WITH OVER $10,000 IN CHAPTER SEVEN BANKRUPTCY DEBTOR CAN REDEEM HIS CAR FOR $1,400 ON PROPER MOTION
What many debtors/ citizens do not know is that thye can keep their car by paying only what it is worth not what is owed.
In a Chapter 7 Bankrutpcy you may keep your car if it has a value of $3,400 or lesst within in one exemption. The lein still continues and you commonly are told you have to reaffirm the entir debt to keep your car. But whjat if your vehicle is worth much less than what you owe on it?
In a Chapter 7 liquidation case, an individual debtor may redeem certain "tangible personal property intended primarily for personal, family, or household use" that is encumbered by a lien. To qualify, the property generally either (A) must be exempt under section 522 of the Bankruptcy Code, or (B) must have been abandoned by the trustee under section 554 of the Bankruptcy Code. To redeem the property, the debtor must pay the lienholder the full amount of the applicable allowed secured claim against the property. [3]
BANKRUPTCY, CAR, REDEMPTION posted here by Bankruptcy Attorney Terry Bankert in note , cited format. For additional information call 810-235-1970
see also
http://occupyflintlegal.wordpress.com/2012/03/20/save-car-in-bankrutpcy-pay-only-what-it-is-worth/
BANKRUPTCY, CAR, REDEEMPTION posted here by Bankruptcy Attorney Terry Bankert in note , cited format. For additional information call 810-235-1970
To cause this reduced buy out you will probably have to go before a bankrutpcy judge. §3.109 Pursuant to Bankruptcy Rule 1007 and 11 USC 722, the debtor may file a motion with the court to allow the [2]
An example of the most common redemption of personal property is the redemption of a car. The fair market value of a car may be thousands of dollars less than what is owed on the loan. The debtor has the option of purchasing the car from the lender for the amount of the replacement or current market value of the car. [2]
YOU WILL MOTION THE FEDERAL BANKRUPTCY JUDGE TO REDEEM YOUR PROPERTY
This can be accomplished through negotiation; however, it is most often done by a motion to redeem personal property. A motion of this type will most often be a contested matter that will require testimony and an appraisal of the asset in question. Thus, it is usually up to the court to approve the redemption and valuation. [2]
Value is often contested at this motion; however, once this is settled, the debtor pays the lender the fair market value of the property and the title is transferred. Form 3.6 is a sample motion for redemption of personal property.[SEE BELOW]
D. Payment to the Creditor [2]
EXAMPLE FROM RECENT COURT OPINION
CNAC Motor Car Credit Co. appeals an order of the bankruptcy court granting Steven M. Perales’ motion to redeem his 2002 Dodge Neon for a lump sum of $1,400. For the reasons that follow, we affirm the bankruptcy court’s order. [1]
[The writers purpose here is to review the use of a redemption motion in a chapter seven bankruptcy. Most arguments as to valuation are stricken. Note this opinion has been altered for media presentation. Consult the original and legal counsel before you rely on content presented here.- Terry Bankert]
FINAL ORDERS OF A MICHIGAN BANKRUPTCY COURT ARE APPEALED TO THE 6TH CIRCUIT COURT
III. FACTS
$10,014 OWED ON CAR CITIZEN FILES FOR CHAPTER SEVEN BANKRUPTCY
On February 11, 2011, Steven M. Perales (“Debtor”) filed a voluntary petition for relief under
chapter 7 of the Bankruptcy Code. Listed on Schedule B was a debt owing CNAC Motor Car Credit
Co. (“CNAC”) in the amount of $10,014. The debt to CNAC is secured by a 2002 Dodge Neon. [1]
CITIZEN FILED A MOTION TO REDEEM AT LESS THAN THE AMOUNT OWED IN CHAPTER SEVEN?
On April 25, 2011, the Debtor filed a motion to redeem the 2002 Dodge Neon for the lump
sum of $1,132 pursuant to 11 U.S.C. § 722 and Federal Rule of Bankruptcy Procedure 6008.
Attached to the Debtor’s motion was a printout from Edmonds.com showing that the trade-in value
of the vehicle was $792, the private party sale value was $1,132, and the dealer retail was $1,586. [1]
ONLY THE VALUATION WAS ARGUED?
At both the hearing before the bankruptcy court 1 on the Debtor’s motion and on appeal,
CNAC argues only that the valuation was improper. [The Court found the valuation to be $1,400-trb] [1]
THE COMPANY HOLDING THE NOTE ON THE CAR FILED FOR RELIEF FROM THE AUTOMATIC STAY.
