Opinion
C/A No. 09-05120-DD.
10-28-2009
IN RE: Bennie Williams and Alberta J Williams, Chapter 13, Debtor(s).
ORDER
THIS MATTER is before the Court on CitiFinancial Auto, Ltd.'s ("Creditor") Objection to Confirmation of the Plan and to Valuation of Collateral ("Objection"). The plan was filed July 17, 2009. A response to Creditor's objection was filed by Bennie Williams, Jr. and Alberta J. Williams ("Debtors"). At the hearing on the Objection, Creditor abandoned portions of its Objection pertaining to Debtors' bad faith in filing their chapter 13 plan and focused on valuation of the collateral. The Court makes the following Findings of Fact and Conclusions of Law pursuant to Fed. R. Civ. P. 52, made applicable to this proceeding by Fed. R. Bankr. P. 7052 and 9014.
Further reference to the Federal Rules of Bankruptcy Procedure will be by rule number only.
FINDINGS OF FACT
Debtors' case was initiated by a voluntary petition under chapter 13 of the Bankruptcy Code filed on July 13, 2009. Debtors have filed two prior bankruptcy cases. Debtors' previous case was under chapter 13 of the Bankruptcy Code and was filed on October 16, 2008 and dismissed, after confirmation of a plan, on June 12, 2009 for the failure to make payments pursuant to the Debtors' confirmed chapter 13 plan. Creditor received $1,233.18 in under this plan. Debtors also previously filed a petition under chapter 7 of the Bankruptcy Code on July 17, 2004. Debtors received a chapter 7 discharge on November 2, 2004.
On October 5, 2006 Creditor financed the Debtors' purchase of a 2006 Chevrolet Avalanche ("Vehicle"). Creditor recorded its security interest on the certificate of title to Debtors' vehicle. In Debtors' prior chapter 13 case, the vehicle was purchased within 910 days of filing preventing Debtors from valuing the vehicle in their chapter 13 plan. On July 17, 2009, Creditor filed its secured Proof of Claim for Debtors' current case in the amount of $28,387.13, representing the amount due under the contract on the date Debtors' current petition was filed. Debtors' proposed chapter 13 plan attempts to value the vehicle at $15,200.00 and would pay that amount, together with interest at the rate of 5.25% per annum, in monthly installments of $289.00.
Conflicting evidence was submitted by Debtors and Creditor at the hearing. Mrs. Williams testified that she believes the fair market value of the vehicle to be $15,500.00. Mrs. Williams' testimony was based solely upon her review of a popular merchant's website. Debtor did stipulate that the vehicle condition was good. Creditor presented what it believes to be the fair market value of the vehicle based upon the National Automobile Dealers Association ("NADA") guide. Creditor's evidence of the NADA value of $18,450.00 was admitted over Debtors' objection.
CONCLUSIONS OF LAW
Creditor objects to Debtors' valuation of the vehicle and argues that Debtors should not be able to value the vehicle but should be bound by the 910-day valuation limitation in the previous chapter 13 case. Creditor argues that it is inequitable to allow Debtors to reap a windfall because of Debtors' failure to comply with the terms of the chapter 13 plan confirmed in their previous case. The basis of Creditor's argument is the Court's inherent equitable powers codified in 11 U.S.C. § 105. Creditor cites no other authority for its position. Debtors seek to value the vehicle, in their current chapter 13 plan, at $15,500.00, a value Mrs. Williams found on a website. Creditor contends that the vehicle should be valued at the NADA retail value of $18,450.00.
Further reference to the Bankruptcy Code, 11 U.S.C. § 101 et seq., will be by section number only.
Section 506(a) of the Bankruptcy Code provides that a claim secured by personal property can be split into a secured claim equal to the value of the collateral and an unsecured claim for the balance of the debt. § 506(a)(1). The ability to bifurcate a claim on a motor vehicle is limited by the "hanging paragraph" which provides:
Section 506(a)(1) provides that "[a]n allowed claim of a creditor secured by a lien on property which the estate has an interest ... is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property ... 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."
For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day (sic) preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.
§ 1325(a)(*).
Regarding the relevant time for valuation, the majority of courts appear split between the date of the hearing on valuation and the filing date of the petition commencing the bankruptcy case. See 134 A.L.R. Fed. 439, §§ 7 and 8. Bankruptcy Courts in the District of South Carolina hold that the date of the valuation hearing is the operative date for valuation. In re Coates, 180 B.R. 110, 118 (Bankr. D.S.C. 1995); In re Boyer, C/A No. 82-00783, slip op. (Bankr. D.S.C. June 10, 1985). In Coates, the court reasoned that setting the valuation on the date of the hearing would provide the most factually complete and current appraisals for valuation purposes. Coates, 180 B.R. at 118-19.
Turning to Creditor's 910 argument, it is true that the passage of time provides the Debtors with the opportunity to value their vehicle. This is not an inequitable result. Creditor bases its argument solely on § 105. Section 105 of the Bankruptcy Code exists to ensure the enforcement of other code provisions. While the "hanging paragraph" prevents valuation of a vehicle within 910-days of purchase, it does not prevent valuation beyond 910-days. In this case, because 910-days have passed since purchase, Debtors should be allowed to use § 506 to value the vehicle. There is no evidence that Debtors manipulated the system to achieve this result, only that the previous case failed for reasons not explored during the hearing on valuation.
Section 105(a) provides that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title."
Debtors bear the burden of proof on the issue of valuation under § 506(a). In re Brown, 244 B.R. 603, 609 (Bankr. W.D. Va. 2000); Sovereign Bank v. Finnegan (In re Finnegan), 358 B.R. 644, 649 (Bankr. M.D. Pa. 2006). In this case, Mrs. Williams testified that she believed the value of the vehicle to be $15,500.00 based upon her review of a single website listing vehicles of the same make and model. The Debtors' opinion evidence is admissible, the issue is the weight to be assigned to the evidence.
Creditor submitted into evidence, over Debtors' objection, the NADA guidebook value of Debtors' vehicle. The NADA guidebook value, and to a lesser degree the Kelly Blue Book, are frequently used in determining replacement value of motor vehicles. See Finnegan, 358 B.R. at 649. Rule 803(17) of the Federal Rules of Evidence provides a hearsay exception for "[m]arket quotations, tabulations, lists, directories or other published compilations, generally used and relied upon by the public or by persons in particular occupations." The NADA guidebook fits well within this hearsay exception. In re McElroy, 339 B.R. 185, 188 (Bankr. C.D. Ill. 2006); See also Barry Russell, Bankruptcy Evidence Manual, § 803:30 (2008-09 Edition). Accordingly, Creditor's evidence of an $18,450.00 value of the vehicle is properly before the Court.
On balance the NADA guidebook value is deserving of the greater weight. Mrs. Williams provided no information concerning the condition of the vehicles mentioned in the website she visited. Debtors did however stipulate their vehicle as in good condition. This is consistent with the condition of vehicles referenced in the NADA guidebook. For the reasons detailed above, the Court determines that the proper time for valuation of Debtors' vehicle is the date of the valuation hearing and that the appropriate value of Debtors' vehicle on that date was $18,450.00.
IT IS THEREFORE ORDERED that Creditor's Objection is sustained in part and overruled in part. Debtors are allowed ten (10) days from the entry of this order to file an amended chapter 13 plan.
AND IT IS SO ORDERED.