IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 5, 2009
No. 08-30601
Charles R. Fulbruge III
Clerk
In the Matter of:
JOSEPH L. MILLER, II; SHELLEY L. MILLER,
Debtors.
DAIMLERCHRYSLER FINANCIAL SERVICES AMERICAS LLC,
Appellant,
versus
JOSEPH L. MILLER, II; SHELLY L. MILLER; KEITH A. RODRIGUEZ,
Appellees.
Appeal from the United States Bankruptcy Court
for the Western District of Louisiana
No. 07-20542
Before SMITH, GARZA, and CLEMENT, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
Joseph Miller (“Miller”) and his wife, Shelley Miller, filed a chapter 13
No. 08-30601
bankruptcy petition and proposed to surrender their vehicle in full satisfaction
of the remaining debt to DaimlerChrysler (“DC”), which opposed the bankruptcy
plan. The bankruptcy court confirmed the plan, and DC appealed directly to this
court. We reverse and remand.
I.
Miller entered into a contract with a dealership for the purchase of a vehi-
cle. The dealership assigned all its interests in the contract to DC, which per-
fected its lien on the vehicle with a first priority purchase money security inter-
est (“PMSI”). Later, Miller filed a voluntary petition for chapter 13 bankruptcy.1
DC filed a timely proof of a secured claim for $34,050.98, the outstanding payoff
balance due at the petition date.
Miller filed an amended chapter 13 plan in which he proposed to surrender
the vehicle in full satisfaction of his debt pursuant to 11 U.S.C. § 1325(a)(5)(C).
DC objected to the plan, noting that the vehicle was worth less than Miller’s re-
maining debt. The bankruptcy court affirmed the plan, holding that the addition
of the “hanging paragraph”2 to the Bankruptcy Code (the “Code”) by the Bank-
ruptcy Abuse Prevention and Consumer Act of 2005 (“BAPCPA”) allowed Miller
to surrender the vehicle in full satisfaction of the debt. We granted DC’s request
for leave to take a direct appeal from the bankruptcy court to this court. See 11
U.S.C. § 158(d)(2)(A).
II.
The issue is whether the hanging paragraph prevents a creditor with a
PMSI in what is termed a “910 vehicle” from obtaining a state law deficiency
1
Miller filed this petition within 910 days of the initial contract’s signing.
2
The hanging paragraph is “an unnumbered paragraph following section 1325(a)(9)”
of the Bankruptcy Code. Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343, 346 (5th Cir. 2008).
2
No. 08-30601
judgment against a debtor for the portion of the debt not covered by the sale of
the surrendered vehicle under 11 U.S.C. § 1325(a)(5)(C). It does not.
A.
Before BAPCPA was enacted, a bankruptcy court could confirm a chapter
13 plan in one of three ways: (1) The debtor and creditor agreed on a plan;
(2) the debtor retained the collateral and continued to make payments;3 or
(3) the debtor surrendered the collateral.4 Tidewater Fin. Co. v. Kenney, 531
3
This was known as the “cramdown.” See generally Todd J. Zywicki, Cramdown & the
Code, 19 T. MARSH ALL L. REV . 241 (1994), cited in Assocs. Commercial Corp. v. Rash (In re
Rash), 90 F.3d 1036, 1066 (5th Cir. 1996) (en banc) (Smith, J., dissenting), rev’d, 520 U.S. 953
(1997).
4
The pertinent language reads as follows:
(a) Except as provided in subsection (b), the court shall confirm a plan ifSS
(1) the plan complies with the provisions of this chapter and
with the other applicable provisions of this title;
...
(5) with respect to each allowed secured claim provided for by
the planSS
(A) the holder of such claim has accepted the
plan;
(B)(i) the plan provides thatSS
(I) the holder of such claim retain
the lien securing such claim until
the earlier ofSS
(aa) the payment of
the underlying debt
determined under
nonbankruptcy law;
or
(continued...)
3
No. 08-30601
F.3d 312, 316 (4th Cir. 2008). If the debtor chose the third option, “the creditor
could pursue an unsecured deficiency claim if it had a right to collect a deficiency
under applicable nonbankruptcy law.” DaimlerChrysler Fin. Servs. Am. LLC v.
