F.3d 1239 (11th Cir. Sept. 29, 2008) (Tjoflat, Marcus, Vinson).

 

13  Wells Fargo Fin. Acceptance v. Rodriguez (In re Rodriguez), 375 B.R. 535 (B.A.P. 9th Cir. Aug. 28, 2007) (Montali, Dunn, Jaroslovsky).

 

14  Hanging sentence at the end of 11 U.S.C. § 1325(a), discussed in § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

15  See §§ 101.1 [ General Rules ] § 74.1  General Rules before BAPCPA, 104.1 [ The Power to Modify ] § 74.11  The Power to Modify and 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

16  See §§ 101.2 [ Acceptance of Plan ] § 74.3  Acceptance of Plan before BAPCPA and 445.1 [ Acceptance of Plan ] § 74.4  Acceptance of Plan after BAPCPA.

 

17  See §§ 102.1 [ Surrender or Sale of Collateral ] § 74.5  Surrender or Sale of Collateral before BAPCPA and 446.1 [ Surrender of Collateral ] § 74.6  Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA.

 

18  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

19  See §§ 103.3 [ Partially Secured Claims ] § 74.10  Partially Secured Claims and 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

20  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

21  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

22  11 U.S.C. § 1111(b)(2).

 

23  See, e.g., In re Webster, No. 85-05058, 1987 WL 857556, at *2 (Bankr. D.N.D. Mar. 19, 1987) (unpublished) (“The court does not agree that FmHA is unsecured as to any deficiency arising by the occurrence of such a default. There can be no deficiency entitled to treatment under the plan because the effect of the section 1111(b) election was to eliminate any right to an unsecured claim. Recovery of the real property itself is inclusive of everything FmHA might be entitled to in consequence of a default.”); In re Southern Mo. Towing Serv., Inc., 35 B.R. 313, 314 (Bankr. W.D. Mo. 1983) (“When the creditor makes the Section 1111(b) election, the whole amount of the debt is allowed as secured. The right to have an unsecured claim is given up. By making this election the creditor prevents the debtor from ‘cashing him out’.”).

 

24  338 B.R. 330 (Bankr. E.D. Tenn. 2006).

 

25  338 B.R. at 340–42. Accord In re Holland, No. 07-30176, 2007 WL 1119937 (Bankr. E.D. Tenn. Apr. 13, 2007) (unpublished); In re Tucker, No. 07-30007, 2007 WL 1115233 (Bankr. E.D. Tenn. Apr. 12, 2007) (unpublished); In re Harrell, No. 06-32661, 2007 WL 708569 (Bankr. E.D. Tenn. Mar. 5, 2007) (unpublished); In re Gable, No. 06-32820, 2007 WL 708573 (Bankr. E.D. Tenn. Mar. 5, 2007) (unpublished); In re Rice, No. 06-32334, 2007 WL 541809 (Bankr. E.D. Tenn. Feb. 16, 2007) (unpublished); In re Keck, No. 06-32392, 2007 WL 470349 (Bankr. E.D. Tenn. Feb. 9, 2007) (unpublished); In re Steakley, 360 B.R. 769 (Bankr. E.D. Tenn. 2007); In re Bayless, No. 06-31517, 2006 WL 2982101 (Bankr. E.D. Tenn. Oct. 18, 2006) (unpublished) (In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006), correctly determined that a 910-day PMSI car can be surrendered in full satisfaction of the debt.); In re Long, No. 06-30651, 2006 WL 2090246 (Bankr. E.D. Tenn. July 12, 2006) (unpublished); In re Fee, No. 06-30106, 2006 WL 2090248 (Bankr. E.D. Tenn. July 6, 2006) (unpublished) (Confirmed plan that surrendered 910-day PMSI car in full satisfaction of secured debt is binding under § 1327(a) and precludes allowance of car lender’s claim when confirmation order was not stayed pending appeal.).

 

