Ferina Herring Merritt

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Case 04-09942-8-ATS Doc 22 Filed 05/05/05 Entered 05/05/05 15:16:23 Page 1 of 3

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
FAYETTEVILLE DIVISION

IN RE: CASE NO.
FERINA HERRING MERRITT 04-09942-8-ATS
DEBTOR

ORDER REGARDING OBJECTION TO CONFIRMATION
AND OBJECTION TO VALUATION

The matters before the court are the objection to confirmation and
objection to valuation filed by American Honda Finance Corporation
("AHFC"). A hearing took place in Raleigh, North Carolina on May 3,
2005.

Ferina Herring Merritt filed a petition for relief under chapter
13 of the Bankruptcy Code on December 28, 2004. AHFC holds a lien on
two vehicles owned by the debtor: a 2004 Honda Pilot EX, and a 2004
Honda Civic Coupe DX. Ms. Merritt purchased the Pilot on November 26,
2004, only 32 days before filing bankruptcy, and she financed the
amount of $35,692.39 with AHFC. Ms. Merritt has never made any
payments on the Pilot. Ms. Merritt purchased the Civic on July 31,
2004, five months before filing bankruptcy, and she financed the amount
of $18,407.49 with AHFC.

Ms. Merritt’s chapter 13 plan proposes to pay AHFC’s claim for the
Pilot as secured in the amount of $23,500, and the claim for the Civic

as secured in the amount of $13,000. The NADA retail value for the

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Case 04-09942-8-ATS Doc 22 Filed 05/05/05 Entered 05/05/05 15:16:23 Page 2 of 3

Pilot as of January 2005 was $29,470, while the NADA retail value for
the Civic was $14,050. AHFC objects to confirmation of the plan and
objects to the values placed on the vehicles, contending that the
debtor’s attempt to "cram down" its claimona car purchased one month
prior to bankruptcy constitutes bad faith.

While the debtor proposed to treat AHFC’s claim related to the
Pilot as secured in the amount of $23,500, the trustee’s proposed plan
treats AHFC as secured in the amount of $29,470 with interest at 7
percent. The trustee also proposes to treat AHFC as secured in the
amount of $13,900 with interest at 7 percent on the claim secured by
the Civic.

The documents show that the purchase price of the Pilot was
$27,493.89, but Ms. Merritt also traded-in a 2004 Honda Odyssey with
negative equity. As a result, AHFC financed a total of $35,692.39.
AHFC also received the trade-in vehicle, and presumably liquidated it.
Had AHFC recovered the trade-in vehicle without financing a new
purchase, it would be left with only an unsecured deficiency claim
against the debtor related to that vehicle. It is not bad faith for
the debtor to treat AHFC as unsecured with respect to that portion of
its claim related to the financing of the negative equity on the trade-
in vehicle, but it would be bad faith to cram down the claim for less

than the actual purchase price of the Pilot. It appears that the

Case 04-09942-8-ATS Doc 22 Filed 05/05/05 Entered 05/05/05 15:16:23 Page 3 of 3

trustee’s proposed secured claim of $29,470 exceeds the purchase price
for the Pilot, and that treatment is acceptable.

With respect to the claim secured by the Civic, AHFC should
receive a secured claim at the highest value for the Civic, or the NADA
retail value of $14,050. Though the court does not find that the plan
was proposed in bad faith, the fact that the debtor purchased two
vehicles within a short time before filing and is creating a large
unsecured claim based on the financing of the negative equity in the
trade-in dictates that AHFC should receive the benefit of the highest
collateral value.

Based on the foregoing, the objection to confirmation and the
objection to valuation are DENIED provided that AHFC is treated as
secured in the amount of $29,470 plus interest at 7 percent for the
Honda Pilot, and as secured in the amount of $14,050 plus interest at
7 percent for the Honda Civic, with the balance of the claim to be
treated as unsecured.

SO ORDERED.

DATED: May 4, 2005

s/ A. Thomas Small
A. Thomas Small
Bankruptcy Judge