Nuvell Financial Services Corp. v. Dean

Citation: 537 F.3d 1315Docket: No. 07-14163

Court: Court of Appeals for the Eleventh Circuit; August 7, 2008; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Nuvell Credit Company, LLC, formerly Nu-vell Credit Corporation, appeals a bankruptcy court's confirmation of the Chapter 13 plan for debtors James and Stacie Dean. The appeal centers on whether a claim that falls under the "hanging paragraph" of Title 11 U.S.C. § 1325(a)(9) is considered an allowed secured claim, which would entitle the Creditor to full payment plus post-petition interest. The facts are undisputed: the Debtors bought a 2004 Kia Spectra on June 15, 2004, with a retail installment sales contract assigned to the Creditor. By the time of their Chapter 13 filing on March 16, 2006, the Debtors owed $14,571.72. Their plan proposed paying $8,475.00 (the vehicle's current value) plus 7.5% interest, which the Creditor contested, asserting entitlement to the full claim amount and a higher interest rate. The bankruptcy judge ruled the Creditor should receive the full claim amount but denied post-petition interest, relying on prior decisions. The district court has certified the appeal under 28 U.S.C. § 158(d)(2)(A) to resolve legal questions and conflicting decisions among judges. The court's review will consider the bankruptcy court's factual findings as binding unless clearly erroneous, while legal conclusions will be reviewed de novo. The analysis will start with the statutory language of Section 506 of the Bankruptcy Code, which details how claims are classified as secured or unsecured based on the value of the creditor's interest in the property. Prior to 2005, debtors could bifurcate claims, a practice Congress deemed abusive, leading to the introduction of the hanging paragraph in the BAPCPA to protect certain claims, specifically "910-claims."

For claims under paragraph (5) of section 1325(a), section 506 does not apply if the creditor holds a 910-claim. Section 1325(a)(5) outlines the treatment options for "allowed secured claims," of which only the third option—where a debtor retains a vehicle and pays the creditor through a Chapter 13 plan—is relevant here. The bankruptcy court ruled that 910-claims are not treated as secured claims and thus are not entitled to post-petition interest, although it did not provide a detailed rationale. The judge based this decision on previous cases, particularly In re Carver, which argued that Congress intended for 910-claims to be exempt from the definition of secured claims under section 506. Carver established a formula for treating such claims, requiring that they receive the greater of the full claim amount without interest or the bifurcated amount of the claim, but faced significant criticism for its reasoning and conclusions, which were seen as leading to illogical outcomes. Most courts have rejected Carver's interpretation, asserting that 910-claims must be treated as fully secured and cannot be bifurcated. Despite widespread dissent, the judge maintained his stance in In re Green, stating a commitment to his interpretation of the law, even if it diverged from the majority view.

Extensive litigation in bankruptcy and appellate courts has consistently disagreed with a bankruptcy judge's conclusion regarding the treatment of 910-claims—purchase money security interests for debts incurred within 910 days before filing for bankruptcy. The recent Tenth Circuit decision in *In re Jones*, 530 F.3d 1284 (10th Cir. 2008), reversed the bankruptcy court's ruling that 910-claims are not entitled to post-petition interest. The Tenth Circuit found that 910-claims qualify as fully secured under section 1325(a)(5)(B) and clarified that the definition of “allowed secured claim” does not rely on section 506(a). The court emphasized that since 910-claims cannot be bifurcated, creditors are entitled to the present value of their entire claim, including interest, contradicting the bankruptcy court’s order. The opinion noted that the “hanging paragraph” lacks formal designation but is crucial in defining the treatment of 910-claims. The bankruptcy judge's ruling, which aligned with a minority view, has been widely rejected by appellate courts, including cases such as *In re Wampler* and *In re Wilson*. As a result, the court vacated the bankruptcy court's confirmation order and remanded for proceedings consistent with its findings. The opinion does not resolve what interest rate should apply, only noting the Creditor's request for the "prime-plus" rate from *Till v. SCS Credit Corp.*, leaving that question open for future determination.