The notice also indicated that the bankruptcy court would conduct a hearing on CNAC’s
motion for relief from the automatic stay at the same time. [1]
CITIZEN FILED A MOTION TO REDEEM UNDER 11 USC SEC. 722
The Debtor’s motion also included a “Notice of Motion to Redeem” which indicated that any party
opposing the requested relief must file a written response with the bankruptcy court by May 25,
2011. CNAC received notice of the Debtor’s motion. [1]
CITIZENS MOTION WAS OPPOSED
CNAC filed a Motion in Opposition to the Debtor’s Motion to Redeem on April 28, 2011.
DID THE CITIZEN GET IT WRONG AND NO PART OF THE DEBT WAS DISCHARGEABLE?
In its opposition, CNAC asserted that the vehicle was not exempt, was not abandoned, and that the
debt thereon was not dischargeable. [1]
CITIZENS OWES US $10,013.54 SAYS COMPANY.....
ISSUES AT HEARING
COMPANY HAS A RETAIL CONTRACT, PAY OR RETURN THE CAR IT SAYS TO CITIZEN
Counsel for CNAC argued that because there was a retail installment contract
which had not been paid in full, the Debtor must either return the vehicle or pay the entire
outstanding balance of $10,014 to redeem it. Again, CNAC provided no evidence to the court
regarding the value of the vehicle. [1]
OOPS COMPANY FORGOT TO ARGUE THE MOST IMPORTANT ISSUE
Although CNAC originally stated in its opposition to the Debtor’s motion to redeem that the vehicle was not subject to redemption, it did not make such assertions before the bankruptcy court at the June 6, 2011 hearing. CNAC also failed to make those assertions in this appeal. Therefore, the only dispute before the bankruptcy court, and now before the Panel, concerns the amount the Debtor must pay CNAC to redeem the vehicle. [1]
CITIZENS CAN REDEEM THEIR CAR AND OTHER PERSONAL PROPERTY
A. In General
§3.107 Redemption of personal property is a process by which the debtor purchases the secured property for the amount of the allowed secured claim. What this means is that the debtor may buy the secured property for the current fair market value of that secured property. 11 USC 722. Note that the property must be intended for the personal, family, or household use of the debtor. Id. [2]
11 USC SECTION . 722 An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien in full at the time of redemption.
11 USC SECTION 522 EXEMPTION AS TO PERSONAL PROPERTY
(a)In this section—
(2)“value” means fair market value as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate.
(2)The debtor’s interest, not to exceed $3,400 in value, in one motor vehicle.
11USCSECTION 524 - WHAT IS THE “ALLOWED SECURED CLAIM”.
“What if your creditor has a security interest or lien? Your bankruptcy discharge does not eliminate any lien on your property. A ‘lien’ is often referred to as a security interest, deed of trust, mortgage or security deed. Even if you do not reaffirm and your personal liability on the debt is discharged, because of the lien your creditor may still have the right to take the property securing the lien if you do not pay the debt or default on it. If the lien is on an item of personal property that is exempt under your State’s law or that the trustee has abandoned, you may be able to redeem the item rather than reaffirm the debt. To redeem, you must make a single payment to the creditor equal to the amount of the allowed secured claim, as agreed by the parties or determined by the court.”.
An example of the most common redemption of personal property is the redemption of a car. The fair market value of a car may be thousands of dollars less than what is owed on the loan. The debtor has the option of purchasing the car from the lender for the amount of the replacement or current market value of the car. This can be accomplished through negotiation; however, it is most often done by a motion to redeem personal property. A motion of this type will most often be a contested matter that will require testimony and an appraisal of the asset in question. Thus, it is usually up to the court to approve the redemption and valuation. [2]
B. Obtaining Financing
§3.108 Obviously, a debtor in a Chapter 7 case may have a difficult time obtaining the funds necessary to redeem the property. There is no provision in the Code allowing the redemption of personal property to take place over a period of time in the same manner as a reaffirmation agreement. That being said, when it comes to automobiles, many programs offered by lenders will allow a debtor to redeem the property by taking out a loan with a new lender. The new lender will be granted a security interest in the property and will lend at specific disclosed terms. Lenders are often willing to lend the money because the property that is being used as collateral on the loan is worth the amount owed on it; since the debtor is discharging all other obligations and cannot file another Chapter 7 bankruptcy case for eight more years, 11 USC 727(a)(8), lending to the debtor is often considered a good risk. [2]
C. Motion for Redemption
§3.109 Pursuant to Bankruptcy Rule 1007 and 11 USC 722, the debtor may file a motion with the court to allow the redemption of personal property. Value is often contested at this motion; however, once this is settled, the debtor pays the lender the fair market value of the property and the title is transferred. Form 3.6 is a sample motion for redemption of personal property.
D. Payment to the Creditor [2]
§3.110 Payment in full must take place pursuant to the redemption requirements at the time of the redemption. Further, the redemption process must be completed within 45 days after the first meeting of creditors. If the redemption is not completed, the automatic stay is vacated as to such personal property and the property is no longer property of the estate unless the court orders otherwise before the expiration of the 45-day period. [2]
COURT RULED THE CITIZEN COULD REDEEM THE CAR FOR THE $1,400 VALUE BUT HAVING A $10,014 BALANCE DUE.