26  See, e.g., In re Carter, Nos. 06-30864-REH, 3:07-CV-50 (CDL), 2008 WL 410275, at *3 (M.D. Ga. Feb. 11, 2008) (unpublished) (Land) (910-day PMSI car can be surrendered in full satisfaction, precluding deficiency claim. “The plain language of the Hanging Paragraph is not ambiguous: It clearly states that § 506(a) ‘shall not apply’ to a 910-claim. The language of this paragraph does not differentiate between claims against debtors who choose to retain collateral, pursuant to § 1325(a)(5)(B), and those who opt for surrender, pursuant to § 1325(a)(5)(C). If Congress intended for the limitation of the Hanging Paragraph to apply to § 1325(a)(5)(B) alone, rather than § 1325(a)(5) as a whole, it could have drafted such a limitation into the language of the statute.”); In re Adams, 403 B.R. 387 (Bankr. E.D. La. Mar. 27, 2009) (Magner) (Plan can surrender 910-day PMSI car in full satisfaction of debt. “Unless the Code specifically defers to state law, federal law determines how a claim against an estate will be administered. . . . Section 1325 contains no provision that would require the court to enforce state law. . . . The Bankruptcy Code . . . determines whether a claim is allowable, entitled to distribution, and in what measure or priority. [In re Wright, 492 F.3d 829 (7th Cir. 2007),]’s analysis fails because it relies upon state law to determine whether a claim is allowable and entitled to distribution . . . . While the [AmeriCredit Financial Services, Inc. v. Long (In re Long), 519 F.3d 288 (6th Cir. 2008),] court acknowledged that a plain reading of § 1325(a)(5) would require the satisfaction of a 910 Creditor’s claim on the surrender of the 910 Collateral, it ignored an elementary rule of statutory construction requiring it to uphold the statute as written. . . . [T]his Court is compelled to give meaning to the fact that § 1325(a)(5)(C) falls under the umbrella of [the] hanging paragraph. . . . Congress did require that the plan provide for treatment of the allowed claim, the creditor’s entire debt, through full payment or surrender of the vehicle.”); In re Pruitt, 401 B.R. 546 (Bankr. D. Conn. Feb. 24, 2009) (Dabrowski) (Chapter 13 plan can surrender 910-day PMSI car in full satisfaction of debt. “The pre-existing ‘claim’. . . that a creditor brings to a bankruptcy case necessarily has its origins in State Law. . . . [T]he ultimate amount, character and class of a creditor’s claim for purposes of treatment in the bankruptcy case is determined solely by the rules and principles of the federal bankruptcy law. . . . Section 502 stands in ultimate derogation of State Law. Because Title 11 is plenary and supreme, some claims that are potentially enforceable under State Law are nonetheless disallowed in a bankruptcy case, and visa [sic] versa . . . . [F]or purposes of treatment in bankruptcy cases Congress intended that State Law deficiency claim concepts be wholly displaced by the plenary bankruptcy law standards of claim characterization . . . . [T]he Hanging Paragraph’s disabling of bifurcation should have general and uniform application to 910-Vehicle Claims in all treatment contexts. . . . [T]he ‘surrender’ treatment option . . . fully satisfies the deemed unitary claim of Banknorth, and renders unnecessary any separate treatment of an ‘unsecured’ claim component representing any actual deficiency in the collateral for such claim. . . . [Butner v. United States, 440 U.S. 48, 99 S. Ct. 914, 59 L. Ed. 2d 136 (1979),] . . . deals with the nature and extent of property interests, not with the characterization of claims as secured and/or unsecured. . . . Butner . . . is wholly consistent with a position that views bankruptcy administrative concepts, such as claim characterization, as remaining within the exclusive province of federal bankruptcy law. . . . Allowance is not at issue in this case at bar; it is undisputed that Banknorth possesses an allowed claim under Section 502 that includes the full amount of any deficiency claim that it might otherwise possess under State Law. The issue before the Court, rather, is ultimately one of claim characterization . . . . [A]ny manner of bifurcation of 910-Vehicle Claims was plainly an anathema to the animating purpose of the Hanging Paragraph . . . . If Congress had understood there to be a viable State Law bifurcation scheme that could operate within the fabric of federal bankruptcy law, it would certainly have acted to disable that scheme as well[.]” In an alternative holding: “Banknorth has presented a Proof of Claim in this case that asserts the entire amount of its claim as secured. . . . [I]ts voluntary election to present its claim as a unitary secured claim, rather than a bifurcated claim with secured and unsecured components, estops Banknorth from now objecting to the Debtor’s Plan on the basis of the plan’s failure to treat a portion of its claim as unsecured.”); In re Tompkins, 391 B.R. 560 (Bankr. S.D.N.Y. Aug. 13, 2008) (Morris) (Reaffirming In re Pinti, 363 B.R. 369 (Bankr. S.D.N.Y. 2007), and rejecting contrary decisions from Fourth, Sixth, Seventh, Eighth and Tenth Circuits, 910-day PMSI car can be surrendered in full satisfaction because bankruptcy law, not state law, determines there is no unsecured deficiency claim when debt is fully secured under hanging sentence. “This Court’s decision in Pinti addressed and rejected arguments that the right to an unsecured deficiency claim is determined by state law, as opposed to the Bankruptcy Code. . . . Although other courts have disagreed, they have done so based upon arguments that this Court considered and rejected in Pinti. . . . [T]he ‘hanging paragraph’ appears to be a ‘qualifying or contrary provision’ to the general principles set forth in [Travelers Casualty & Surety Co. v. Pacific Gas & Electric Co., __ U.S. __, 