- Case Type:
- Case Status:
- 18-50420 (5th Circuit, Jan 14,2021) Published
- Affirming the district court’s reversal of the decision of the bankruptcy court (BC), the U.S. Court of Appeals for the Fifth Circuit (Circuit) held that a debtor (DR) with two cross-collateralized loans, both his debts being secured by the same two vehicles, could not surrender one and retain the other under § 1325(a)(5). This court thus invalidated the DR’s proposed retention of a GM Sierra (Sierra), “cram down” of the loan for its purchase (Sierra Loan), and surrender of a Toyota Camry (Camry) as a collateral for the Camry’s purchase (Camry Loan), in his approved Chapter 13 plan (Plan).
- Procedural context:
- As filed, the Plan treated each allowed secured claim—the GM and Sierra Loans—differently despite the relevant contracts’ cross-collateralization provisions. In other words, even though the Sierra Loan and Camry Loan that had been obtained to purchase the Sierra and the Camry, respectively, were secured by both the Camry and the Sierra, the Plan retained the Sierra and crammed down the Sierra Loan but surrendered the Camry as collateral for the Camry Loan. This proposal effectively reduced (1) the amount of the Sierra Loan to the physical car’s cognizable value and (2) the collateral of the Camry Loan from two cars to one, the retained Sierra. The same exact pieces of collateral, affected distinctly for purposes of two different loans by the DR’s plan. Because § 1325(a)(5) connects the three options in (A), (B), and (C) with an “or,” the DR argued, the Code empowered him to do precisely this. As the holder of both loans and two distinct claims secured by the same two cars, Evolve contested this reading. It argued that the DR could not select different options for different collateral securing the same claim. To wit, he had to cramdown or surrender all of the collateral, i.e. the Camry and Sierra, securing the Camry Loan, based on any fair perusal of § 1325(a)(5). The BC agreed with the DR and confirmed the Plan. Evolve filed a motion for a new trial that was denied. Subsequently, it appealed the confirmation and denial orders. The U.S. District Court for the Western District of Texas (DC) agreed with Evolve. Section 1325(a)(5) does allow debtors to select a different option “with respect to each allowed secured claim,” it explained; however, it does not allow a debtor to select different options for different collateral securing the same claim, it concluded. Accordingly, the DC reversed the confirmation order and remanded the case for further proceedings. This appeal followed.
- In June 2017, the DR filed a Chapter 13 bankruptcy petition. Prepetition, he had entered into the Sierra and Camry Loans with Evolve Federal Credit Union (Evolve)in 2011 and 2016; he still possessed both vehicles at the time of his Chapter 13 filing. Both agreements contained the same cross-collateralization language: “Collateral securing other loans with the Credit Union may also secure this loan.” (The parties would later even stipulate that each loan agreement is “cross-collateralized by both vehicles.”) Evolve filed two separate Proofs of Claim, one for the Camry Loan (Camry Claim) and another for the Sierra Loan (Sierra Claim). As the DR could no longer afford to keep both vehicles, he filed the Plan—and set the stage for this appeal.
- Priscilla R. Owen; Jacques L. Wiener Jr.; and James L. Dennis
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