In re: Lionel Bea ( 2015 )

FILED
MAY 29 2015
1
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 ORDERED PUBLISHED OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. NC-14-1376-DKiTa
)
6 LIONEL BEA, ) Bk. No. 14-41272-MEH13
)
7 Debtor. )
______________________________)
8 )
MARTHA G. BRONITSKY, )
9 Chapter 13 Trustee, )
)
10 Appellant, )
)
11 v. ) OPINION
)
12 )
LIONEL BEA, )
13 )
Appellee. )
14 )
______________________________)
15
16 Argued and Submitted on May 14, 2015
at San Francisco, California
17
Filed - May 29, 2015
18
Appeal from the United States Bankruptcy Court
19 for the Northern District of California
20 Hon. M. Elaine Hammond, Bankruptcy Judge, Presiding
21
22 Appearances: Leo G. Spanos argued for appellant, Martha G.
Bronitsky, Chapter 13 Trustee; Andrew Christensen
23 of The Cline Law Group LLP, argued for appellee
Lionel Bea.
24
25
26 Before: DUNN, KIRSCHER AND TAYLOR, Bankruptcy Judges.
27
28
1 DUNN, Bankruptcy Judge:
2
3 Martha G. Bronitsky, the chapter 131 trustee (“Trustee”),
4 appeals the bankruptcy court’s orders overruling her objection to
5 confirmation of the Debtor’s First Amended Chapter 13 Plan
6 (“Plan”) and confirming the Plan. We AFFIRM as to both orders.
7 I. FACTS
8 The facts underlying this appeal are not in dispute. The
9 Debtor, Lionel Bea, filed his chapter 13 petition on March 25,
10 2014. He filed the Plan on May 13, 2014. The Plan proposed
11 payments of $584 for 60 months. The Plan pays $3,000 in
12 attorneys fees, a total of $7,020 to claimants holding claims
13 secured by the Debtor’s personal property, $4,380 in domestic
14 support arrears, and $15,190 in priority tax claims. Unsecured
15 creditors are projected to receive 0% on their claims under the
16 Plan.
17 Under Section 2.05 of the Plan, the three nonpurchase money
18 secured creditors (collectively, “Secured Creditors”) are treated
19 as follows: The City of Oakland is to receive a total of $995,
20 payable $83 per month at 0% interest. The California Franchise
21 Tax Board (“FTB”) is to receive a total of $325, payable $28 per
22 month at 0% interest. The Internal Revenue Service (“IRS”) is to
23 receive payments of $382 per month to pay its allowed secured
24
25
1
Unless specified otherwise, all chapter, section and rule
26 references are to the federal Bankruptcy Code, 11 U.S.C. §§ 101-
27 1532, and to the Federal Rules of Bankruptcy Procedure, Rules
1001-9037. The Federal Rules of Civil Procedure are referred to
28 as “Civil Rules.”
2
1 claim of $5,700 at 3% interest. The Secured Creditors will
2 retain their liens until their allowed secured claims are paid in
3 full. The Debtor anticipates that the fixed equal monthly
4 payments provided for in Section 2.05 of the Plan will pay the
5 IRS in full in about 15 months and the City of Oakland and the
6 FTB in full in about 12 months each. However, under Section 5.01
7 of the Plan, the fixed monthly payments to the Secured Creditors
8 do not begin until month seven of the Plan, in order to allow the
9 Debtor’s $3,000 in outstanding attorneys fees to be paid first.
10 None of the three Secured Creditors objected to the Plan.
11 The Trustee objected to the Plan on the ground that it was
12 contrary to requirements of the Bankruptcy Code in that the
13 deferred payments to the Secured Creditors under the Plan did not
14 provide them with adequate protection during the first six months
15 of the Plan as required by § 1325(a)(5)(B)(iii)(II). The Debtor
16 responded that § 1325(a)(5) was satisfied in that the Secured
17 Creditors in effect accepted the Plan by not filing objections.
18 The bankruptcy court heard argument on the Trustee’s Plan
19 objection on June 24, 2014, and ruled orally. The bankruptcy
20 court held that Ninth Circuit authority supported its conclusion
21 that a secured creditor’s failure to object to its treatment in a
22 chapter 13 plan generally “translates into acceptance of the plan
23 by the secured creditor.” It further concluded that the Supreme
24 Court’s decision in United Student Aid Funds, Inc. v. Espinosa,
25 130 S. Ct. 1367 (2010), did not require a different result in this
26 case. Accordingly, the bankruptcy court overruled the Trustee’s
27 objection to the Plan.
