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Bankruptcy Court Does Not have Discretion to Confirm Chapter 13 Plan That Violates Hanging Paragraph According to Latest ABI Quick Poll

Contact: John Hartgen
               (703) 739-0800
               jhartgen@abiworld.org

 

BANKRUPTCY COURT DOES NOT HAVE DISCRETION TO CONFIRM CHAPTER 13 PLAN THAT VIOLATES “HANGING PARAGRAPH,” ACCORDING TO LATEST ABI QUICK POLL

March 23, 2009, Alexandria, Va. — A majority of respondents (53 percent) in a recent ABI Quick Poll agreed that a bankruptcy court does not have the discretion to confirm a proposed chapter 13 plan that violates the “hanging paragraph” of 11 U.S.C. §1325(a).  The “hanging paragraph,” added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, prohibits decreasing the secured portion of a creditor’s claim to the collateral’s value if the collateral is a motor vehicle that the debtor acquired for personal use and financed with a purchase money security interest within the 910-day period before filing for bankruptcy. Thirty-two percent strongly agreed and 21 percent “somewhat agreed” that a bankruptcy court cannot confirm a chapter 13 plan that violates this provision by bifurcating the creditor’s claim into a secured claim equal to the collateral’s value and an unsecured claim for the remainder.

Twenty-eight percent of respondents did think that a bankruptcy court has the authority to confirm a chapter 13 plan that violates the “hanging paragraph.” Twenty percent “disagreed strongly” and 8 percent “somewhat disagreed” that a bankruptcy court does not have such discretion. Sixteen percent of respondents did not know or had no opinion on the issue.

The Quick Poll question was based on a Sixth Circuit decision denying confirmation to a chapter 13 debtor who wanted to restructure the payments on her vehicle to reflect what the vehicle was worth, rather than the actual amount she owed. In this case, the chapter 13 debtor had purchased her vehicle within 910 days of filing her bankruptcy petition and argued that the bankruptcy court had discretion not to enforce the “hanging paragraph,” but the court ruled that the statute’s provisions are mandatory and not subject to the discretion of the courts.

ABI members and members of the public were welcome to submit their response to the statement: “A bankruptcy court does not have the discretion to confirm a proposed chapter 13 plan that violates the ‘hanging paragraph.’” (Shaw v. Aurgroup Financial Credit Union, 2009 WL 48214 (6th Cir. Jan. 9, 2009)).”

ABI’s Quick Poll is posted on ABI’s home page, www.abiworld.org. ABI members and the public are invited to respond to a question on a timely bankruptcy or insolvency issue. Visit http://www.abiworld.net/quickpoll/ to access the results of previous ABI Quick Polls.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 12,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.