127 S. Ct. 1199, 167 L. Ed. 2d 178 (2007),] and [Butner v. United States, 440 U.S. 48, 99 S. Ct. 914, 59 L. Ed. 2d 136 (1979)].”); In re Quick, No. 07-21791, 2008 WL 474266, at *3 (Bankr. D. Kan. Feb. 14, 2008) (unpublished) (Somers) (Applying DaimlerChrysler Financial Services Americas, LLC v. Quick (In re Quick), 371 B.R. 459 (B.A.P. 10th Cir. 2007), “the hanging paragraph following § 1325(a)(9) applies to plans which propose to surrender 910 collateral pursuant to § 1325(a)(5)(C) and bars the allowance of an unsecured deficiency claim following . . . disposition.”); In re Gable, No. 06-32820, 2007 WL 2782313 (Bankr. E.D. Tenn. Sept. 21, 2007) (unpublished) (Having previously held that surrender of vehicle to AmeriCredit was in full satisfaction of its debt, court sustains Chapter 13 trustee’s objection to AmeriCredit’s deficiency claim based on law of the case. AmeriCredit appealed prior order, but no stay pending appeal had been issued.); In re Vanduyn, 374 B.R. 896, 900–02 (Bankr. M.D. Fla. Aug. 30, 2007) (Rejecting In re Wright, 492 F.3d 829 (7th Cir. 2007), “the Hanging Paragraph expressly precludes the application of Section 506(a) of the Code by a 910 creditor to effectively bifurcate its claim into secured and unsecured. Furthermore, the Hanging Paragraph plainly addressed the retention and surrender situations . . . . [T]he Hanging Paragraph . . . permits debtors to surrender their vehicle . . . in full satisfaction of the debt owed to the secured creditor.”); In re Williams, No. 06-32921-KRH, 2007 WL 2122131, at *4–*7 (Bankr. E.D. Va. July 19, 2007) (unpublished) (“This Court agrees with . . . [In re Kenney, No. 06-71975A, 2007 WL 1412921 (Bankr. E.D. Va. May 10, 2007) (unpublished),] that the exclusion of § 506 from the calculus prohibits bifurcation of the secured creditor’s claim under both subparagraphs. . . . [I]f Congress had intended for the provisions of the hanging paragraph not to apply to subparagraph (C) of § 1325(a)(5), it would have simply limited application of the hanging paragraph to subparagraph (B) of § 1325(a)(5). . . . The Fourth Circuit has gone so far as to say that a result may be unreasonable or even quite unreasonable and still not reach the level of ‘absurd.’ . . . No clear Congressional intent can be gleaned from the legislative history.”); In re Hill, No. 06-50972, 2007 WL 2021897 (Bankr. E.D. Tenn. July 6, 2007) (unpublished) (Reaffirming In re Gentry, No. 06-50204, 2006 WL 3392947 (Bankr. E.D. Tenn. Nov. 22, 2006) (unpublished), hanging sentence permits surrender of 910-day PMSI car in full satisfaction of debt.); In re Lanier, 372 B.R. 727, 730–33 (Bankr. M.D. Pa. June 29, 2007) (Surrender in full satisfaction does not violate Fifth Amendment rights of lienholder whose purchase money security interest pre-dates BAPCPA. “Americredit’s security interest was created prior to the effective date of BAPCPA. . . . Liens affected by the hanging paragraph are not destroyed, rather they are protected to the extent of the value of the collateral. . . . [T]he result produced when a 910-vehicle is surrendered in full satisfaction of lien is the polar opposite of the avoidance of a lien under § 522(f). . . . [Section] 1325(a)(9*) prohibits the bifurcation of a lien on a 910-vehicle, thus protecting the lien, but also barring the assertion of an unsecured claim. Under the [Wright v. Union Central Life Insurance, 304 U.S. 502, 58 S. Ct. 1025, 82 L. Ed. 1490 (1938),] cases, preservation of the creditor’s lien to the extent of the value of the collateral is all that is required to survive Fifth Amendment scrutiny. . . . [T]he Fifth Amendment is not violated when a creditor with a lien created prior to the effective date of BAPCPA is precluded from asserting a deficiency claim against a debtor’s estate.”); In re Belcher, 369 B.R. 465 (Bankr. E.D. Ark. June 6, 2007) (Debtor cannot surrender 910-day PMSI car in full satisfaction of debt by modification after confirmation under § 1329, notwithstanding that debtor could have surrendered car in full satisfaction at confirmation of original plan.); In re Williams, 369 B.R. 680 (Bankr. M.D. Fla. May 21, 2007) (Adopting majority view, 910-day PMSI car can be surrendered in full satisfaction of debt.); In re Kenney, No. 06-71975-A, 2007 WL 1412921, at *7–*11 (Bankr. E.D. Va. May 10, 2007) (unpublished) (Adopting majority position, surrender in full satisfaction of a 910-day car claim prohibits allowance of a deficiency. “[A]pplying the hanging paragraph to surrender cases produces the same result as applying it to cases where the debtor retains the collateral; the claim is treated as fully secured. . . . BAPCPA purports to be a consumer protection act. As such, perhaps congress meant to spread the risk between the debtor and creditor when lending on collateral, the value of which is somewhat compromised because of age. Allowing debtors to surrender the collateral in full satisfaction of the claim might help to ensure that sub-prime creditors are not taking advantage of debtors by charging them more than the market will actually support. . . . [G]iven the language of [Associates Commercial Corp. v. Rash, 520 U.S. 953, 117 S. Ct. 1879, 138 L. Ed. 2d 148 (1997), and United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S. Ct. 1026, 103 L. Ed. 2d 290 (1989),] the Supreme Court has declared § 506 to define the value of allowed secured claims rather than defining ‘allowed secured claim’ as a term of art. . . . [S]urrendered property is specifically not included in § 541(b), which lists the nine categories of property that are not property of the bankruptcy estate.”); In re Roth, No. 06-11330, 2007 WL 1385383, at *1–*2 (Bankr. N.D. Ind. May 4, 2007) (unpublished) (“[B]y a margin of about 3-to-1 the vast majority of reported cases favor the position . . . that