Summary
The Bankruptcy Appellate Panel of the Sixth Circuit reviewed confirmation of a chapter 13 plan filed by a debtor who was ineligible for a chapter 13 discharge because she had recently received a chapter 7 discharge. The Panel held that 11 U.S.C. § 1325(a)(5)(B)(i)(I) permits lien retention only until payment of the underlying debt under nonbankruptcy law or entry of a chapter 13 discharge, and does not allow a bankruptcy court to substitute completion of plan payments as a third event. The Panel reversed and remanded the bankruptcy court’s confirmation order.
Topics
Practice areas
Questions Presented
- Whether, absent acceptance by the secured creditor or surrender of the collateral, a bankruptcy court may confirm a chapter 13 plan that allows the creditor to release its lien upon completion of plan payments when the debtor is ineligible for a chapter 13 discharge.
Holdings
- Absent the secured creditor's acceptance, a chapter 13 plan may not provide for release of the creditor's lien upon completion of plan payments when the debtor is ineligible for a chapter 13 discharge. Section 1325(a)(5)(B)(i)(I) requires lien retention until the earlier of payment of the underlying debt under applicable nonbankruptcy law or entry of a discharge under § 1328; the bankruptcy court may not add completion of plan payments as a third triggering event.
- A bankruptcy court may not use equitable or discretionary powers to confirm a chapter 13 plan that conflicts with the clear requirements of § 1325(a)(5)(B)(i)(I).
Key quotations
“Section 1325(a)(5)(B)(i)(I), by its plain, unambiguous terms, requires that a secured creditor either retain its lien until its allowed secured claim is paid in full under applicable non-bankruptcy law or the discharge is entered under section 1328.” (at 9)
“The Sixth Circuit unequivocally stated that a bankruptcy court has “no discretion” to depart from the mandatory provisions in section 1325(a).” (at 11)
“Absent a secured creditor’s acceptance, section 1325(a)(5)(B)(i)(I) is mandatory.” (at 13)
Factual background
Tucker financed a motor vehicle from Santander at a contract interest rate of 17.87% and retained the vehicle after receiving a chapter 7 discharge. Two days after that discharge, she filed a chapter 13 case, in which she was ineligible for a chapter 13 discharge under 11 U.S.C. § 1328(f). Her proposed plan sought to pay Santander's secured claim in full at a reduced interest rate while requiring Santander to retain its lien only until payment of the claim and completion of the plan. Santander objected because the plan did not require lien retention until payment under applicable nonbankruptcy law or entry of a chapter 13 discharge.
Procedural history
Tucker received a chapter 7 discharge and then filed a chapter 13 case two days later. Because she was ineligible for a chapter 13 discharge under 11 U.S.C. § 1328(f), she proposed that Santander retain its lien until completion of all plan payments rather than until entry of a chapter 13 discharge. The bankruptcy court overruled Santander's objection and confirmed the plan. The Bankruptcy Appellate Panel reversed and remanded.
Remand instructions
Remanded to the bankruptcy court for further proceedings consistent with the opinion, including proceedings consistent with the requirement that the plan comply with 11 U.S.C. § 1325(a)(5)(B)(i)(I).