UC Law Business Journal
Abstract
As part of the Bankruptcy Abuse Prevention Consumer Protection Act of 2005, Congress added a paragraph to the Bankruptcy Code governing the confirmation of Chapter 13 plans. The paragraph was added in an effort to eliminate "cram down." Prior to 2005, cram down allowed the debtor to retain his/her vehicle as part of a bankruptcy plan and only repay the secured debt on the vehicle. After Congress's amendment, a debt on a vehicle retained as part of a Chapter 13 plan can no longer be bifurcated. Thus, a debtor must repay both the secured and unsecured debt in order to retain the vehicle. However, since the inception of the amendment, courts have struggled to decide whether to treat vehicles surrendered as part of the Chapter 13 plan. The circuits have split between a majority approach (where the debtor may surrender the vehicle in full satisfaction of the creditors claim) and a minority approach (where the debtor may surrender the vehicle in full satisfaction of the secured claim only, and is still responsible for the deficiency). Part I of this Note will review Chapter 13 bankruptcy plans. Part II will examine the statutes that are involved in this controversy, mainly § 1325 of the Bankruptcy Code, which governs confirmations of Chapter 13 plans and § 506 of the Code, which governs bifurcations. Part III will review the majority and minority approaches of courts from 2005 to present. Finally, Part IV will introduce a legally sound solution to the controversy and propose an amendment to § 1325.
Recommended Citation
Netta Grutman,
Should Courts Hang on Every Word of Congress's Hanging Paragraph - A Solution to Judicial Controversy Over Chapter 13 Surrendered Vehicles,
5 Hastings Bus. L.J. 401
(2009).
Available at: https://repository.uclawsf.edu/hastings_business_law_journal/vol5/iss2/7