James B. Barnes and Tammy S. Barnes

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
FAYETTEVILLE DIVISION
IN RE:
JAMES B. BARNES
TAMMY S. BARNES
DEBTORS
CASE NO.
04-05352-8-ATS
ORDER REGARDING MOTION TO ABANDON AND MOTION TO MODIFY PLAN
The matter before the court is the debtors’ motion to abandon
their vehicle and to modify their chapter 13 plan. A hearing took
place in Raleigh, North Carolina on April 19, 2005, and the parties
were given an opportunity to submit additional affidavits.
James B. Barnes and Tammy S. Barnes filed a petition for relief
under chapter 13 of the Bankruptcy Code on July 8, 2004, and their plan
was confirmed on December 20, 2004. Ms. Barnes drives a 2002 Kia Rio,
which is subject to a security interest held by HSBC Auto Finance,
formerly known as Household Automotive Finance Corporation. The
debtors’ plan provided for Household’s claim to be paid out of the
payments made by the debtors to the chapter 13 trustee. Their motion
indicates that the car is no longer operable and that the debtors
cannot afford to repair it. They wish to surrender the vehicle to
Household and have any deficiency claim treated as unsecured in the
plan.
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1 The vehicle has not exceeded the mileage limits of the warranty
and the warranty period has not expired.
2
Ms. Barnes testified that she maintained the Kia Rio with regular
oil changes performed by Ed’s Tire in Laurinburg, North Carolina. She
began having repair problems, and it finally stopped running, and Ms.
Barnes had the vehicle towed. Ms. Barnes testified that the tow truck
driver and the mechanic checked the engine and found there was oil in
it. Pinehurst Toyota, the dealership from which Ms. Barnes bought the
vehicle, picked up the car and refused to repair it. According to Ms.
Barnes, Pinehurst Toyota maintains that Ms. Barnes drove the car
without oil, which nullified her warranty.1 Because the car is
inoperable and she cannot afford to pay for the repairs, Ms. Barnes
wishes to abandon the vehicle to Household.
At the conclusion of the hearing, Household was to obtain an
affidavit from Pinehurst Toyota to substantiate its contention that Ms.
Barnes failed to properly maintain the vehicle. Ms. Barnes was to
obtain an affidavit from Ed’s Tire to corroborate her testimony that
she regularly had the oil changed and performed other routine
maintenance. Ms. Barnes filed the affidavit of Alan Smith, the manager
of Ed’s Tire, which indicated that Ed’s Tire regularly serviced the
vehicle and performed oil changes and maintenance approximately every
3,000 miles during 2002 through 2004. Household did not submit an
affidavit from Pinehurst Toyota.
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Before a plan modification may be allowed, the Fourth Circuit
requires debtors to make a threshold showing of a change in
circumstances. See Arnold v. Weast (In re Arnold), 869 F.2d 240 (4th
Cir. 1989). The Barneses have made this showing. Their vehicle will
no longer operate, and they cannot afford to make the repairs. The
court finds that this is a sufficient change in circumstances to
consider modification of the plan.
This court has previously ruled that the surrender of collateral
and reclassification of a deficiency as an unsecured claim is
permissible if "the modification has been proposed in good faith and,
in particular, . . . there has been no abusive depreciation of the
secured creditor’s collateral." In re Farmer, Case No. 01-00026-5-ATS
(Bankr. E.D.N.C. March 20, 2002) (quoting In re Conley, 2000 WL
1805324 at *4 (Bankr. E.D. Va. 2000)). The court finds that the
Barneses have proposed their modification in good faith. The evidence
showed that Ms. Barnes performed routine maintenance on the car, and
there is no actual evidence before the court that any action or
inaction on the part of the debtors caused the current condition of the
vehicle.
Based on the foregoing, the motion to abandon the 2002 Kia Rio and
the motion to modify the chapter 13 plan are ALLOWED. The
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debtors may reduce their plan payments as proposed and reclassify
Household’s deficiency claim as unsecured.
SO ORDERED.
DATED: June 23, 2005
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