At the conclusion of the hearing, the bankruptcy court ruled from the bench that the Debtor
had the right to redeem the Dodge Neon. The court further found that, after looking at several
sources on its own, it had arrived at a value of $1,400, which was only slightly more than the
Debtor’s proposed value of $1,132. [1]
IN A CHAPTER SEVEN DEBTOR KEEPS A CAR BY PAYING MARKET VALUE OF $1,400 WHEN $10,014 WAS OWED?
On June 13, 2011, the bankruptcy court entered a written order
granting the Debtor’s motion to redeem which directed the Debtor to pay CNAC a lump sum of
$1,400 within 30 days of entry of the order. CNAC’s timely notice of appeal followed on June 22,
2011. [1]
IV. DISCUSSION
JUST WHAT IS AN ALLOWED SECURED CLAIM IN A REDEMPTION IN CHAPTER SEVEN BANKRUPTCYT?
Pursuant to 11 U.S.C. § 722, an individual debtor may redeem consumer goods from a lien
securing a dischargeable consumer debt, if the property is exempt under 11 U.S.C. § 522 or has been
abandoned under § 544, by paying the lienholder in full, at the time of redemption, the amount of
the “allowed secured claim” that is secured by the collateral. 11 U.S.C. § 722. [1]
JUST WHAT IS AN ALLOWED SECURITY CLAIM?
The term “allowed secured claim” is not defined in the Bankruptcy Code. See, 11 U.S.C.
§ 101. However, 11 U.S.C. § 506 describes how to determine a creditor’s secured claim, and, thus,
what amount a debtor must pay pursuant to § 722 in order to redeem property:
SECURED CLAIM IS WHAT IS OWED ON THE CAR IS THE VALUE OF THE CREDITORS INTEREST.
An allowed claim of a creditor secured by a lien on property in which
the estate has an interest . . . [1]
THE CLAIM IS SECURED TO THE EXTENT OF ITS VALUE
is a secured claim to the extent of the
value of such creditor’s interest in the estate’s interest in such
property . . . [1]
THE CLAIM IS UNSECURED FOR THE AMOUNT OWED OVER VALUE. DOES THIS APPLY TO CHAPTER SEVEN?
and is an unsecured claim to the extent that the value of
such creditor’s interest . . . is less than the amount of such allowed
claim. [1]
THIS VALUE TO BE DETERMINED
Such value shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of such property, and
in conjunction with any hearing on such disposition or use or on a
plan affecting such creditor’s interest. [1]
506(a)(2)
Section 506(a)(2) further describes in more detail the method of valuing a secured claim if the debtor
is an individual in chapter 7 or 13. It states:
If the debtor is an individual in a case under chapter 7 or 13, such
value with respect to personal property securing an allowed claim
shall be determined based on the replacement value of such property
as of the date of the filing of the petition without deduction for costs
of sale or marketing. With respect to property acquired for personal,
family, or household purposes, replacement value shall mean the
price a retail merchant would charge for property of that kind
considering the age and condition of the property at the time value is
determined. [1]
506 HAS INADEQUATE CASE LAW TO DEFINE IT.
Section 506(a)(2) was added to the Bankruptcy Code in 2005 when Congress passed the
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Unfortunately, “no
consensus has emerged in the case law interpreting § 506(a)(2) as to how replacement value for
motor vehicles should be determined.” In re Pearsall, 441 B.R. 267, 270 (Bankr. N.D. Ohio 2010)
(collecting cases detailing vehicle valuation). As the Pearsall court explained, “[t]he results reached
ultimately seem to depend, not entirely surprisingly, on the overall record a court is presented with
in a particular case.” Id. Courts have employed a variety of vehicle valuation methods under
§ 506(a)(2) ranging from use of the Kelley Blue Book or N.A.D.A. Guide retail values of a like
vehicle to the opinion testimony of a car salesperson as to what he would sell a vehicle for on the
lot. Id. at 270-71. The Sixth Circuit has not established a uniform method. [1]
CITIZEN SEEKING REDEMPTION HAS BURDEN
As the party seeking redemption, the Debtor “bear[s] the burden of proving the appropriate
redemption value by a preponderance of the evidence.” In re Herrera, 454 B.R. 559, 561 (Bankr.
E.D.N.Y. 2011) (citations omitted) (collecting cases holding debtor bears burden of proving value
by preponderance of evidence for redemption purposes under § 722). Therefore, the Debtor here
bore the evidentiary burden of proving that the replacement value of his vehicle was, more likely
than not, $1,132, the amount he proposed to pay...... [1]
Fed. R. Bankr. P. 3012. The purpose of Rule 3012 is to ensure that a creditor who files a motion
seeking a determination of its secured status and the value of its collateral pursuant to 11 U.S.C.
