REPLACEMENT VALUE FOR SURRENDERING A VEHICLE IN CHAPTER 13?
A recent case from the 11th Circuit Court of Appeals in Atlanta may have a major impact on Chapter 13 vehicle surrender cases going forward. On March 27, 2014, the Eleventh Circuit issued a ruling, in In re Brown, 13-13013, 2014 WL 1245266 (11th Cir. 2014) regarding the treatment of any alleged deficiency related to a surrendered vehicle in a Chapter 13 case.
By way of background, the normal procedure in Chapter 13 has been to surrender a vehicle in a Chapter 13 Plan and then wait for the creditor to liquidate the collateral pursuant to its State law rights. This typically has involved taking the car to an auction, selling the car for well below wholesale value and then a creditor would file a large deficiency claim for the difference between the amount owed on the date of the surrender and the sale amount.
The Brown case has put an end to the above practice. Based on the language in 11 U.S.C. §506(a)(2), the 11th Circuit ruled that “replacement value” is to be used for surrendered vehicles, as well as vehicles being retained in the Chapter 13 case. Replacement value has been defined by the Bankruptcy Code to “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.” 11 U.S.C. § 506(a)(2).
This holding may effectively end the deficiency for any vehicle surrendered in Chapter 13, as the replacement value of vehicles is generally equal to the outstanding loan amount on vehicles which do not contain “roll over” negative equity financing. It will be interesting to see if the ruling can be pushed to include deficiencies incurred prior to the filing of the Chapter 13 for which no judgment has been entered. Our office intends to object to any pre-petition deficiency which used foreclosure value as a basis for determining the amount of the deficiency based upon the Brown ruling.
So what does this mean for a Chapter 13 Plan to the average person? If you file 13 and surrender your vehicle, then the chance of the creditor being allowed an unsecured claim has been greatly reduced. This may mean a quicker payoff of the 13 if other unsecured debts are low, it may mean that the monthly payment would be lower or that the term of the plan could be shorter. Those are all good things from a filing perspective.
At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 orbkmickler@planlaw.com.
Bryan K. Mickler