a 910 car creditor can, through the confirmation of a proposed plan, be compelled to accept the surrender of its collateral in full satisfaction of its claim. . . . [T]he court agrees with the majority that the hanging paragraph does permit a debtor to surrender the collateral of a 910 car creditor in full satisfaction of that creditor’s claim.”); In re Doddroe, No. 06-61947, 2007 WL 1310177, at *5 (Bankr. N.D. Ohio May 3, 2007) (unpublished) (Surrender fully satisfies a 910-day PMSI car claim. “[T]he fiction results in a class of claims where the value of the collateral is presumed to be equal to the amount of the claim. . . . If the collateral is given up, the entire claim is deemed to be paid regardless of the collateral’s value.”); In re Stevens, 368 B.R. 5 (Bankr. D. Neb. Apr. 9, 2007) (After determining portion of multi-car loan entitled to protection of hanging paragraph and applying Nebraska dual-status rule, debtor can surrender in full satisfaction collateral for 910-day PMSI car claims and keep other 910-day PMSI collateral subject to payment in full through plan; if debtor surrenders collateral not protected from § 506 by hanging paragraph, then any deficiency after surrender must be paid as an unsecured claim.); In re Pinti, 363 B.R. 369 (Bankr. S.D.N.Y. 2007) (Collecting conflicting authorities, Chapter 13 debtor can surrender 910-day PMSI car in full satisfaction of debt.); In re Bivins, No. 06-51778 RFH, 2007 WL 624385, at *3 (Bankr. M.D. Ga. Feb. 23, 2007) (unpublished) (“The Court is persuaded that it should follow the majority of courts which hold that a Chapter 13 debtor can surrender a vehicle in full satisfaction of the secured creditor’s claim. . . . [T]he hanging paragraph applies to all subsections of section 1325(a)(5).”); In re Moon, 359 B.R. 329, 333 (Bankr. N.D. Ala. 2007) (Rejecting In re Particka, 355 B.R. 616 (Bankr. E.D. Mich. 2006), “[t]he Court agrees with the reasoning in [In re Gentry, No. 06-50204, 2006 WL 3392947 (Bankr. E.D. Tenn. 2006) (unpublished),] and [In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006)], and concludes that the hanging paragraph following § 1325(a) applies to both § 1325(a)(5)(B) and § 1325(a)(5)(C). Without § 506, a 910 creditor has no statutory basis to assert an unsecured claim after surrender of its collateral. . . . CitiFinancial’s claim will be treated as fully secured under § 1325(a)(5)(C) and surrender will satisfy the creditor’s claim in full.”); In re Quick, 360 B.R. 722 (Bankr. N.D. Okla. 2007) (Adopting In re Gentry, No. 06-50204, 2006 WL 3392947 (Bankr. E.D. Tenn. Nov. 22, 2006) (unpublished), Chapter 13 debtor can surrender 910-day PMSI car in full satisfaction of debt.); In re Durham, 361 B.R. 206, 209 (Bankr. D. Utah 2006) (“The Court believes the language of the hanging paragraph is clear on its face, i.e. the provisions of § 506 are inapplicable to 910 claims and accordingly, a secured creditor is not entitled to a deficiency claim upon the debtor’s surrender of the collateral. The Court’s reasoning matches the analysis of [In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006)], and this Court specifically adopts the reasoning of that case.”); In re Maggett, No. BK06-80573, 2006 WL 3478991, at *2–*3 (Bankr. D. Neb. Nov. 29, 2006) (unpublished) (Chapter 13 debtor can surrender 910-day PMSI car in full satisfaction of debt. “[T]he hanging paragraph completely eliminates reliance on § 506(a) . . . . Congress, in adopting the Bankruptcy Code, has overridden a creditor’s state law rights and remedies in several places. . . . [T]he ‘windfall,’ rather than a benefit to the debtor, is probably a benefit to the unsecured creditors. The absence of a deficiency claim . . . provides the opportunity for the other unsecured creditors to receive more.”); In re Gentry, No. 06-50204, 2006 WL 3392947 (Bankr. E.D. Tenn. Nov. 22, 2006) (unpublished) (Defending In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006), and In re Long, No. 06-30651, 2006 WL 2090246 (Bankr. E.D. Tenn. Mar. 13, 2006) (unpublished), surrender of 910-day PMSI car is in full satisfaction of debt.); In re Turkowitch, 355 B.R. 120, 126–29 (Bankr. E.D. Wis. 2006) (Hanging sentence permits plan to surrender 910-day PMSI car in full satisfaction of debt. “[T]he language of the hanging paragraph is not ambiguous. If § 506 does not apply, there can be no bifurcation of the claim, whether or not the collateral is worth less than the claim and whether or not the collateral is surrendered. . . . [R]emoving the bifurcation provisions of § 506 means that the 910-claim is satisfied in full by surrender of the collateral under § 1325(a)(5)(C). . . . At the commencement of these cases, the 910-vehicles were property of the estate . . . . Removal of § 506 from the requirements for treatment of secured claims in chapter 13, means that the 910-creditor is not entitled to a bifurcated claim, whether that is a good thing because it prevents lien stripping, or a bad thing because it prevents the filing of a deficiency claim after the surrender of collateral.”); In re Feddersen, 355 B.R. 738, 741–43 (Bankr. S.D. Ill. 2006) (Citing In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006), plan can surrender 910-day PMSI car in full satisfaction of debt. “[T]he Anti-Cramdown Paragraph, while arguably awkwardly incorporated into § 1325(a)(5), is clear and unambiguous. . . . [T]he provision’s application is not limited to claims treated under § 1325(a)(2)(B). . . . [I]t applies equally to claims treated under § 1325(a)(2)(C). . . . While the Court may be justified under the rules of statutory construction to look past the unambiguous language of the Anti-Cramdown Paragraph, there is not much at which to look. . . . In the absence of any legislative history, there is simply no evidence by which this Court could conclude that the Anti-Cramdown Paragraph leads to an ‘absurd result.’ . . . [I]t would be presumptuous to conclude that a literal application of the Anti-Cramdown Paragraph is inconsistent with BAPCPA’s overall goals.”); In re Pool, 351 B.R. 747 (Bankr. D. Or. 2006) (Citing In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006), hanging sentence applies to § 1325(a)(5)(C); Chapter 13 debtors can surrender 910-day PMSI car in full satisfaction of debt without regard to value of collateral.); In re Nicely, 349 B.R. 600, 603 (Bankr. W.D. Mo. 2006) (Citing In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006), and In re Osborn, 348 B.R. 500 (Bankr. W.D. Mo. 2006), 910-day PMSI car claim is secured for full amount of debt, and surrender of collateral leaves no unsecured deficiency. “Allowing the secured creditor to assert a deficiency claim after disposition of the vehicle, would permit the very thing which the hanging paragraph prohibits, which is bifurcation of the claim.”); In re Osborn, 348 B.R. 500, 505–06 (Bankr. W.D. Mo. 2006) (Citing In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006), debtor can surrender 910-day PMSI car in full satisfaction of undersecured debt. “[L]iteral application is not demonstrably at odds with Congress’ intent; . . . it is entirely logical that, if a creditor is to be deemed fully secured for one purpose, it should be fully secured for other purposes. . . . [T]he plain language of § 1325(a)(5) and the hanging paragraph mandate that . . . a secured creditor of the kind described in the hanging paragraph has a secured claim for the full amount due as of the date of the filing of the petition, regardless of whether the debtor intends to retain the collateral or surrender it. . . . [T]hese creditors are not entitled to a deficiency claim if the collateral is surrendered under § 1325(a)(5)(C). . . . [E]ven though Capital One might be entitled to a deficiency outside of bankruptcy, it is not entitled to an allowed claim for any such deficiency here.” That lienholder repossessed pickup before petition did not change outcome: “[S]ince the truck had not yet been sold when the Debtors filed their bankruptcy petition, the Debtors retained an interest in it, and they could still exercise all options available under § 1325(a)(5).”); In re Evans, 349 B.R. 498, 501 (Bankr. E.D. Mich. 2006) (Debtor can surrender 910-day PMSI car in full satisfaction of debt. “[T]he Court agrees with the majority of courts . . . . Allowing a creditor to pursue a deficiency claim following surrender of collateral pursuant to § 1325 would in all practical effect bifurcate the secured creditor’s claim, in violation of the plain meaning of the hanging paragraph.”); In re Payne, 347 B.R. 278, 282–83 (Bankr. S.D. Ohio 2006) (Plan can surrender car that secures a 910-day PMSI car claim in full satisfaction of the debt because hanging sentence at the end of § 1325(a) applies to all of § 1325(a)(5). “This Court having studied the ‘hanging paragraph’ of § 1325(a) finds the language unambiguous and clear. The ‘hanging paragraph’ of § 1325(a) does not limit its application to claims treated under § 1325(a)(5)(B). It states quite simply, that ‘[f]or purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph . . . .’ Thus, it must apply to claims described in § 1325(a)(5)(C) as well. The plain meaning of this statute cannot be overcome by silence in the legislative history. . . . [T]his application of § 1325(a)(5) requires the creditor to forego the opportunity to take advantage of the provisions of § 506 should it liquidate the collateral for less than the amount it is due, just as it requires the debtor to do so should the debtor decide to retain the vehicle.”); In re Brown, 346 B.R. 868, 876–77 (Bankr. N.D. Fla. 2006) (In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006), correctly determined that surrender of car that secures a 910-day PMSI car claim is in full satisfaction of the debt. “Under § 1325(a)(5) . . . a creditor who holds a secured claim that is within the scope of the Hanging Paragraph is fully secured up to the entire amount of the debt owed to it. If the debtor chooses to retain the collateral under Section 1325(a)(5)(B), the Hanging Paragraph requires the debtor to treat the entire amount of the debt as secured and pay the full amount of the claim as secured over the life of the plan. . . . [I]f the debt is fully secured by virtue of the language of the Hanging Paragraph when the debtor retains the collateral in accordance with § 1325(a)(5)(B), then it also must be fully secured upon surrender of the collateral in accordance with § 1325(a)(5)(C). . . . [S]urrender would therefore satisfy the creditor’s allowed secured claim in full and the creditor would not be entitled to an unsecured deficiency claim. . . . [T]he same language cannot mean one thing if applied to § 1325(a)(5)(B) and another when applied to § 1325(a)(5)(C) to suit the preferences of secured creditors. No deficiency or unsecured claim can result from a claim that is fully secured.”); In re Sparks, 346 B.R. 767, 773–74 (Bankr. S.D. Ohio 2006) (Debtors can surrender car in full satisfaction. “‘[Section] 1325(a)(5) requires the creditor to forego the opportunity to take advantage of the provisions of § 506 should it liquidate the collateral for less than the amount it is due, just as it requires the debtor to do so should the debtor decide to retain the vehicle. While this may appear to be inconsistent with the overall goals of BAPCPA to provide greater protections to creditors, the Court is not prepared to say that this is an absurd result in light of the sparse guidance from Congress. . . . [T]he Debtors’ plan may provide for the surrender of the Jeep in full satisfaction of the secured debt owed to HSBC.’”).