§ 506 is entitled to a hearing on those issues upon notice to other interested parties. “Rule 3012 does
not, however, require a separate [valuation] hearing.” Piedmont Trust Bank v. Linkous (In re
Linkous), 141 B.R. 890, 894 (W.D. Va. 1992); In re Taylor, 289 B.R. 379, 386 n.5 (Bankr. N.D. Ind.
2003).3 “Valuation issues may also arise in connection with other requests such as redemption
under § 722,” Id., or confirmation of a plan. Calvert, 907 F.2d at 1072; In re Hoskins, 262 B.R. 693,
697 (Bankr. E.D. Mich. 2001).... [1]
COMPANY SAYS CITIZEN MUST REDEEM THE CAR FOR THE FULL AMOUNT OWED NOT THE VALUATION?
In its objection to the Debtor’s redemption motion, CNAC did not object to the Debtor’s
Edmonds.com attachment nor did it provide any evidence of the value of the vehicle. Instead,
CNAC simply insisted that the vehicle should be redeemed for the full amount owed on the debt. [1]
At the June 6, 2011 hearing, at which counsel for CNAC appeared, it again did not present any
evidence regarding the value of the vehicle, but rather stated that the redemption amount should be
the same as the outstanding loan. [1]
COMPANY WAS SO SURE OF ITS ARGUMENT IT DID NOT ARGUE VALUATION
CNAC presented no evidence of value nor did it object to the evidence submitted by the Debtor.
THE COMPANY DID NOT APPLU 506(a)(2) correctly. [1]
Rather it simply stated that the redemption value should be identical to the outstanding balance on the debt
which is simply not the standard set forth under § 506(a)(2). The only evidence submitted by the parties came from the Debtor. Therefore, the Debtor met his burden of proof. [1]
CITIZENS USE OF REDEMPTION HAS TO BE BY MOTION.
Pursuant to the Bankruptcy Rules, the filing of the motion to redeem is a contested matter
under Federal Rule of Bankruptcy Procedure 9014. [1]
COURT THEN MUST MAKE A DETERMINATION
As a result, the court was required to make
findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a), made
applicable to contested matters in bankruptcy by Federal Rules of Bankruptcy Procedure 7052 and
9014. These findings and conclusions can be written or oral. The main requirement for these
findings is that they “must be sufficient to enable a reviewing court to determine the factual basis
for the court’s ruling.” Veal v. Am. Home Mortgage Serv., Inc. (In re Veal), 450 B.R. 897, 919
(B.A.P. 9th Cir. 2011). “This same standard applies in this Circuit even when the findings are based
on documentary, rather than testimonial, evidence.” Brown v.UAW, 689 F.2d 69, 71 (6th Cir. 1982).
In the case of Corzin v. Fordu (In re Fordu), 201 F.3d 693 (6th Cir. 1999), the Sixth Circuit
Court of Appeals stated the standard used in reviewing a decision under Federal Rule of Civil [1]
V. CONCLUSION
For the foregoing reasons, the Panel affirms the order of the bankruptcy court granting the
Debtor’s motion to redeem the vehicle for $1,400. [1]
source
[1]
BANKRUPTCY ARTICLE 03/18/12
By order of the Bankruptcy Appellate Panel, the precedential effect
of this decision is limited to the case and parties pursuant to 6th
Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).
File Name: 12b0002n.06
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
In re: STEVEN M. PERALES,
Debtor.
______________________________________
))))
No. 11-8045
Appeal from the United States Bankruptcy Court
for the Northern District of Ohio, Eastern Division at Canton.
Bankruptcy Case No. 11-60366.
Decided and Filed: March 12, 2012
Before: EMERSON, McIVOR, and PRESTON, Bankruptcy Appellate Panel Judges.
____________________
COUNSEL
ON BRIEF: Thomas C. Loepp, MAISTROS & LOEPP, LTD., Stow, Ohio, for Appellant. Douglas
L. Thrush, THRUSH & ROHR, LLC, Canton, Ohio, for Appellee.
-------------------
[2]
Handling Consumer and Small Business Bankruptcies in Michigan ch 3 (Richardo I. Kilpatrick et al eds, ICLE 2009), at http://www.icle.org/modules/books/chapter.aspx/?lib=bankruptcy&book=2009550820&chapter=03
(last updated 03/09/2012).
[3]
http://en.wikipedia.org/wiki/Bankruptcy_in_the_United_States#Redemption
What many debtors/ citizens do not know is that thye can keep their car by paying only what it is worth not what is owed.
In a Chapter 7 Bankrutpcy you may keep your car if it has a value of $3,400 or lesst within in one exemption. The lein still continues and you commonly are told you have to reaffirm the entir debt to keep your car. But whjat if your vehicle is worth much less than what you owe on it?
