In re Murray (05-48017)
Creditor Nuvell Financial Services Corp. (hereinafter, “Nuvell”) filed an objection to the confirmation of Debtors’ Chapter 13 Plan on the basis that the treatment of Nuvell in the plan did not comport with the requirements of the “hanging paragraph” of 11 U.S.C. § 1325(a) (hereinafter, “§ 1325(a)(*)”). Debtors purchased a motor vehicle within 910 days of filing their Chapter 13 bankruptcy petition. The vehicle was purchased for the personal use of Debtors. At the time the vehicle was purchased, Debtors also purchased an extended service contract and were assessed a documentary fee by the seller. Debtors argued that the purchase of the extended warranty and the payment of the documentary fee with monies meant for the purchase of the vehicle alone, prevented Nuvell from holding a purchase-money security interest.
The Court held that Nuvell in fact held a purchase-money security interest and that the other requirements of § 1325(a)(*) were met so as to qualify Nuvell’s claim for treatment under that section. Further, the Court held that § 1325(a)(*) does not prevent a claim qualifying under that section from being an “allowed secured claim” for purposes of § 1325(a)(5) and its present interest requirement. Section 1325(a)(*) serves to prevent the bifurcation of an under-secured claim into a secured and unsecured portion under § 506. This holding is consistent with the vast majority of cases considering the meaning of § 1325(a)(*). The Court’s interpretation is also consistent with the plain meaning of the statute and with the legislative history on the section.
The Court also considered the issue of post-petition interest rates to be paid in accordance with § 1325(a)(5) on secured claims that qualify for treatment under § 1325(a)(*). The Court concluded that the United States Supreme Court case of Till v. SCS Credit Corp., 541 U.S. 465 (2004), was applicable to claims falling under § 1325(a)(*). The Supreme Court held in Till that § 1325(a)(5) required that interest on allowed secured claims should be paid at a current rate determined by an adjustment from the prime rate based upon the risk of nonpayment. Being as the Court concluded that a claim qualifying under § 1325(a)(*) is an “allowed secured claim” for purposes of § 1325(a)(5), the interest rate set forth in Till is appropriate.