 

27  See below in this section.

 

28  355 B.R. 616 (Bankr. E.D. Mich. 2006).

 

29  355 B.R. at 624–27. Accord Citifinancial Auto Corp. v. Moon (In re Moon), No. 07-G-0429-NE, 2008 WL 4831458 (N.D. Ala. Oct. 8, 2008) (unpublished) (Guin) (Applying DaimlerChrysler Financial Services Americas LLC v. Barrett (In re Barrett), 543 F.3d 1239 (11th Cir. 2008), 910-day PMSI car lender retains state law right to file deficiency claim after surrender in a Chapter 13 case.); Silvers v. Wells Fargo Auto Fin., No. 4:07-CV-000121-HLM, 2007 WL 1812628, at *4 (N.D. Ga. May 10, 2007) (unpublished) (Adopting minority position, hanging sentence does not permit surrender in full satisfaction. “[Section] 506(a) does not apply to the instant situation because the debtor’s estate does not retain an interest in a 910-vehicle surrendered under 11 U.S.C.A. § 1325(a)(5)(C). . . . [A]pplicable state law, rather than pre- or post-BAPCPA § 506, bifurcates a secured creditor’s claim upon surrender of the collateral.”); Dupaco Comm. Credit Union v. Zehrung (In re Zehrung), 351 B.R. 675, 678 (W.D. Wis. 2006) (Surrender of 910-day PMSI car does not preclude unsecured deficiency claim. “‘[A]llowed secured claim’ in § 1325(5) [sic] is used in the sense that the claim is allowed under § 502 and secured by some collateral, not in the § 506 sense of the term. A creditor taking possession of collateral does not depend upon § 506 to determine the value of its unsecured claim. Section 506 has application only when the estate retains an interest in the collateral, a circumstance which disappears with surrender. Rather, when collateral is surrendered pursuant to § 1325(5)(C) [sic] the amount of the remaining unsecured claim is determined by state law . . . . The creditor’s rights being unmodified by § 506, it is entitled to its state law right to liquidate the collateral and retain an unsecured claim for the balance due. . . . It seems extremely unlikely, given the purposes expressed in the titles of the amendments, that the intent of the amendment was to eliminate the long existing right of creditors in bankruptcy to an unsecured deficiency claim. . . . [T]his court’s interpretation avoids the anomalies of the majority position that if a debtor surrenders collateral any time before bankruptcy the creditor retains the right to an unsecured claim for a deficiency in a subsequent bankruptcy, but if surrender occurs as part of the Chapter 13 plan its right is lost, or that a non-purchase money lender retains a deficiency right but a purchase money lender does not.”); In re Painter, No. 6:07-bk-06333-ABB, 2008 WL 5636389 (Bankr. M.D. Fla. Oct. 7, 2008) (unpublished) (Briskman) (Citing DaimlerChrysler Financial Services America LLC v. Barrett (In re Barrett), 543 F.3d 1239 (11th Cir. 2008), surrender of a 910-day PMSI car does not satisfy the deficiency claim after liquidation of the collateral.); In re Horrobin, 391 B.R. 573 (Bankr. M.D. La. Aug. 4, 2008) (Dodd) (Citing In re Wright, 492 F.3d 829 (7th Cir. 2007), AmeriCredit Financial Services, Inc. v. Long (In re Long), 519 F.3d 288 (6th Cir. 2008), Capital One Auto Finance v. Osborn, 515 F.3d 817 (8th Cir. 2008), DaimlerChrysler Financial Services Americas LLC v. Ballard (In re Ballard), 526 F.3d 634 (10th Cir. 2008), and Tidewater Finance Co. v. Kenney, 531 F.3d 312 (4th Cir. 2008), surrender of 910-day PMSI car does not bar unsecured deficiency claim in Chapter 13 case.); In re Estrada, 387 B.R. 875 (Bankr. M.D. Fla. May 23, 2008) (Williamson) (Surrender of 910-day PMSI car does not preclude deficiency claim. “[Section] 1325(a)(5)(C) . . . does not implicate section 506. Rather, section 502 comes into play following surrender, and state law determines the creditor[’]s right to an unsecured claim for any balance remaining after liquidation of the vehicle. . . . [S]ection 1325(a)[’]s hanging paragraph does not create a right for a chapter 13 debtor to surrender a 910 vehicle in full satisfaction of the creditor[’]s claim and thereby extinguish the creditor[’]s right, under non-bankruptcy law, to an unsecured deficiency claim.”); In re Gay, 375 B.R. 343 (Bankr. E.D. Tex. Sept. 18, 2007) (After conversion from Chapter 7 to Chapter 13 when car lender was granted relief from stay and repossessed its collateral before conversion, there is no secured claim which could be subject to surrender in full satisfaction under § 1325(a)(5)(C); in dicta, even if this were typical Chapter 13 case, surrender in full satisfaction of a 910-day PMSI car claim is not supported by hanging sentence, and car lender would be entitled to unsecured deficiency after surrender.); In re Hains, No. 07-02205-TOM-13, 2007 WL 2570745, at *4 (Bankr. N.D. Ala. Aug. 29, 2007) (unpublished) (Citing In re Wright, 492 F.3d 829 (7th Cir. 2007), “[t]his Court . . . finds the ‘minority’ position to be sound. The unnumbered paragraph does not deprive a creditor of its state law rights and to do so might create improper incentives for debtors dealing with 910 creditors pre-petition.”); In re Leffingwell, No. 06-11106-B-13, 2007 WL 2469575 (Bankr. E.D. Cal. Aug. 29, 2007) (unpublished) (Following Wells Fargo Financial Acceptance v. Rodriguez (In re Rodriguez), 375 B.R. 535 (B.A.P. 9th Cir. Aug. 28, 2007), bankruptcy court overrules debtor’s objection to deficiency claim filed after surrender of 910-day PMSI car.); In re Stalica, 372 B.R. 591, 594 (Bankr. W.D.N.Y. Aug. 24, 2007) (Citing In re Wright, 492 F.3d 829 (7th Cir. 2007), “because surrender of collateral occurs without reference to § 506, the ‘hanging paragraph’ and the § 1325(a)(5)(C) option of ‘surrender’ are mutually exclusive, and the debtor may enjoy nothing from the existence of the ‘hanging paragraph’ when the debtor opts to surrender the collateral.”); In re Newberry, No. 06-60241-RCM, 2007 WL 1308318 (Bankr. W.D. Tex. May 3, 2007) (unpublished) (Adopting the minority position, Chapter 13 debtor cannot surrender a 910-day PMSI car in full satisfaction of the debt.); In re Blanco, 363 B.R. 896, 902 (Bankr. N.D. Ill. 2007) (“Pursuant to the minority line of reasoning, the ‘hanging paragraph’ does not allow a debtor to surrender a vehicle in full satisfaction of the creditor’s claim, thereby precluding an unsecured deficiency claim.”); In re Clark, 363 B.R. 492, 497 (Bankr. N.D. Miss. 2007) (Reversing earlier position, Chapter 13 debtor cannot surrender 910-day PMSI car in full satisfaction of debt. “Having now considered the analysis in [In re Particka, 355 B.R. 616 (Bankr. E.D. Mich. 2006)], this court is convinced that its earlier ruling in [In re Hollis, No. 06-11256 (Bankr. N.D. Miss. Oct. 12, 2006),] was erroneous. Once the debtor surrenders the vehicle and it no longer is considered a part of the bankruptcy estate, § 506 has no application. . . . [I]f the secured creditors, after regaining possession, then liquidated the vehicle in a commercially reasonable manner, that creditor is entitled to file an amended claim to reflect the amount of the unsecured deficiency.”); In re Morales, 359 B.R. 211, 217 (Bankr. N.D. Ill. 2007) (Plan cannot surrender 910-day PMSI car in full satisfaction of debt. “If a confirmed Chapter 13 plan provides for surrender of a vehicle under § 1325(a)(5)(C), the estate no longer has an interest in the vehicle. . . . [O]nce the vehicle is surrendered . . . the value of the creditors’ secured claim is determined under state law.”); In re Hoffman, 359 B.R. 163 (Bankr. E.D. Mich. 2006) (Adopting In re Particka, 355 B.R. 616 (Bankr. E.D. Mich. 2006), and rejecting In re Evans, 349 B.R. 498 (Bankr. E.D. Mich. 2006), Chapter 13 debtor cannot surrender 910-day PMSI car claim in full satisfaction of debt.); In re Williams, No. 06-10277, 2006 WL 2773020 (Bankr. W.D. Ky. Sept. 13, 2006) (unpublished) (Because plan cannot surrender pickup in full satisfaction of debt, debtor’s objection to claim of AmeriCredit is overruled, confirmation order is set aside to extent it surrendered pickup in full satisfaction of debt and stay is terminated to allow AmeriCredit to repossess, sell and file a deficiency claim, if any.); In re Duke, 345 B.R. 806, 808–09 (Bankr. W.D. Ky. 2006) (Although hanging sentence at the end of § 1325(a) prohibits bifurcation of a 910-day PMSI car claim, debtor cannot surrender car in full satisfaction of the debt because the lienholder retains its state law right to assert a deficiency. “[B]ifurcation procedures found in § 506 are inapplicable to vehicles purchased for personal use of the debtor within 910 days of the filing of the petition where a purchase money security interest is present. . . . [T]he hanging paragraph is ambiguous. . . . The only clear intent discerned from the legislative history on the hanging paragraph is that Congress intended to provide more protection to creditors with purchase money security interests. Debtors’ interpretation on the surrender of the 910 vehicles in full satisfaction of the debts would have the practical effect of a release of the Creditors’ deficiency claims, an abrogation of the Creditors’ state law remedies. If Congress had intended to enact what would essentially be an ‘anti-deficiency’ provision, it would have made its intentions very clear in the statute.”).