In a Chapter 7 liquidation case, an individual debtor may redeem certain "tangible personal property intended primarily for personal, family, or household use" that is encumbered by a lien. To qualify, the property generally either (A) must be exempt under section 522 of the Bankruptcy Code, or (B) must have been abandoned by the trustee under section 554 of the Bankruptcy Code. To redeem the property, the debtor must pay the lienholder the full amount of the applicable allowed secured claim against the property. [3]
BANKRUPTCY, CAR, REDEMPTION posted here by Bankruptcy Attorney Terry Bankert in note , cited format. For additional information call 810-235-1970
see also
http://occupyflintlegal.wordpress.com/2012/03/20/save-car-in-bankrutpcy-pay-only-what-it-is-worth/
BANKRUPTCY, CAR, REDEEMPTION posted here by Bankruptcy Attorney Terry Bankert in note , cited format. For additional information call 810-235-1970
To cause this reduced buy out you will probably have to go before a bankrutpcy judge. §3.109 Pursuant to Bankruptcy Rule 1007 and 11 USC 722, the debtor may file a motion with the court to allow the [2]
An example of the most common redemption of personal property is the redemption of a car. The fair market value of a car may be thousands of dollars less than what is owed on the loan. The debtor has the option of purchasing the car from the lender for the amount of the replacement or current market value of the car. [2]
YOU WILL MOTION THE FEDERAL BANKRUPTCY JUDGE TO REDEEM YOUR PROPERTY
This can be accomplished through negotiation; however, it is most often done by a motion to redeem personal property. A motion of this type will most often be a contested matter that will require testimony and an appraisal of the asset in question. Thus, it is usually up to the court to approve the redemption and valuation. [2]
Value is often contested at this motion; however, once this is settled, the debtor pays the lender the fair market value of the property and the title is transferred. Form 3.6 is a sample motion for redemption of personal property.[SEE BELOW]
D. Payment to the Creditor [2]
EXAMPLE FROM RECENT COURT OPINION
CNAC Motor Car Credit Co. appeals an order of the bankruptcy court granting Steven M. Perales’ motion to redeem his 2002 Dodge Neon for a lump sum of $1,400. For the reasons that follow, we affirm the bankruptcy court’s order. [1]
[The writers purpose here is to review the use of a redemption motion in a chapter seven bankruptcy. Most arguments as to valuation are stricken. Note this opinion has been altered for media presentation. Consult the original and legal counsel before you rely on content presented here.- Terry Bankert]
FINAL ORDERS OF A MICHIGAN BANKRUPTCY COURT ARE APPEALED TO THE 6TH CIRCUIT COURT
III. FACTS
$10,014 OWED ON CAR CITIZEN FILES FOR CHAPTER SEVEN BANKRUPTCY
On February 11, 2011, Steven M. Perales (“Debtor”) filed a voluntary petition for relief under
chapter 7 of the Bankruptcy Code. Listed on Schedule B was a debt owing CNAC Motor Car Credit
Co. (“CNAC”) in the amount of $10,014. The debt to CNAC is secured by a 2002 Dodge Neon. [1]
CITIZEN FILED A MOTION TO REDEEM AT LESS THAN THE AMOUNT OWED IN CHAPTER SEVEN?
On April 25, 2011, the Debtor filed a motion to redeem the 2002 Dodge Neon for the lump
sum of $1,132 pursuant to 11 U.S.C. § 722 and Federal Rule of Bankruptcy Procedure 6008.
Attached to the Debtor’s motion was a printout from Edmonds.com showing that the trade-in value
of the vehicle was $792, the private party sale value was $1,132, and the dealer retail was $1,586. [1]
ONLY THE VALUATION WAS ARGUED?
At both the hearing before the bankruptcy court 1 on the Debtor’s motion and on appeal,
CNAC argues only that the valuation was improper. [The Court found the valuation to be $1,400-trb] [1]
THE COMPANY HOLDING THE NOTE ON THE CAR FILED FOR RELIEF FROM THE AUTOMATIC STAY.
The notice also indicated that the bankruptcy court would conduct a hearing on CNAC’s
motion for relief from the automatic stay at the same time. [1]
CITIZEN FILED A MOTION TO REDEEM UNDER 11 USC SEC. 722
The Debtor’s motion also included a “Notice of Motion to Redeem” which indicated that any party
opposing the requested relief must file a written response with the bankruptcy court by May 25,
2011. CNAC received notice of the Debtor’s motion. [1]
CITIZENS MOTION WAS OPPOSED
CNAC filed a Motion in Opposition to the Debtor’s Motion to Redeem on April 28, 2011.
DID THE CITIZEN GET IT WRONG AND NO PART OF THE DEBT WAS DISCHARGEABLE?
