Pursuant to Sixth Circuit Rule 206
ALAN E. NORRIS, Circuit Judge.
On August 22, 1997, Sahnica Denise Nolan filed a petition for relief under Chapter 13 of the Bankruptcy Code. Chapter 13 permits a debtor with regular income to propose a repayment plan extending and/or reducing the balance of her obligations, thereby averting a loss of assets through Chapter 7 liquidation. Discharge of a portion of the debt is granted after a Chapter 13 debtor has complied with a court-confirmed repayment plan. Prior to confirmation of Nolan's proposed plan, Chrysler Financial Corporation filed a proof of claim showing that Nolan owed it $12,291.45 on an installment contract for the purchase of a 1995 Mitsubishi Mirage automobile. On September 23, 1997, the bankruptcy court confirmed Nolan's Chapter 13 plan, which took into account Chrysler's claim. Under the plan, Chrysler's secured claim on the automobile was for $8200, with interest at ten percent per annum. Of Nolan's monthly payments under the plan, $207.97 per month was to be applied toward the secured claim. The unsecured portion of Chrysler's claim, $4091.45, would be paid off on a cents-on-the-dollar basis from Nolan's installments under the plan, pursuant to 11 U.S.C. § 1329(a)(1).
On August 26, 1998, Nolan filed a motion to modify her plan and incur credit. Specifically, she sought permission to surrender her vehicle to Chrysler, reclassify the deficiency owed on the vehicle as an unsecured claim, and incur credit in the amount of $10,000 to purchase another car. According
On October 19, 1998, a hearing was held before the bankruptcy court in which Nolan testified that she had placed 100,000 miles on the vehicle in three years (an average of 2777.77 miles per month), and had changed the oil three times between February and August of 1998 (she could produce documentation for only two changes). Following a hearing, the bankruptcy court granted her motion, finding that she did not act in bad faith.
Chrysler appealed to the district court, which reversed. Chrysler Fin. Corp. v. Nolan, 234 B.R. 390 (M.D.Tenn.1999). It did not disturb the bankruptcy court's factual finding as to the good faith of Nolan. Rather, it held that as a matter of law 11 U.S.C. § 1329(a)
Nolan now appeals to this court.
Chapter 13 of the Bankruptcy Code, entitled "Adjustments of debts of an individual with regular income," was originally adopted to address consumer credit loss during the Great Depression by providing a completely voluntary proceeding for consumers to amortize their debts out of future earnings. See David S. Cartee, Comment, Surrendering Collateral Under Section 1329: Can the Debtor Have Her Cake and Eat It Too?, 12 BANKR. DEVS. J. 501, 505 (1996)(citing 11 U.S.C. § 1301 et seq. (1994); 5 COLLIER ON BANKRUPTCY ¶ 1300.01, at 1300-11 to 1300-12 (15th ed. 1995)). In its present version, Chapter 13 allows individual debtors to reorganize with a repayment plan as an alternative to seeking a complete discharge of debts through the Chapter 7 bankruptcy liquidation process. Since a repayment plan may prove to be unsatisfactory, section 1329 of the Code allows modification of a Chapter 13 plan under certain circumstances. 11 U.S.C. § 1329 (1993). Section 1329 must be interpreted in conjunction with 11 U.S.C. §§ 1322(b),
There has been a debate over whether section 1329 allows a debtor to modify a confirmed plan to surrender collateral for a secured claim (the value of which typically will have been significantly reduced) and then reclassify any deficiency as an allowed, unsecured claim to be paid back at the general pennies-on-the-dollar rate set forth in the plan for unsecured debts. See Cartee, supra, 501-02 & 502 n. 4 (citing contrasting holdings of district courts). This appeal presents an issue of first impression for the Courts of Appeals, while there is a clear and fairly even split of authority amongst the federal district courts. Cf. Chrysler Fin. Corp., 234 B.R. at 396-97; Cartee, supra, at 501-02, 511, 515, 519-20. The bankruptcy court's interpretation of section 1329(a)(1) is reviewed de novo. See Palmer v. United States (In re Palmer), 219 F.3d 580, 583 (6th Cir.2000).
Nolan argues for an interpretation of section 1329 that has been accepted by a sizable minority of the district courts,
Jock rests on four supporting principles. First, each secured claim is separately classified in a Chapter 13 case,
We reject Jock's interpretation of section 1329. The district court correctly reversed the bankruptcy court under an alternative interpretation, adopted by In re Coleman,, 231 B.R. 397 (Bankr.S.D.Ga. 1999).
