IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

Transcription

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: DARLENE DIXON DEBTOR CASE NO H-13 CHAPTER 13 BRIEF IN SUPPORT OF VW CREDIT S OBJECTION TO CONFIRMATION OF CHAPTER 13 PLAN TO: THE HONORABLE JEFF BOHM, UNITED STATES BANKRUPTCY JUDGE: VW Credit, Inc. ("VW Credit ) files this Brief (the Brief ) in Support of the Objection to Confirmation of the Debtor s Chapter 13 Plan (Docket #15) (the Objection ) and would respectfully show the Court as follows: JURISDICTION 1. This Court has jurisdiction over the pending matter pursuant to 28 U.S.C. 157 and This matter is a core proceeding under 28 U.S.C. 157(b)(2)(A). FACTUAL AND PROCEDURAL BACKGROUND 2. The above-styled Debtor filed a voluntary petition under Chapter 13 of Title 11, United States Bankruptcy Code, on January 8, 2008 (Docket # 1). 3. VW Credit is the owner and holder of a Wisconsin Motor Vehicle Lease Agreement (the "Lease"), signed by Darlene Dixon on April 8, VW Credit is secured under the Agreement by a properly perfected security interest in the following collateral: 2004 Volkswagen Jetta SDN GLS 2.0, VIN: 3VWSK69M94M (the "Collateral"). A true and correct copy of the Agreement, as well as the documents evidencing the security interest of VW Credit in the Collateral, are attached to this Brief as Exhibit A and Exhibit B. 4. The total debt due and owing to VW Credit as of the date of filing was $13, BRIEF IN SUPPORT OF OBJECTION TO CONFIRMATION OF PLAN 1

2 5. On January 8, 2008 the Debtor filed a Chapter 13 Plan (Docket #3). 6. On January 22, 2008 VW Credit objected to the Chapter 13 Plan filed by the Debtor in their Response filed (Docket #15). All relevant information found in the Objection is incorporated herein by reference for all purposes. Below is a summary of the most pertinent facts. A. Debtor has not indicated her intention to accept or reject the Collateral, or made any provisions for payment of the costs associated with continuation of the lease on the Collateral. 7. On January 8, 2008, the Debtor filed her Chapter 13 Plan. In this Plan, the Debtor listed VW Credit under Section 8 All Other Secured Claims (Property to be Retained). The Plan stated that the Principal amount of the claim (without regard to value of collateral) should be $12, with the Collateral Value being $9,605.00, and an Interest Rate per plan of 9.75%. The Plan also provided for payments of $ for months 1-18, $ for month 19, and $ for months On January 22, 2008 VW Credit objected to the Debtor s Plan arguing that the Debtor did not indicate her intention to accept or reject the Collateral, and did not make any provisions for payment of the costs associated with continuation of the lease on the Collateral. On May 16, 2008 the Debtor filed an Amended Chapter 13 Plan, however the Plan was only amended to state the Principal amount of the claim (without regard to value of collateral) as $13, Pay Claim, and the estimated periodic pay rate as Pro Rata. The Lease was still not assumed or rejected in the Plan, nor was the Lease treated as such. 11 U.S.C. 1322(b)(7) states, Subject to subsections (a) and (c) of this subsection, the plan may subject to 365 of this title, provide for the assumption, rejection, or assignment of any executory contract or unexpired lease of the debtor not previously rejected under such section. Although it appears that under 365(d) only the trustee may assume, reject, or assign a lease, several Chapter 13 cases have found differently. Case law states that because 1321 provides that the debtor not the trustee shall file a plan, and it is the plan which will contain the proposals relating to executory contracts and unexpired leases, the debtor is the one that assumes, rejects, or assigns a lease. See In re Rocchio, 125 B.R. 345, 346 (Bkrtcy.D.R.I.1991) ( 365(d) allows only a trustee to assume or reject a lease, but 1322(b)(7) allows a Chapter 13 debtor to assume or reject a lease through the Chapter 13 plan ); In the BRIEF IN SUPPORT OF OBJECTION TO CONFIRMATION OF PLAN 2

