Bernard H. Denis

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
BERNARD H. DENIS, III,
Debtor.
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Case No. 06-00357
(Chapter 13)
MEMORANDUM DECISION REGARDING
DEBTOR’S OBJECTION TO CLAIM OF WACHOVIA BANK
This decision addresses the effect of the so-called “hanging
paragraph” that appears at the end of 11 U.S.C. § 1325(a) when a
creditor, who would otherwise be subject to that provision, has
sold its collateral in a postpetition/preconfirmation sale. 	The
hanging paragraph provides in relevant part that “[f]or purposes
of paragraph (5), section 506 shall not apply to a claim
described in that paragraph if the creditor has a purchase money
security interest securing the debt that is the subject of the
claim” and if certain other requirements are met. 	The court
concludes that once a creditor has sold its collateral prior to
confirmation of a plan, the hanging paragraph of § 1325(a) is no
longer applicable.
The decision below is signed as a decision of
the court.
Signed: March 08, 2007.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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I
Wachovia Bank, National Association (“Wachovia”) filed a
proof of claim asserting that it is fully secured by the debtor’s
car, and it has been granted relief from the automatic stay to
enforce its security interest in the car. 	Although the debtor
acknowledges that the car has been sold in enforcement of
Wachovia’s security interest, the debtor has objected to the
claim of Wachovia, citing In re Ezell, 338 B.R. 330 (Bankr. E.D.
Tenn. 2006), for the proposition “that a secured creditor whose
collateral is being surrendered in full satisfaction of the debt
under Section 1325(a)(5) of the Bankruptcy Code is not also an
unsecured creditor entitled to the protection afforded by Section
1325(a)(4).” 	The debtor thus asks that the claim filed by
Wachovia as a fully secured claim be disallowed with the
surrender of the vehicle constituting a full satisfaction of the
debt. 	Wachovia has opposed the debtor’s objection, and does not
contest that the car has been sold. 	Its opposition addresses at
length the issue of whether a creditor like Wachovia is entitled
to pursue a deficiency claim resulting from a repossession sale.
The debtor has not filed a plan calling for the surrender of
the car in full satisfaction of the debt owed Wachovia (including
any deficiency claim that remained after the repossession sale),
and § 1325(a) is applicable only in the context of confirming a
plan. 	Until the debtor files such a plan, Wachovia could have
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taken the position that the issue of the effect of the hanging
paragraph of § 1325(a) is not before the court. 	See In re Drake,
2006 WL 3820763 (Bankr. D.D.C. 2006). 	However, the parties have
briefed the issue as though such a plan were pending before the
court. 	Similarly, Wachovia has not filed an amended proof of
claim asserting an unsecured deficiency claim resulting from the
repossession sale, but both parties have addressed the issues as
though the propriety of filing such a claim were before the
court. 	The court will treat the parties as seeking a declaratory
judgment regarding the parties’ rights were the debtor to file
such a plan and were Wachovia to assert an unsecured deficiency
claim. 	Such a plan would be ineffective to satisfy Wachovia’s
deficiency claim for two reasons.
First, the hanging paragraph of § 1325(a) applies only “if
the creditor has a purchase money security interest securing the
debt that is the subject of the claim [described in
§ 1325(a)(5)].” 	Once the car was sold, Wachovia no longer had a
purchase money security interest securing the debt that is the
subject of its claim. 	Accordingly, the hanging paragraph to
§ 1325(a) is inapplicable to Wachovia at this juncture, and that
distinguishes this case from Ezell.
Second, the hanging paragraph to § 1325(a) applies to a
claim only if it is a claim described in § 1325(a)(5), which
applies to “each allowed secured claim provided for by the plan.”
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Looking to the provision that governs when a claim is a secured
claim, it is evident that Wachovia no longer has a secured claim.
Under 11 U.S.C. § 506(a)(1), “[a]n allowed claim of a creditor
secured by a lien on property in which the estate has an
interest . . . is a secured claim to the extent of the value of
such creditor’s interest in the estate’s interest in such
property . . . .” 	(Emphasis added.) 	Because the car has been
sold, the estate no longer has an interest in the car, and thus
there is no secured claim. 	Once Wachovia corrects its proof of
claim to reflect that it no longer has a secured claim,
Wachovia’s claim will no longer be an allowed secured claim, and
the claim will no longer be one to which § 1325(a)(5) applies,
thus making the hanging paragraph of § 1325(a) inapplicable.
Again, this distinguishes this case from Ezell.
II
Wachovia has not filed an amended proof of claim to drop its
assertion that it has a fully secured claim and to assert a
deficiency claim as an unsecured claim. 	Until Wachovia does
that, there is no unsecured claim by Wachovia to allow or
disallow. 	All that Wachovia has filed is a proof of claim for a
fully secured claim, and plainly there no longer is any secured
claim as the collateral has been sold. 	This is perhaps
understandable because the debtor did not object to the secured
claim on that basis that there was no longer any collateral
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5	O:\Andrew Fausett Temp Docs\Decisions with Related Orders\decision_objection to claim_Denis.wpd
securing the claim. 	Instead, the debtor chose to limit the
objection to reliance on Ezell, which turns on the hanging
paragraph to § 1325(a) (which has been shown to be inapplicable).
Nevertheless, unless it files an amended claim asserting only an
unsecured claim, Wachovia ought to show cause why its proof of
claim asserting a fully secured claim ought not be disallowed.
III
An order follows which, first, overrules the debtor’s
objection to Wachovia’s claim, which was based on the hanging
paragraph to § 1325(a), and, second, directs Wachovia by April 9,
2007, to either file an amended proof of claim that no longer
asserts a secured claim, or file a memorandum showing cause why
its proof of claim, asserting only a secured claim, ought not be
disallowed on the basis that there is no longer any collateral
securing its claim.
[Signed and dated above.]
Copies to: Debtor; debtor’s counsel; chapter 13 trustee; counsel
for Wachovia Bank, NA.
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