In its opposition, CNAC asserted that the vehicle was not exempt, was not abandoned, and that the
debt thereon was not dischargeable. [1]
CITIZENS OWES US $10,013.54 SAYS COMPANY.....
ISSUES AT HEARING
COMPANY HAS A RETAIL CONTRACT, PAY OR RETURN THE CAR IT SAYS TO CITIZEN
Counsel for CNAC argued that because there was a retail installment contract
which had not been paid in full, the Debtor must either return the vehicle or pay the entire
outstanding balance of $10,014 to redeem it. Again, CNAC provided no evidence to the court
regarding the value of the vehicle. [1]
OOPS COMPANY FORGOT TO ARGUE THE MOST IMPORTANT ISSUE
Although CNAC originally stated in its opposition to the Debtor’s motion to redeem that the vehicle was not subject to redemption, it did not make such assertions before the bankruptcy court at the June 6, 2011 hearing. CNAC also failed to make those assertions in this appeal. Therefore, the only dispute before the bankruptcy court, and now before the Panel, concerns the amount the Debtor must pay CNAC to redeem the vehicle. [1]
CITIZENS CAN REDEEM THEIR CAR AND OTHER PERSONAL PROPERTY
A. In General
§3.107 Redemption of personal property is a process by which the debtor purchases the secured property for the amount of the allowed secured claim. What this means is that the debtor may buy the secured property for the current fair market value of that secured property. 11 USC 722. Note that the property must be intended for the personal, family, or household use of the debtor. Id. [2]
11 USC SECTION . 722 An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien in full at the time of redemption.
11 USC SECTION 522 EXEMPTION AS TO PERSONAL PROPERTY
(a)In this section—
(2)“value” means fair market value as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate.
(2)The debtor’s interest, not to exceed $3,400 in value, in one motor vehicle.
11USCSECTION 524 - WHAT IS THE “ALLOWED SECURED CLAIM”.
“What if your creditor has a security interest or lien? Your bankruptcy discharge does not eliminate any lien on your property. A ‘lien’ is often referred to as a security interest, deed of trust, mortgage or security deed. Even if you do not reaffirm and your personal liability on the debt is discharged, because of the lien your creditor may still have the right to take the property securing the lien if you do not pay the debt or default on it. If the lien is on an item of personal property that is exempt under your State’s law or that the trustee has abandoned, you may be able to redeem the item rather than reaffirm the debt. To redeem, you must make a single payment to the creditor equal to the amount of the allowed secured claim, as agreed by the parties or determined by the court.”.
An example of the most common redemption of personal property is the redemption of a car. The fair market value of a car may be thousands of dollars less than what is owed on the loan. The debtor has the option of purchasing the car from the lender for the amount of the replacement or current market value of the car. This can be accomplished through negotiation; however, it is most often done by a motion to redeem personal property. A motion of this type will most often be a contested matter that will require testimony and an appraisal of the asset in question. Thus, it is usually up to the court to approve the redemption and valuation. [2]
B. Obtaining Financing
§3.108 Obviously, a debtor in a Chapter 7 case may have a difficult time obtaining the funds necessary to redeem the property. There is no provision in the Code allowing the redemption of personal property to take place over a period of time in the same manner as a reaffirmation agreement. That being said, when it comes to automobiles, many programs offered by lenders will allow a debtor to redeem the property by taking out a loan with a new lender. The new lender will be granted a security interest in the property and will lend at specific disclosed terms. Lenders are often willing to lend the money because the property that is being used as collateral on the loan is worth the amount owed on it; since the debtor is discharging all other obligations and cannot file another Chapter 7 bankruptcy case for eight more years, 11 USC 727(a)(8), lending to the debtor is often considered a good risk. [2]
C. Motion for Redemption
§3.109 Pursuant to Bankruptcy Rule 1007 and 11 USC 722, the debtor may file a motion with the court to allow the redemption of personal property. Value is often contested at this motion; however, once this is settled, the debtor pays the lender the fair market value of the property and the title is transferred. Form 3.6 is a sample motion for redemption of personal property.
D. Payment to the Creditor [2]
§3.110 Payment in full must take place pursuant to the redemption requirements at the time of the redemption. Further, the redemption process must be completed within 45 days after the first meeting of creditors. If the redemption is not completed, the automatic stay is vacated as to such personal property and the property is no longer property of the estate unless the court orders otherwise before the expiration of the 45-day period. [2]
COURT RULED THE CITIZEN COULD REDEEM THE CAR FOR THE $1,400 VALUE BUT HAVING A $10,014 BALANCE DUE.
At the conclusion of the hearing, the bankruptcy court ruled from the bench that the Debtor
had the right to redeem the Dodge Neon. The court further found that, after looking at several
sources on its own, it had arrived at a value of $1,400, which was only slightly more than the
Debtor’s proposed value of $1,132. [1]
IN A CHAPTER SEVEN DEBTOR KEEPS A CAR BY PAYING MARKET VALUE OF $1,400 WHEN $10,014 WAS OWED?