3 Matter of Williams, 144 F.3d 544 (7th Cir.1998) ( 1322(b)(7) authorizes Chapter 13 debtor to assume, reject, or assign an executory contract or unexpired lease, subject to section 365 ). Debtor is required under 11 U.S.C. 1322(b)(7) to state in the Plan, their intention to assume or reject the Collateral listed in the Lease Agreement. In the instant case, the Debtor has not stated in the Plan her intention to assume or reject the Lease. In particular, the Debtor has not treated the Collateral as a Lease in the Plan at all, nor made any provisions for the payment of the costs associated with the continuation of the lease on the Collateral. B. Debtor is attempting to Exercise the Purchase Option under the Lease. Such Treatment is impermissible under the Bankruptcy Code. 8. Debtor should not be allowed to exercise the Purchase Option under Lease through the Plan pursuant to the Bankruptcy Code and the subsequent case law. In VW Credit s Objection to the Debtor s Chapter 13 Plan, it is argued that Debtor is attempting to cram down the lease in her Chapter 13 Plan. It appears that Debtor is trying to exercise the Purchase Option under the Lease by putting the stated purchase price on the face of the lease into the Plan. By exercising the Purchase Option through the Plan, VW Credit would be forced to finance the purchase, which in turn would allow Debtor to avoid all the other costs associated with purchasing the vehicle at the end of the scheduled termination period. Clause 25 of the Lease Agreement states, Purchase Option. You understand that this is a true Lease and You have no equity or other ownership rights in the vehicle or its accessories or replacement parts other than the Purchase Option, assignable to the Lessee only. (A) If You exercise the Purchase Option at any time prior to the Scheduled Termination, You agree to pay Holder: (1) The Purchase Option Amount; plus (2) The Purchase Option Fee; plus (3) Any past due Monthly payments and other amounts due; plus (4) Any Official Fees and Taxes imposed upon Early Termination; plus (5) The Base Monthly Payment times the number of payments not yet due; minus (6) Unearned Rent Charges which are calculated under the Scheduled Actuarial Method. (B) If You exercise the Purchase Option at Scheduled Termination, the Purchase Price will be: (1) The Purchase Option Amount; plus (2) The Purchase Option Fee; plus (3) All amounts You owe under the Lease; plus (4) Any official fees and taxes imposed in connection with the purchase. 1 The case law on point indicates that a Chapter 13 Debtor should not be allowed to exercise the Purchase Option under a motor vehicle lease through the Chapter 13 Plan. In re Ramirez-Arellano, It should be noted that the Purchase Option Amount is found in Clause 8 of the Lease Agreement. It states, Purchase Option at End of Lease Term. You have an option to purchase the Vehicle at the end of the Lease Term for a Purchase Option Amount of $9, plus a purchase Option Fee of $ n/a plus all amounts You owe under the Lease, plus any official fees and taxes imposed in connection with the purchase of the Vehicle. BRIEF IN SUPPORT OF OBJECTION TO CONFIRMATION OF PLAN 3

4 B.R. 796, 797 (Bankr.S.D.Fla.1990), declares that it is beyond the power of a court to expand 1325(b)(2) and 1325(a)(5)(B) to require the lessor to finance the option purchase price when the lease terms require that such option price shall be exercised in cash. See In re Weske, 203 B.R. 694, 695 (Bankr.E.D.Wisc. 1996)( [W]ith respect to the amended plan as proposed by the debtors, there is ample case authority holding that 1322(b)(7) does not allow a chapter 13 debtor to finance the residual purchase price of a vehicle lease over the life of the chapter 13 plan; rather, the debtor is bound by the contract and must pay the residual purchase price in full of a lump sum ); See In re Jackson, 105 B.R. 418, 419 (Bankr.S.D.Ohio 1989)( Although assumption of the unexpired lease carries with it the right to determine whether or not to exercise the purchase option at the time such right arises, the debtors may not require GE to finance that purchase if such arrangement was not contemplated by the lease or other agreements between the parties ); See In re Blackburn, 88 B.R.273, 276 (Bankr.S.D.Cali.1988)( By way of the plan, debtors are attempting to obtain that which the lease agreement does not provide themfinancing beyond the stated term of the lease. The lease agreement makes no provision whatever for debtor to finance the residual purchase price of the vehicle upon expiration of the lease term ). In the case In re Pittman, 289 B.R. 448 (Bankr.M.D.Fla.2003), the facts were similar to the case at hand. In Pittman, the Creditor objected to the Confirmation of the Plan arguing that allowing the Debtor to finance the purchase price of the vehicle over the life of the Plan would be inconsistent with the terms of the lease. The Creditor also argued that the Debtor could only exercise the purchase option by paying for the vehicle in a lump sum. Id at 450. The issue that came before the Court was [W]hether a Chapter 13 debtor can finance the residual purchase price of a lease automobile over the life of a Chapter 13 plan. Id. The holding of the Court stated, The Court finds that that the lease unambiguously requires Debtor to make a lump sum payment in order to exercise the purchase option. The Court also finds that 1322(b)(2) applies only to secured creditors and therefore does not permit a Chapter 13 debtor to modify the rights of a lessor. Furthermore, the Court finds that 1322(b)(7) does not permit a Chapter 13 debtor to finance the residual purchase price of a leased vehicle over the life of the Chapter 13 plan. A debtor is bound by the terms of the contract she signs and may only exercise the purchase option consistent with the terms therein. Id. at 452. BRIEF IN SUPPORT OF OBJECTION TO CONFIRMATION OF PLAN 4