 

30  No. 06-50204, 2006 WL 3392947 (Bankr. E.D. Tenn. Nov. 22, 2006) (unpublished).

 

31  2006 WL 3392947, at *5–*9.

 

32  492 F.3d 829 (7th Cir. July 3, 2007).

 

33  440 U.S. 48, 99 S. Ct. 914, 59 L. Ed. 2d 136 (1979).

 

34  492 F.3d at 833.

 

35  See, e.g., DaimlerChrysler Fin. Servs. Ams. LLC v. Miller (In re Miller), 570 F.3d 633 (5th Cir. June 5, 2009) (Smith, Garza, Clement) (Plan cannot surrender 910-day PMSI car in full satisfaction of debt.); DaimlerChrysler Fin. Servs. Ams. LLC v. Barrett (In re Barrett), 543 F.3d 1239, 1247 (11th Cir. Sept. 29, 2008) (Tjoflat, Marcus, Vinson) (Joining five other courts of appeals, “a creditor may pursue an unsecured deficiency claim when the debtor surrenders a 910 vehicle.”); Tidewater Fin. Co. v. Kenney, 531 F.3d 312, 320 (4th Cir. June 25, 2008) (King, Duncan, Roth) (Joining Sixth, Seventh, Eighth and Tenth Circuits, Chapter 13 debtor cannot surrender a 910-day PMSI car in full satisfaction of deficiency claim. “We are persuaded by the [In re Wright, 492 F.3d 829 (7th Cir. 2007),] court’s reasoning . . . when a Chapter 13 debtor surrenders a 910 vehicle in accordance with § 1325(a)(5)(C), the hanging paragraph does not extinguish a 910 creditor’s unsecured deficiency claim so long as state law, in conjunction with the parties’ contract, allows for such claim.”); DaimlerChrysler Fin. Servs. v. Ballard (In re Ballard), 526 F.3d 634, 638–39 (10th Cir. 2008) (Tacha, Ebel, McConnell) (“[A] growing number of courts, including the only circuits to address this issue, have held that a creditor may pursue an unsecured deficiency claim when the debtor surrenders the vehicle. . . . [T]he hanging paragraph does not abrogate a creditor’s right to assert a deficiency claim authorized by state law. . . . Neither the debtors nor the bankruptcy court has identified any provision in the Bankruptcy Code ‘expressly disallowing’ an unsecured deficiency claim based on state law. . . . The BAP and bankruptcy court erroneously concluded that DaimlerChrysler could not pursue an unsecured claim because both courts understood § 506(a), rather than state law, to be the only source of DaimlerChrysler’s deficiency claim.”), rev’g In re Quick, 371 B.R. 459 (B.A.P. 10th Cir. 2007); AmeriCredit Fin. Servs., Inc. v. Long (In re Long), 519 F.3d 288 (6th Cir. May 4, 2008) (Merritt, Clay, Cox) (Using pre-BAPCPA law to fill “gap” in the hanging sentence at the end of § 1325(a), surrender of undersecured 910-day PMSI car does not eliminate deficiency claim. “Not only must words be added to make any sense to the [hanging] paragraph, but the literal meaning of the paragraph must be altered to deal with debtors who surrender the collateral instead of retaining it. . . . [A] claim cannot be an ‘allowed secured claim’ for purposes of § 1325(a)(5) without first coming through the § 506 gateway. Consequently, we decline to read the hanging paragraph to use state law or some unknown, federal law to create an allowed secured claim. . . . Without § 506, creditors falling within the scope of the hanging paragraph are fully secured so that when a debtor elects to retain the collateral, the debtor must propose a plan that will pay the full amount of the claim. . . . [T]here is no legislative history that suggests that car lenders and lienholders should be negatively impacted by the hanging paragraph in situations where the debtor elects to surrender the collateral. . . . If Congress intended to create a similar outcome to the one that occurs under § 1111(b), it knew how to construct the language and its failure to do so or to make any suggestion whatsoever in the legislative history that it intended a similar outcome convinces us that the elimination of the deficiency judgment upon surrender is an unintended result. Eliminating a deficiency judgment would be in conflict with the apparent Congressional intent and would give to debtors the power to wipe out a legitimately incurred debt entirely. . . . Because section 506 was applicable to the surrender of collateral before the 2005 amendments, and makes the situation incoherent if no longer applicable, we believe the best solution is to regard section 506 as continuing to apply to surrender cases. . . . Relying on state law to fill the gap forces bankruptcy courts to apply the states’ varying foreclosure, automobile auction, and deficiency laws rather than a uniform federal law. . . . Because we are unable to find any legislative history that suggests that Congress intended to eliminate all deficiency claims upon surrender of the collateral and because we conclude that a literal interpretation of the statute would create an unintended and illogical result, we decline to adopt a literal interpretation of the statute. . . . [W]e believe that the gap that exists in the statute—how courts should evaluate surrender when 910 claims are involved—should be filled by employing the pre-2005 law to these cases. We hold that claims subject to the hanging paragraph where the debtor elects to surrender the collateral pursuant to § 1325(a)(5)(C) will be governed and adjudicated the same as they were before the 2005 amendments.”); Americredit Fin. Servs., Inc. v. Moore (In re Moore), 517 F.3d 987 (8th Cir. 2008) (Wollman, Benton, Doty); Capital One Auto Fin. v. Osborn (In re Osborn), 515 F.3d 817, 821–23 (8th Cir. Feb. 5, 2008) (Wollman, Benton, Doty) (Surrender of 910-day PMSI car does not eliminate deficiency claim. “The majority position is not correct . . . because ‘nothing in § 1325(a)(5) says that [the] “allowed secured claim” is satisfied by the debtor choosing the surrender option in subparagraph (C).’ . . . [T]he hanging paragraph simply removes the bankruptcy code’s method of bifurcation. The hanging paragraph has no effect on state-law rights. . . . Because state law gives Capital One a right to an unsecured deficiency judgment . . . it [is] entitled to an unsecured deficiency claim.”); Wells Fargo Fin. Acceptance v. Rodriguez (In re Rodriguez), 375 B.R. 535, 543–45 (B.A.P. 9th Cir. Aug. 28, 2007) (Inapplicability of § 506 does not upset deficiency claim following surrender of 910-day PMSI car. “[T]he right to an unsecured deficiency claim is determined by state law and not by section 506(a), so its inapplicability is meaningless with respect to section 1325(a)(5)(C) surrenders of 910 vehicles. . . . [W]ithout the hanging paragraph, upon surrender of a 910 vehicle, the ‘replacement value’ would be used to reduce the total amount owed to the 910 creditor, rather than the amount actually realized on liquidation. . . . By rendering section 506(a)(2) unavailable following surrender, there is no artificially inflated reduction of the total debt, but only the actual reduction realized following foreclosure and sale in accordance with state law. . . . Nowhere in the hanging paragraph or elsewhere (especially section 502) do we find any express or clear basis to disallow Wells Fargo’s deficiency claim.”).