On June 13, 2011, the bankruptcy court entered a written order
granting the Debtor’s motion to redeem which directed the Debtor to pay CNAC a lump sum of
$1,400 within 30 days of entry of the order. CNAC’s timely notice of appeal followed on June 22,
2011. [1]
IV. DISCUSSION
JUST WHAT IS AN ALLOWED SECURED CLAIM IN A REDEMPTION IN CHAPTER SEVEN BANKRUPTCYT?
Pursuant to 11 U.S.C. § 722, an individual debtor may redeem consumer goods from a lien
securing a dischargeable consumer debt, if the property is exempt under 11 U.S.C. § 522 or has been
abandoned under § 544, by paying the lienholder in full, at the time of redemption, the amount of
the “allowed secured claim” that is secured by the collateral. 11 U.S.C. § 722. [1]
JUST WHAT IS AN ALLOWED SECURITY CLAIM?
The term “allowed secured claim” is not defined in the Bankruptcy Code. See, 11 U.S.C.
§ 101. However, 11 U.S.C. § 506 describes how to determine a creditor’s secured claim, and, thus,
what amount a debtor must pay pursuant to § 722 in order to redeem property:
SECURED CLAIM IS WHAT IS OWED ON THE CAR IS THE VALUE OF THE CREDITORS INTEREST.
An allowed claim of a creditor secured by a lien on property in which
the estate has an interest . . . [1]
THE CLAIM IS SECURED TO THE EXTENT OF ITS VALUE
is a secured claim to the extent of the
value of such creditor’s interest in the estate’s interest in such
property . . . [1]
THE CLAIM IS UNSECURED FOR THE AMOUNT OWED OVER VALUE. DOES THIS APPLY TO CHAPTER SEVEN?
and is an unsecured claim to the extent that the value of
such creditor’s interest . . . is less than the amount of such allowed
claim. [1]
THIS VALUE TO BE DETERMINED
Such value shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of such property, and
in conjunction with any hearing on such disposition or use or on a
plan affecting such creditor’s interest. [1]
506(a)(2)
Section 506(a)(2) further describes in more detail the method of valuing a secured claim if the debtor
is an individual in chapter 7 or 13. It states:
If the debtor is an individual in a case under chapter 7 or 13, such
value with respect to personal property securing an allowed claim
shall be determined based on the replacement value of such property
as of the date of the filing of the petition without deduction for costs
of sale or marketing. With respect to property acquired for personal,
family, or household purposes, replacement value shall mean the
price a retail merchant would charge for property of that kind
considering the age and condition of the property at the time value is
determined. [1]
506 HAS INADEQUATE CASE LAW TO DEFINE IT.
Section 506(a)(2) was added to the Bankruptcy Code in 2005 when Congress passed the
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Unfortunately, “no
consensus has emerged in the case law interpreting § 506(a)(2) as to how replacement value for
motor vehicles should be determined.” In re Pearsall, 441 B.R. 267, 270 (Bankr. N.D. Ohio 2010)
(collecting cases detailing vehicle valuation). As the Pearsall court explained, “[t]he results reached
ultimately seem to depend, not entirely surprisingly, on the overall record a court is presented with
in a particular case.” Id. Courts have employed a variety of vehicle valuation methods under
§ 506(a)(2) ranging from use of the Kelley Blue Book or N.A.D.A. Guide retail values of a like
vehicle to the opinion testimony of a car salesperson as to what he would sell a vehicle for on the
lot. Id. at 270-71. The Sixth Circuit has not established a uniform method. [1]
CITIZEN SEEKING REDEMPTION HAS BURDEN
As the party seeking redemption, the Debtor “bear[s] the burden of proving the appropriate
redemption value by a preponderance of the evidence.” In re Herrera, 454 B.R. 559, 561 (Bankr.
E.D.N.Y. 2011) (citations omitted) (collecting cases holding debtor bears burden of proving value
by preponderance of evidence for redemption purposes under § 722). Therefore, the Debtor here
bore the evidentiary burden of proving that the replacement value of his vehicle was, more likely
than not, $1,132, the amount he proposed to pay...... [1]
Fed. R. Bankr. P. 3012. The purpose of Rule 3012 is to ensure that a creditor who files a motion
seeking a determination of its secured status and the value of its collateral pursuant to 11 U.S.C.
§ 506 is entitled to a hearing on those issues upon notice to other interested parties. “Rule 3012 does
not, however, require a separate [valuation] hearing.” Piedmont Trust Bank v. Linkous (In re
Linkous), 141 B.R. 890, 894 (W.D. Va. 1992); In re Taylor, 289 B.R. 379, 386 n.5 (Bankr. N.D. Ind.