Barrett (In re Barrett), 543 F.3d 1239, 1242 (11th Cir. 2008). That deficiency is
considered an unsecured claim under 11 U.S.C. § 506(a)(1), which reads:
An allowed claim of a creditor secured by a lien on property
4
(...continued)
(bb) discharge under
section 1328; and
(II) if the case under this chapter
is dismissed or converted without
completion of the plan, such lien
shall also be retained by such holder
to the extent recognized by applic-
able nonbankruptcy law;
(ii) the value, as of the effective date of the plan,
of property to be distributed under the plan on ac-
count of such claim is not less than the allowed
amount of such claim; and
(iii) ifSS
(I) property to be distributed pur-
suant to this subsection is in the
form of periodic payments, such
payments shall be in equal monthly
amounts; and
(II) the holder of the claim is se-
cured by personal property, the
amount of such payments shall not
be less than an amount sufficient to
provide to the holder of such claim
adequate protection during the peri-
od of the plan; or
(C) the debtor surrenders the property securing
such claim to such holder . . . .
11 U.S.C. § 1325 (2000). This language was not changed by the BAPCPA.
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No. 08-30601
. . . 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 unse-
cured claim to the extent that the value of such creditor’s interest
. . . is less than the amount of such allowed claim. Such value shall
be determined in light of the purpose of the valuation and of the pro-
posed disposition or use of such property.
BAPCPA changed that statutory analysis by adding the hanging para-
graph, which states that § 506 does not apply to § 1325(a)(5) if
the creditor has a [PMSI] 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 . . . acquired for the personal use of the
debtor . . . .
11 U.S.C. § 1325(a)(*).5 “The hanging paragraph prevents [§ 506’s] bifurcation
for secured claims that meet its criteria.” Drive Fin. Servs., 521 F.3d at 347.
Miller and DC agree that this case is covered by the hanging paragraph, because
the vehicle qualifies as a “910 vehicle”SSmeaning that Miller purchased it within
910 days of his bankruptcy filingSSand it was for his personal use.6 We must de-
cide what happens now that § 506 no longer applies to § 1325(a)(5).
Numerous courts have examined this issue, but with widely divergent re-
sults. Traditionally, their outcomes have fallen into the “majority view” and “mi-
nority view” camps. The majority view holds that a debtor can surrender a 910
vehicle in full satisfaction of his debt regardless of whether the car was worth
less than the total amount of debt. See, e.g., In re Payne, 347 B.R. 278, 283-84
(Bankr. S.D. Ohio 2006); In re Ezell, 338 B.R. 330, 340 (Bankr. E.D. Tenn. 2006).
5
Because the hanging paragraph is unnumbered, it is difficult to cite. We use the as-
terisk that many courts have employed. See, e.g., In re Barrett, 543 F.3d 1239, 1243 (11th Cir.
2008); In re Smith, No. 07-30201, 2007 WL 1577668, at *1 & n.2 (Bankr. S.D. Tex. May 29,
2007).
6
We take no position in this opinion regarding what constitutes personal use. See, e.g.,
In re Smith, 2007 WL 1577668, at *2-*3 (discussing that debate).
5
No. 08-30601
The minority view opines that a creditor can still pursue any remaining debt on
a 910 vehicle under state law, regardless of the elimination of § 506. See, e.g.,
In re Particka, 355 B.R. 616, 625-28 (Bankr. E.D. Mich. 2006).
The “majority” and “minority” labels, however, no longer accurately de-
scribe the current state of the jurisprudence. The majority view, although at one
time dominant,7 has been rejected by every circuit court of appeals that has ex-
amined the question.8 If anything, the majority view has now become the mi-
nority position, applied only in bankruptcy courts whose circuits have yet to
address the issue.9 Thus, instead of using outdated labels, we discuss the earlier
cases in terms of the “full-satisfaction position” (the old majority view) and the
“deficiency position” (the old minority view).
B.