First, section 1329(a) does not expressly allow the debtor to alter, reduce or reclassify a previously allowed secured claim. 11 U.S.C. § 1329(a) (1993). Instead, section 1329(a)(1) only affords the debtor a right to request alteration of the amount or timing of specific payments. A debtor cannot use section 1329(b)(1) to enlarge the modifications permitted by section 1329(a), since section 1329(b)(1) does not apply unless the proposed modification first complies with section 1329(a)(1). See Chrysler Fin. Corp. at 394 (quoting Taylor, 99 B.R. at 904-05). A modification that reduces the claim of a secured debtor would add a claim to the class of unsecured creditors, a change prohibited by
Second, the proposed modification would violate section 1325(a)(5)(B), which mandates that a secured claim is fixed in amount and status and must be paid in full once it has been allowed.
Third, proposed modification would contravene section 1327(a), because a contrary interpretation postulates an unlikely congressional intent to give debtors the option to shift the burden of depreciation to a secured creditor by reclassifying the claim and surrendering the collateral when the debtor no longer has any use for the devalued asset. See Coleman, 231 B.R. at 400. The court in Banks saliently articulated the injustice of such a maneuver:
Fourth, only the debtor, the trustee, and holders of unsecured claims are permitted to bring a motion to modify a plan pursuant to section 1329(a). The Jock interpretation would create an inequitable situation where the secured creditor could not seek to reclassify its claim in the event that collateral appreciated, even though the debtor could revalue or reclassify the claim whenever the collateral depreciated. See Coleman, 231 B.R. at 400. Furthermore, allowing Chapter 13 modifications would permit the debtor to reclassify a secured creditor's claim while simultaneously evading the tradeoff risks and responsibilities attending conversion or dismissal under Chapter 7. See Chrysler Fin. Corp., 234 B.R. at 397 (citation omitted) (Chapter 7 alternative requires debtor to surrender nonexempt property to a trustee, and to lose opportunity for discharge for at least six years; Chapter 13 avoids these onerous burdens by allowing debtor to retain all personal and real property, to restructure debts, and to enjoy greater likelihood of future credit opportunities). These inequities are further indications Congress did not intend the resolution reached in Jock.
Fifth, Jock's interpretation is at odds with the plain language of section 1329. "This section does not state that the plan may be modified to increase or reduce the amount of claims. This is of significance in relation to secured claims." Banks, 161 B.R. at 378 (emphasis added). Jock fails to note that the terms "claim" and "payment" have two different meanings in the Bankruptcy Code.
Under the Code,
"[C]laim" means —
We hold that a debtor cannot modify a plan under section 1329(a) by: 1) surrendering the collateral to a creditor; 2) having the creditor sell the collateral and apply the proceeds toward the claim; and 3) having any deficiency classified as an unsecured claim. See Coleman, 231 B.R. at 398. Section 1329(a) only permits modification of the amount and timing of payments, not the total amount of the claim. This principle holds true as to the portion of a claim that is secured, where the claim is partially instead of fully secured.
Section 1329(b)(1) references not only section 1325(a), but also sections 1322(a), 1322(b), and 1323(c). In doing so, section 1329(b)(1) indicates that a plan as modified must still comply with requirements for an original plan.
That the debtor is given the option to surrender prior to confirmation does not establish that she retains this right after confirmation when the collateral has significantly depreciated. Section 1325(a)(5)(C), read in conjunction with sections 1325(a)(5)(A) and (B) and 1325(a)(6), clearly permits only pre-confirmation surrenders. Once the plan is confirmed, it is impermissible to assert a continued option to surrender during the life of the plan.
Contrary to Nolan's unpersuasive rebuttal to the "plain language" argument, which asserts that the meaning Chrysler ascribes to the Code constitutes "raw, unsupported speculation" about congressional intent, it is Nolan's burden to demonstrate a congressional intent that rebuts creditor's interpretation of the statute. This is so because Chrysler's interpretation is in harmony with the common law and must be presumed correct in the absence of a specific contrary statutory definition. Chrysler's interpretation does not, as Nolan asserts, require the court to "insert" the "very important word individual" into section 1329(a)(1).