2003).3 “Valuation issues may also arise in connection with other requests such as redemption
under § 722,” Id., or confirmation of a plan. Calvert, 907 F.2d at 1072; In re Hoskins, 262 B.R. 693,
697 (Bankr. E.D. Mich. 2001).... [1]
COMPANY SAYS CITIZEN MUST REDEEM THE CAR FOR THE FULL AMOUNT OWED NOT THE VALUATION?
In its objection to the Debtor’s redemption motion, CNAC did not object to the Debtor’s
Edmonds.com attachment nor did it provide any evidence of the value of the vehicle. Instead,
CNAC simply insisted that the vehicle should be redeemed for the full amount owed on the debt. [1]
At the June 6, 2011 hearing, at which counsel for CNAC appeared, it again did not present any
evidence regarding the value of the vehicle, but rather stated that the redemption amount should be
the same as the outstanding loan. [1]
COMPANY WAS SO SURE OF ITS ARGUMENT IT DID NOT ARGUE VALUATION
CNAC presented no evidence of value nor did it object to the evidence submitted by the Debtor.
THE COMPANY DID NOT APPLU 506(a)(2) correctly. [1]
Rather it simply stated that the redemption value should be identical to the outstanding balance on the debt
which is simply not the standard set forth under § 506(a)(2). The only evidence submitted by the parties came from the Debtor. Therefore, the Debtor met his burden of proof. [1]
CITIZENS USE OF REDEMPTION HAS TO BE BY MOTION.
Pursuant to the Bankruptcy Rules, the filing of the motion to redeem is a contested matter
under Federal Rule of Bankruptcy Procedure 9014. [1]
COURT THEN MUST MAKE A DETERMINATION
As a result, the court was required to make
findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a), made
applicable to contested matters in bankruptcy by Federal Rules of Bankruptcy Procedure 7052 and
9014. These findings and conclusions can be written or oral. The main requirement for these
findings is that they “must be sufficient to enable a reviewing court to determine the factual basis
for the court’s ruling.” Veal v. Am. Home Mortgage Serv., Inc. (In re Veal), 450 B.R. 897, 919
(B.A.P. 9th Cir. 2011). “This same standard applies in this Circuit even when the findings are based
on documentary, rather than testimonial, evidence.” Brown v.UAW, 689 F.2d 69, 71 (6th Cir. 1982).
In the case of Corzin v. Fordu (In re Fordu), 201 F.3d 693 (6th Cir. 1999), the Sixth Circuit
Court of Appeals stated the standard used in reviewing a decision under Federal Rule of Civil [1]
V. CONCLUSION
For the foregoing reasons, the Panel affirms the order of the bankruptcy court granting the
Debtor’s motion to redeem the vehicle for $1,400. [1]
| Motion for Authority to Redeem Personal Property and Approval of Associated Financing and Attorney Fees | |||||||||||
| [Insert caption.]
MOTION FOR AUTHORITY TO REDEEM PERSONAL PROPERTY AND
APPROVAL OF ASSOCIATED FINANCING AND ATTORNEY FEES
UNDER 11 USC 722
Debtor, by and through counsel, moves the court pursuant to 11 USC 722 and Bankruptcy Rule 6008 for a Redemption Order on the following grounds:
NOTICE
Notice is given that unless an objection is made to this motion within 20 days following the date of service below, an order sustaining the motion may be granted by the Court.
CERTIFICATE OF SERVICE
I certify that the foregoing has been served upon the Creditor noted above, the U.S. Trustee, and the Chapter 7 Trustee by mailing a copy of this motion by first class U.S. Mail on [date].
|
source
[1]
BANKRUPTCY ARTICLE 03/18/12
By order of the Bankruptcy Appellate Panel, the precedential effect
of this decision is limited to the case and parties pursuant to 6th
Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).
File Name: 12b0002n.06
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
In re: STEVEN M. PERALES,
Debtor.
______________________________________
))))
No. 11-8045
Appeal from the United States Bankruptcy Court
for the Northern District of Ohio, Eastern Division at Canton.
Bankruptcy Case No. 11-60366.
Decided and Filed: March 12, 2012
Before: EMERSON, McIVOR, and PRESTON, Bankruptcy Appellate Panel Judges.
____________________
COUNSEL
ON BRIEF: Thomas C. Loepp, MAISTROS & LOEPP, LTD., Stow, Ohio, for Appellant. Douglas
L. Thrush, THRUSH & ROHR, LLC, Canton, Ohio, for Appellee.
-------------------
[2]
Handling Consumer and Small Business Bankruptcies in Michigan ch 3 (Richardo I. Kilpatrick et al eds, ICLE 2009), at http://www.icle.org/modules/books/chapter.aspx/?lib=bankruptcy&book=2009550820&chapter=03
(last updated 03/09/2012).
[3]
http://en.wikipedia.org/wiki/Bankruptcy_in_the_United_States#Redemption
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