Miller and amicus curiae the National Association of Consumer Bankrupt-
cy Attorneys (“NACBA”) propose we follow the full-satisfaction position reflected
in decisions such as Ezell and In re Pinti, 363 B.R. 369 (Bankr. S.D.N.Y. 2007).
DC proposes we follow the deficiency position and provides us with two models
to reach that result: (1) the “equity-of-the-statute” approach of AmeriCredit
Financial Services, Inc. v. Long (In re Long), 519 F.3d 288 (6th Cir. 2008); and
(2) using state law as in Wright v. Santander Consumer USA Inc. (In re Wright),
492 F.3d 829 (7th Cir. 2007).10
7
See Particka, 355 B.R. at 625 (“The Court recognizes that [as of November 2006] the
weight of authority is in favor of the [majority] position.”).
8
See Barrett, 543 F.3d at 1243-47 (describing the position taken by all circuits that
have decided the question and agreeing with their results).
9
See id. at 1246 (“[I]t seems safe to say that the previous minority view is now the ma-
jority view.”).
10
The deficiency position was reached on yet another ground in Wells Fargo Financial
(continued...)
6
No. 08-30601
1.
We disagree with the “equity-of-the-statute” reasoning in Long, because,
even though that court reached the right result, the reasoning violates our long-
standing standards for analyzing statutes. The court focused heavily on a bank-
ruptcy treatise and on the “sparse” legislative history surrounding the hanging
paragraph. See Long, 519 F.3d at 293-95. The court acknowledged that earlier
decisions and its bankruptcy treatise said that the full-satisfaction position com-
plied with the plain-text reading of the Code, but the court disagreed with their
result. Id. at 295. Instead, it found that there was a “gap” in the statute and
that reading it literally would “produce a nonsensical result not intended by the
drafters” of BAPCPA. Id.
The Long court considered the state-law solution proposed in Wright
(which we discuss below) but rejected it because it “fails even to consider that a
primary, underlying purpose of the Bankruptcy Code is to provide a uniform,
nationwide system by which claims are handled.” Id. at 296. The court insisted
that relying on state law would “undermine the uniformity the Code endeavors
to preserve.” Id. at 297 (quoting Bibbo v. Dean Witter Reynolds, Inc., 151 F.3d
559, 562-63 (6th Cir. 1998)).
Instead of using state law, the court in Long determined that its decision
regarding the hanging paragraph “should be filled by prior [bankruptcy] law” to
“conform with Congress’ intent and the overriding purposes of the Bankruptcy
Code.” Id. To return to the pre-BAPCPA Code, the court employed the “well-es-
tablished common law principle of interpretation known as ‘the equity of the
statute.’” Id. That notion “connotes the idea that ‘statutes are an authoritative
10
(...continued)
Acceptance v. Rodriguez (In re Rodriguez), 375 B.R. 535, 543-45 (B.A.P. 9th Cir. 2007), but be-
cause neither party advocates that position, and we ultimately disagree with its reasoning, we
decline to adopt it.
7
No. 08-30601
expression of public policy. That policy should be hospitably received by the
courts, and they are free to apply it, absent good reasons to the contrary, in cases
within the spirit of the enactment, but not within its letter.’” Id. at 298 (quoting
North Dakota v. Fredericks, 940 F.2d 333, 337 (8th Cir. 1991)).
The reasoning in Long is flawed. When interpreting the Code, courts
should begin where they would when interpreting any statute: its plain lan-
guage. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989). If
the statute is clear, the inquiry is at its end, and we enforce the statute on its
terms. See id. That rule should inform the reading of Code provisions and like-
wise governs our treatment of the hanging paragraph.
In Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004), the Court emphasized
that the plain language meaning of the Code should rarely be trumped. Al-
though the Code at times is “awkward, and even ungrammatical . . . that does
not make it ambiguous.” Id. When presented with an argument that the Code
would make more sense by “read[ing] an absent word into the statute,” the Court
rejected the idea, stating that “[w]ith a plain, nonabsurd meaning in view, we
need not proceed in this way.” Id. at 538.
