Blog Topic

Undersecured liens may not be avoided in Chapter 7
Posted by: Peter Scribner
January 27, 2010

In re Spears (Bk #08-13988; Judge Bucki decision Dec. 9, 2009): A Chapter 7 debtor attempted to avoid, or remove, a judgment lien and a mechanic's lien against commercial property.  The property was worth $167,000 and had a $220,000 first mortgage. The debtor attempted to remove the junior liens under Bankruptcy Code Section 506(a)(1) and (d). Section 506(a)(1) says that a secured claim is an allowed claim to the "to the extent of the value of such creditor's interest in the [bankruptcy] estate's interest in such property. . .".  Section 506(d) states that to the extent that "a lien secures a claim against the debtor that is not an allowed claim, such lien is void.. .".

But Judge Buckirejected the argumenty, based on Dewsnup v. Timm, 502 US 410 (1992).  The debtor argued that a new provision in Section  506, enacted after Dewsnup, changes the analysis.  New provision 506(a)(2) establishes a means of valuing personal property when determining the status of secured claims against such property. Judge Bucki rejected the conclusion that new Section 506(a)(2) merits any reconsideration of Dewsnup.

Note that a bankruptcy judge in the Eastern District of NewYork came to an opposite conclusing in a Chapter 13 case - see my blog on the 2009 case Lavella, under the topic list of bankruptcy cases outside of WDNY.

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Car loan in excess of $16,000 is a 'luxury'
Posted by: Peter Scribner
January 14, 2010

In re: Andrea Daniel-Sanders; Bk #09-10695 (Judge Bucki 12/30/2009).  In this chapter 13 case in Buffalo, a single mother with three kids filed a case where she had two cars, each with a car loan. Her chapter 13 plan called for keeping both cars and paying general unsecured creditors 25% of the amount owed to them. The chapter 13 trustee objected to the debtor keeping both cars. The trustee believed that if the debtor got rid of one of her cars, she would have more money to pay to unsecured creditors.

Judge Bucki concluded that the debtor was justified in having two cars. The father of her children lived with her and took care of the kids in lieu of day care. He did not have a car and so her second car was a necessary household expense as it provided transportation for the kids during the day.

However, the amount owed on the loan for the second car was $27,163. Judge Bucki stated that his long-time position was that car loans with a balance of over $15,000 were a “luxury”. At the request of both the debtor and the trustee, he revisited his “luxury” car loan amount. He noted that the average cost for acquiring a vehicle, whether new or used, was $12,907, according to the Bureau of Transportation Statistics.  Judge Bucki concluded that 20% above this amount, or approximately $16,000, would be a reasonable amount for a car loan, and anything in excess of that he would consider a “luxury” and cannot be paid at the expense of general unsecured creditors. If the debtor wishes a second car, the debtor would have to surrender this vehicle and obtain permission to purchase more modest transportation.  It appears that the $16,000 limit applies even if the debtor only owns one vehicle.

 An open question is what sort of car loan someone who is already inChapter 13 could obtain, and at what interest rate.  One option, in light of this position, would be for a debtor to purchase a car with a more modest loan immediately before filing bankruptcy.

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