Opinion
Case No. 97-10003, Chapter 13
May 28, 1997
ORDER DENYING CONFIRMATION OF AMENDED CHAPTER 13 PLAN
The issues discussed herein came before the court at a hearing held April 15, 1997, on confirmation of the debtors, proposed chapter 13 plan. The Wyoming Employees Federal Credit Union (WEFCU) objected to confirmation. The court has reviewed the pleadings of record, the arguments of the parties, and the applicable law and is prepared to rule.
Findings of Fact
The WEFCU is a secured creditor of the debtor Earlene Archer and filed a proof of claim for $7,210.06. The claim is secured by a consensual lien in a 1988 Chevrolet pickup.
At the hearing, the debtor asserted that the lien was a nonpurchase-money lien, and the WEFCU's counsel stated that the lien was a purchase-money lien. No evidence was presented by either party. The court has reviewed the proof of claim filed by WEFCU and concludes that the loaned funds were not advanced for the purchase of the pickup truck. The title to the vehicle clearly shows that the debtor owned the vehicle since March 9, 1994, but that the WEFCU's loan occurred on December 1, 1994. On that date, a lien to GMAC was released, and the lien of the WEFCU was filed. No assignment between these creditors is evident.
The pickup is also encumbered by a statutory lien perfected by Lee Boyd, d/b/a Lee's Auto Body, (Boyd) in the amount of $3,495.44. The parties do not dispute that the statutory lien for mechanical repairs has priority over the prior, consensual lien granted to the WEFCU. Wyo. Stat. § 29-7-106(1981).
Earlene Archer claimed a vehicle exemption pursuant to Wyoming Statute § 1-20-106(a)(iv) (Supp. June 1996) of $2,400. No objection was made, and the time to object to the exemption is past.
The debtors' plan proposes to pay Boyd's secured claim over the term of the plan at 9% interest after deduction for the allowed exemption. Boyd did not object to the plan, apparently concurring with the debtors, assertion that the claim of exemption is prior to his lien under Wyoming law and in a chapter 13 distribution scheme. Boyd did not dispute the value of the vehicle proposed in the plan. Under the proposed plan treatment, Boyd would receive $2,875 as the value of his secured claim.
The WEFCU is treated as an unsecured creditor under the plan. WEFCU objected to the plan. It alleges that the vehicle is undervalued, and that its lien is prior to the exemption.
Conclusions of Law Valuation
Value is determined in light of the purpose of the valuation and the proposed disposition or use of the property. 11 U.S.C. § 506 (a). This court routinely adopts the wholesale value of a vehicle for purposes of chapter 13 confirmation. The wholesale value best reflects the worth of a vehicle in its present condition, and in an arm's length transaction without the added incentive of professional sale's efforts.
The expert testimony presented by the WEFCU at the hearing established a wholesale value for the pickup of $6,525. This figure was derived from the NADA guidebook, with adjustments for the four-wheel-drive option and needed repairs. Accordingly, the court sets the value of the 1988 Chevrolet pickup at $6,525.
Given the value established by this court, the debtors, plan cannot be confirmed. The plan must be amended to properly treat the interests in the vehicle to the extent of the increased assessment of value. The WEFCU's claim is partially secured.
Lien Priorities
At the hearing the debtors raised another issue that could affect the plan treatment of the claims secured by the pickup. The debtors contend that, under Wyoming law, Ms. Archer's exemption has priority over the nonpurchase-money security interest of the WEFCU. While the debtors admit that a purchase-money lien is not defeated by an exemption under Wyoming Statute § 1-20-108, they argue that other consensual liens are subject to Wyoming Statute § 1-20-106.
Thus, they conclude that to the extent of the vehicle exemption, there is no collateral securing the WEFCU claim for payment under 11 U.S.C. § 506 and 1325(a)(5)(B)(ii). In support of this argument the debtors refer the court to the reported decisions of In re Sanders, 39 F.3d 258 (10th Cir. 1994); Geist v. Converse County Bank, 79 B.R. 939 (D.Wyo. 1987); and Lingle State Bank of Lingle v. Podolak, 740 P.2d 392 (Wyo. 1987). They argue that, under the precedent of these cases, they need not avoid the lien pursuant to § 522(f) in order to realize the value of the exemption.
The applicable Wyoming statute, § 1-20-106(a), by which the exemption is claimed, states:
The following property, when owned by any person, is exempt from levy or sale upon execution, writ of attachment or any process issuing out of any court in this state. . .:
(iv) A motor vehicle not exceeding in value two thousand four hundred dollars ($2,400.00).
This issue is not new to the court or debtors, counsel, who has raised it in somewhat different form in other cases. The bankruptcy court considered and rejected a similar argument in both In re VanGorp, 128 B.R. 579 (Bankr.D.Wyo. 1991) and In re Abrams, slip op. (Bankr.D.Wyo. Dec. 6, 1994), cases in which both counsel to this dispute were involved.
In VanGorp, the debtors sought to use § 506(d) to avoid the consensual nonpurchase-money lien in a vehicle to the extent that it encumbered the exemption. Judge Harold L. Mai rejected the debtor's argument, and in so doing distinguished a vehicle exemption from the homestead exemption rights protected in Geist v. Converse County Bank. Id at 582. He held that personal property is only exempt from an involuntary sale or process of law. By contrast, the Wyoming homestead statutes specifically protect the exemption from "execution and attachment arising from any debt, contract or civil obligation." Wyo. Stat. § 1-20-101(1988).
In Abrams, the debtors once again sought the same result, but under a slightly different theory. There they argued that the foreclosure of a consensual lien was an involuntary transfer. This court adopted the reasoning in In re VanGorp, and held that the exemption only existed in the vehicle's equity. In re Abrams, slip op. at 2.
In In re Sanders, the Tenth Circuit Court of Appeals held that lien avoidance under § 522(f) was unnecessary to preserve a homestead exemption over a judicial lien. In re Sanders, 39 F.3d at 262. The Sanders case was decided pursuant to Utah exemption law which precludes the attachment of a judgment lien to homestead property. Wyoming exemption law may be similar with regard to homestead property, see Geist v. Converse County Bank, but Wyoming law contains no such prohibition regarding personalty secured by a consensual lien.
Finally, the debtors allege that the Wyoming Supreme Court's decision in Lingle State Bank of Lingle v. Podalak lends support to their argument. In that case, the court was concerned with whether or not a personal earnings, exemption could be claimed from the proceeds of a wheat crop, and whether the right to the exemption was somehow waived.
That court held that a security agreement could not effect an implied waiver of an exemption claimed from execution on a deficiency judgment. The court twice stated that the issue before it arose in the context of an execution, distinguishable from the enforcement of the consensual security interest already foreclosed. Id. at 395 and 397. As such, the case is inapplicable to the facts before this court and lends no support to the debtors' argument.
In summary, none of the law cited by the debtors operates to alter the results in Van Gorp and Abrams. In this case, the debtors cannot avoid application of the WEFCU's consensual lien to the extent of their exemption for purposes of claim treatment under §§ 506 or 1325, either by operation of federal or state law.
Because Mr. Boyd was not a party to this dispute, the court cannot order priorities which may affect his lien status. The relative priorities of the three asserted interests in the property must be dealt with by the debtors in an amended plan with proper notice in accordance with the local rules. Any confirmation order will require that the WEFCU amend its deficiency claim, at which time the WEFCU can account for the postpetition payments made by the debtor's disability insurance.
Accordingly, it is ORDERED that the value of the 1988 Chevrolet pickup for purposes of confirmation is set at $6,525; and further
ORDERED that confirmation of the chapter 13 amended plan is DENIED.