“There is a basic difference between filling a gap left by Congress’ silence
and rewriting rules that Congress has affirmatively and specifically enacted.”
Id. (citation and internal quotation marks omitted). “If Congress enacted into
law something different from what it intended, then it should amend the statute
to conform to its intent. ‘It is beyond our providence to rescue Congress from its
drafting errors, and to provide for what we might think . . . is the preferred re-
sult.” Id. at 542 (quoting United States v. Granderson, 511 U.S. 39, 68 (Kennedy,
J., concurring) (ellipses in original)).
BAPCPA has been criticized by some judges and commentators as being
“poorly drafted” and has resulted in certain readings of the Code that would
8
No. 08-30601
qualify as “awkward” under the definition in Lamie.11 Although we have no rea-
son to pass judgment on the process by which BAPCPA became law, we note that
perceived poor drafting should not be regarded as a licence to invalidate plain-
text readings in the name of fixing a statute that some believe is broken.
Even if we were to seek guidance on BAPCPA from somewhere outside its
plain language, we would be stopped by a dearth of plain legislative history.
Pre-BAPCPA courts recognized the difficulty of finding legislative history to di-
vine congressional intent regarding the Code.12 That criticism has been even
more pronounced since BAPCPA’s passage. 13 With no precise legislative history
to rely on, we should generally not stray from the language in an attempt to im-
plement “legislative intent.”
By relying on the equity-of-the-statute theory, the court in Long deviated
from the proper reading of the Code. Equity of the statute as a concept has es-
11
See, e.g., In re Grydzuk, 353 B.R. 564, 567 (Bankr. N.D. Ind. 2006) (describing 11
U.S.C. § 1328(f)(1) as “another in a long string of incredibly poorly drafted statutory provisions
under the BAPCPA”); Thomas F. Waldron & Neil M. Berman, Principled Principles of Statu-
tory Interpretation: A Judicial Perspective After Two Years of BAPCPA , 81 AM . BANKR . L.J .
195, 196 (2007) (discussing the “many poorly drafted provisions” of BAPCPA). The hanging
paragraph has been referenced specifically as being poorly drafted. See, e.g., In re Pinti, 363
B.R. 369, 377 (Bankr. S.D.N.Y. 2007) (“Although poorly drafted, the Hanging Paragraph is not
ambiguous.”).
12
See, e.g., In re Brady, 86 B.R. 166, 169 (Bankr. D. Minn. 1988) (“While it is always
risky trying to determine congressional intent, it is even more perilous in the Bankruptcy
Code, since there is virtually no legislative history to speak of and that which does exist tends
to be unenlightening.”).
13
See, e.g., In re McNabb, 326 B.R. 785, 789 (Bankr. D. Ariz. 2005) (“Legislative history
is virtually useless as an aid to understanding the language and intent of BAPCPA. The sec-
tion-by-section analysis in the Report of the House Committee on the Judiciary merely pro-
vides a gloss of the statutory language of BAPCPA § 322. It does not provide an example of
the kind of problem or abuse it was intended to correct, nor a citation to a case whose result
it sought to alter.”); Jean Braucher, Rash and Ride-Through Redux: The Terms for Holding
on to Cars, Homes and Other Collateral Under the 2005 Act, 13 AM . BANKR . INST . L. REV . 457,
461 (2005) (“[C]ourts called upon to interpret [BAPCPA] will have their work cut out for them,
with no enlightening formal legislative history to aid in the task.”).
9
No. 08-30601
sentially been a “dead letter” from the beginning of the twentieth century,14 and
there is no good reason to revive it now. The Supreme Court’s most recent use
SSand subsequent rejectionSSof it was in 1955.15 The citation in Long, 519 F.3d
at 298, of Church of the Holy Trinity v. United States, 143 U.S. 457, 459 (1892),
speaks volumes, because it is that specific case that has been labeled the “proto-
typical case” for improperly overriding a statute’s plain text in honor of its sup-
posed “legislative intent.” 16 That is why we disagree with Long.
2.