5 In re Rigg, 198 B.R. 681,685 (Bankr.N.D.Tex.1996) explains that even if the Debtor does decide to assume or reject an unexpired contract, the debtor must assume both the benefits and the burdens of the contract (citing In re Flores, 32 B.R. 455,459 (Bankr.S.D.Tex.1983)). Rigg states, Nothing in Section 365 gives the debtor the right to extend or vary the terms of an assumed executory contract. The court has no authority under Section 365 to vary the terms of a contract assumed under the provisions of the law. Id. (citing In re Mellen, 79 B.R. 385, 387 (Bankr.N.D.Ill.1987). CONCLUSION 9. Debtor has not stated her intention to assume or reject the Lease Agreement pursuant to 11 U.S.C. 1322(b)(7) and 11 U.S.C. 365 by incorrectly listing VW Credit as a Secured Creditor in the Plan. At no time was the Collateral under the Lease Agreement purchased prior to the end of the Lease, and therefore the Lease must be assumed or rejected through the Plan. 10. Debtor s attempt to exercise the Purchase Option under the Lease through the Plan should not be allowed under 1322(b)(7) and 365 of the Bankruptcy Code. Allowing Debtor to do so, would alter the terms of the original contract, and create an undue burden on VW Credit by forcing them to finance the Purchase Option over the life of the Plan. 11. VW Credit, Inc., respectfully requests that this Court deny confirmation of the Plan proposed by the Debtor for reasons previously stated. Respectfully submitted, Brice, Vander Linden & Wernick, P.C. /s/ Hilary B. Bonial /s/ Joe M. Lozano, Jr. Hilary B. Bonial / LA Joe M. Lozano, Jr. / TBN Tyler B. Jones / TBN Attorneys and Counselors 9441 LBJ Freeway, Suite 350 Dallas, Texas (972) (972) (Telecopier) bkcyattorneys@bkcylaw.com Attorney for VW Credit, Inc. BRIEF IN SUPPORT OF OBJECTION TO CONFIRMATION OF PLAN 5

6 CERTIFICATE OF SERVICE I, Hilary B. Bonial / Joe M. Lozano, Jr., hereby certify that a true and correct copy of the foregoing Objection to Confirmation of Chapter 13 Plan has been served upon the following parties in interest either via pre-paid regular U.S. Mail or via electronic notification on or before the day of 200 : Debtor's Attorney Reese W Baker Baker & Associates 5151 Katy Freeway Ste 200 Houston, TX Debtor Darlene Dixon 2013 Fry Rd. # 1410 Katy, Texas US Trustee Office of the US Trustee 515 Rusk Street, Suite 3516 Houston, Texas Chapter 13 Trustee David G. Peake 9660 Hillcroft, Suite 430 Houston, Texas INTERNAL REVENUE SERVICE (Chapter 13 Notice) Centralized Insolvency Operations PO Box Philadelphia, PA AND TO THE PARTIES ON THE ATTACHED MATRIX /s/ Hilary B. Bonial /s/ Joe M. Lozano, Jr. Hilary B. Bonial Joe M. Lozano, Jr. Tyler B. Jones 7225-N-2579 BRIEF IN SUPPORT OF OBJECTION TO CONFIRMATION OF PLAN 6