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Cross-Collateralization Turns Two Loans into One Claim in the Fifth Circuit

When personal property loans are cross-collateralized, a chapter 13 plan must use the same option for cramming down both loans, the Fifth Circuit says.


If a chapter 13 debtor has two secured claims that are collateralized with personal property, and if the loans are cross-collateralized, a chapter 13 plan may not surrender the collateral for one loan and cram down the other, according to the Fifth Circuit.

In other words, the Fifth Circuit believes that cross-collateralizing two personal property loans converts two claims into one claim, with the result that the debtor may employ only one of the options for dealing with secured claims under Section 1325(a)(5).

Apparently at different times, the debtor purchased two cars. He financed both with secured loans from the same lender. The security agreements cross-collateralized the loans.

The debtor filed a chapter 13 plan, cramming down on the lender. The plan called for surrendering one car and cramming down the loan on the other to the value of the car that the debtor was keeping. The bankruptcy court overruled the lender’s objection and confirmed the plan. The district court reversed.

The outcome turned on the two options for dealing with (i.e., cramming down) a secured creditor that does not accept the plan. Under Section 1325(a)(5)(B) and (C), the debtor may pay the allowed amount of the secured claim (that is, the value of the collateral) “or” surrender the collateral.

The debtor focused on the statutory language allowing the debtor to select an option “with respect to each allowed secured claim.” The lender countered, contending that the use of “or” in Section 1325(a)(5) means that a debtor may use only one of the options.

The appeal was sub judice in the circuit for almost two years. In an opinion on January 14, Circuit Judge Priscilla R. Owen agreed with the lender.

Judge Owen relied heavily on Fifth Circuit precedent, Williams v. Tower Loan of Mississippi (In re Williams), 168 F.3d 845 (5th Cir. 1999). She characterized Williams as involving a chapter 13 debtor who “sought to address one secured claim by surrendering some of the collateral securing the claim and paying the cram down value of the remaining collateral.”

In Williams, Judge Owen said the circuit “held that the debtor’s plan could not be approved because ‘[t]he plain language of [§ 1325(a)(5)] does not give the debtor the right to adopt a combination of the options offered in (B) and (C).’” She characterized Williams as holding “that debtors must select the same § 1325(a)(5) option for all of the collateral securing a single claim.”

The Second Circuit reached the same result in a chapter 12 case, Judge Owen said, citing First Brandon National Bank v. Kerwin (In re Kerwin), 996 F.2d 552 (2d Cir. 1993). 

Applying the facts to the law, Judge Owen held that the plan “must select the same § 1325(a)(5) option for both items of collateral.”

Judge Owen affirmed the district court and set aside confirmation, saying that the debtor’s argument was “contrary to the plain language of § 1325(a)(5).”


Williams was not controlling. Influential, yes, but not on point and distinguishable. Williams dealt with one claim having several elements of collateral. The case before Judge Owen arguably dealt with two claims.

One may wish to question where the statute converts two secured notes into one claim, when each has different primary capital. Although there is one creditor who could file one proof of claim, aren’t there two claims? Judge Owen seems to have expanded Williams substantially.

The loans did not entail purchase money security interests in their entirety. In other respects, the Bankruptcy Code gives fewer rights to holders of non-purchase money security interests.

Another court might find that the plain language of the statute supports the debtor, not the creditor.


Opinion Link

Case Details

Case Citation

Barragan-Flores v. Evolve Federal Credit Union (In re Barragan-Flores), 18-50420 (5th Cir. Jan. 14, 2021)

Case Name

Barragan-Flores v. Evolve Federal Credit Union (In re Barragan-Flores)

Case Type