We agree with Wright and its use of state law and accordingly reject Mil-
ler’s interpretation of the Code. The Wright court, 492 F.3d at 832, recognized
that the hanging paragraph does prevent § 506 from affecting surrendered 910
vehicles under § 1325(a)(5)(C). The court then properly explained that § 506 “is
[not] the only source of authority for a deficiency judgment.” Id. Instead, “state
law determines rights and obligations when the Code does not supply a federal
rule.” Id. (citations omitted). Using that state law, the court found that the
creditor still had an unsecured deficiency judgment it could assert against the
debtor.
Miller and the NACBA disagree with Wright, arguing that § 506 remains
applicable to other parts of the Code, so there is no gap for state law to fill. That
contention, however, overlooks the fundamental relationship between the Code
14
John F. Manning, Textualism and the Equity of the Statute, 101 COLUM . L. REV . 1,
105 (2001).
15
Lewyt Corp. v. Comm’r, 349 U.S. 237, 249 (1955) (“Where the taxing measure is clear,
of course, there is no place for loose conceptions about the ‘equity of the statute.’”).
16
A NTONIN SCALIA , A MATTER OF INTERPRETATION 18-23 (1997); see Jaskolski v. Daniels,
427 F.3d 456, 462 (7th Cir. 2005) (“Church of the Holy Trinity . . . has no modern traction.”).
10
No. 08-30601
and state law that was clarified in Butner v. United States, 440 U.S. 48 (1979).
In Butner, the Court examined whether state law or federal bankruptcy
law governs “whether a security interest in property extends to rents and profits
derived from the property.” Id. at 52. After recognizing that Article I, § 8, clause
4 of the Constitution gives Congress the power to establish “uniform Laws on the
subject of Bankruptcies throughout the United States,” the Court noted that
Congress “has generally left the determination of property rights in the assets
of a bankrupt’s estate to state law.” Id. at 54. “Property interests are created
and defined by state law. Unless some federal interest requires a different re-
sult, there is no reason why such interests should be analyzed differently simply
because an interested party is involved in a bankruptcy proceeding.” Id. at 55.
The Butner Court therefore held that state law governed the question it was de-
ciding.
Miller and the NACBA read Butner incorrectly. They envision a system
in which the Code would govern all facets of a debtor’s obligations and a credi-
tor’s entitlements, and state law would fill only the gaps the Code left open for
it. But “the presumption runs the other way.” Wright, 492 F.3d at 832. “Credi-
tors’ entitlements in bankruptcy arise in the first instance from the underlying
substantive law creating the debtor’s obligation, subject to any qualifying or con-
trary provisions of the Bankruptcy Code.” Raleigh v. Ill. Dep’t of Revenue, 530
U.S. 15, 20 (2000) (citations omitted). “[W]e generally presume that claims en-
forceable under applicable state law will be allowed in bankruptcy unless they
are explicitly disallowed.” Travelers Cas. & Surety Co. of Am. v. Pac. Gas & Elec.
Co., 549 U.S. 443, 452 (2007). Thus, after the addition of the hanging paragraph
we look not only to federal law but to state law as well.
Under this reading, DC still has an unsecured debt it can pursue against
Miller. Although the hanging paragraph may deny DC the use of § 506 in pursu-
11
No. 08-30601
ing the debt, Louisiana state lawSSspecifically L A. S TAT. A NN. §§ 6:966 and 10:9-
615SSmakes DC an unsecured creditor.
III.
In summary, we join the Fourth, Seventh, Eighth, Tenth, and Eleventh
Circuits and agree with the deficiency position. The hanging paragraph does not
allow a debtor to surrender a 910 vehicle in full satisfaction of his debt; instead,
the remaining debt must be treated as an unsecured claim in the bankruptcy re-
organization plan. Although the debt “need not be paid in full, any more than
[Miller’s] other unsecured debts, [] it [cannot] be written off in toto while other
unsecured creditors are paid some fraction of their entitlements.” Wright, 492
F.3d at 833.
The judgment of the bankruptcy court is REVERSED and REMANDED
to the bankruptcy court for further proceedings in accordance with this opinion.
12