 

36  See § 264.1 [ To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim ] § 127.7  To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim.

 

37  232 F.3d 528 (6th Cir. 2000) (Krupansky, Norris, Suhrheinrich).

 

38  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

39  See In re Hitch, No. 07-70803, 2009 WL 1542791 (Bankr. C.D. Ill. May 29, 2009) (Gorman) (Notwithstanding In re Wright, 492 F.3d 829 (7th Cir. 2007), when debtors retained 910-day PMSI car but later surrendered vehicle, deficiency claim must be treated same as other unsecured claims, and § 506 precludes recovery of liquidation costs.). See also In re Lane, 374 B.R. 830 (Bankr. D. Kan. Aug. 28, 2007) (Debtor cannot use § 1325(a)(5)(C) to modify plan after confirmation to surrender 910-day PMSI car in full satisfaction of debt when car is destroyed after confirmation and insurance proceeds combined with payments through confirmed plan leave deficiency; plan can be modified to treat deficiency as unsecured debt.).

 

40  See, e.g., In re Huddle, No. 06-11076-SSM, 2007 WL 2332390 (Bankr. E.D. Va. Aug. 13, 2007) (unpublished) (Credit union wins argument that its debt is not a 910-day PMSI car claim that can be surrendered in full satisfaction because debt was refinanced; when hanging sentence does not apply, there is no other authority in Bankruptcy Code for surrender in full satisfaction of an undersecured claim, but credit union’s failure to object to confirmation leaves it bound by plan to accept surrender and precludes its deficiency claim.); In re Griffiths, No. 06-50256-A, 2007 WL 1309049 (Bankr. E.D. Va. May 3, 2007) (unpublished) (Car lender’s failure to object to plan that provided for surrender of 910-day PMSI car in full satisfaction of the debt is fatal to its deficiency claim.). But see In re Krotje, 370 B.R. 515, 517 (Bankr. W.D.N.Y. May 24, 2006) (910-day PMSI car surrendered and disposed of before Chapter 13 petition cannot preclude deficiency notwithstanding confirmation of plan that so provided. Without discussion of § 1327, “[i]f the debtor had surrendered the vehicle after the commencement of this chapter 13 proceeding and pursuant to the terms of a plan, then perhaps the surrender might have effected a satisfaction of the underlying obligation. . . . Here, Mr. Krotje surrendered the property more than four months before he filed his bankruptcy petition. . . . Because the creditor had established the deficiency prior to the commencement of bankruptcy, the unsecured character of its claim was already determined. . . . Hence, the claim was not subject to the treatment that sections 1322(b)(2) and 1325(a)(5) would apply to secured claims.”).

 

41  See § 284.1 [ Amended Claims ] § 133.4  Amended Claims.

 

42  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

43  See §§ 272.1 [ Official Bankruptcy Form 10 and Variations ] § 131.1  Official Bankruptcy Form 410 and Variations and 507.1 [ New Official Form 10 ] § 131.2  Official Form 410 after BAPCPA.

 

44  See §§ 277.1 [ Unsecured Claims ] § 132.4  Unsecured Claims, 278.1 [ Partially Secured Claims ] § 132.5  Partially Secured Claims and 280.1 [ Secured Claim Holders ] § 132.7  Secured Claim Holders.

 

45  See § 284.1 [ Amended Claims ] § 133.4  Amended Claims for further discussion of amendment of claims to assert a deficiency after surrender of collateral.

 

46  See In re Krotje, 370 B.R. 515 (Bankr. W.D.N.Y. May 24, 2006) (910-day PMSI car surrendered and disposed of before Chapter 13 petition cannot preclude deficiency notwithstanding confirmation of plan that so provided.).