28 On June 27, 2014, the bankruptcy court entered its order
3
1 overruling the Trustee’s objection and setting forth its findings
2 and conclusions. It entered its order confirming the Plan on
3 July 1, 2014. The Trustee timely appealed both orders. At oral
4 argument, Debtor’s counsel confirmed that Debtor’s outstanding
5 attorneys fees provided for in the Plan were paid in full, and
6 payments to the three Secured Creditors have commenced.
7 II. JURISDICTION
8 The bankruptcy court had jurisdiction under 28 U.S.C.
9 §§ 1334 and 157(b)(2)(L). We have jurisdiction under 28 U.S.C.
10 § 158.
11 III. ISSUES
12 While the parties have stated the issues before us in a
13 number of ways, we characterize the issues before us in this
14 appeal as follows:
15 1) Does a chapter 13 plan necessarily violate the Bankruptcy
16 Code if it provides that equal payments to secured creditors
17 start later than the first plan payment?
18 2) If a secured creditor does not object to a delay in the
19 start of equal payments to it under a chapter 13 plan, does such
20 failure to object constitute acceptance of its treatment under
21 the plan for purposes of § 1325(a)(5)(A)?
22 IV. STANDARDS FOR REVIEW
23 We review the bankruptcy court’s legal conclusions,
24 including its interpretation of provisions of the Bankruptcy
25 Code, de novo and its findings of fact for clear error. Arnold
26 v. Gill (In re Arnold), 252 B.R. 778, 784 (9th Cir. BAP 2000).
27 V. DISCUSSION
28 The Trustee argues that it was error for the bankruptcy
4
1 court to confirm the Plan where the Plan did not provide adequate
2 protection to the Secured Creditors through equal payments
3 commencing with the first Plan payment due, as required under
4 § 1325(a)(5)(B)(iii)(II), in light of the Supreme Court’s
5 decision in United Student Aid Funds, Inc. v. Espinosa, 559 U.S.
6 260 (2010). The Debtor argued, and the bankruptcy court agreed,
7 that the allowed claims of secured creditors can be satisfied in
8 three alternative ways in a chapter 13 plan: a) by secured
9 creditor acceptance of its treatment under the plan
10 (§ 1325(a)(5)(A)); b) by surrender of the secured creditor’s
11 collateral (§ 1325(a)(5)(C)); or c) by the secured creditor
12 retaining its lien on its collateral until its allowed secured
13 claim is paid in full during the term of the plan
14 (§ 1325(a)(5)(B)). Since none of the Secured Creditors objected
15 to their treatment in the Plan, the bankruptcy court concluded,
16 under Ninth Circuit and other authority, that the Secured
17 Creditors had accepted the Plan, and the alternative provided by
18 § 1325(a)(5)(A) was satisfied. We agree for the following
19 reasons.
20 In Espinosa, the Supreme Court was confronted with the
21 following situation: The debtor, Francisco Espinosa, had student
22 loan debt. Mr. Espinosa filed for protection under chapter 13
23 and in his chapter 13 plan, proposed to pay the principal of his
24 student loan debt over the life of the plan but further provided
25 that once the principal had been paid, any accrued interest would
26 be discharged. Notice and a copy of Mr. Espinosa’s plan were
27 provided to the student loan creditor, United Student Aid Funds,
28 Inc. (“United”). In bold typeface immediately beneath the
5
1 caption of the plan was stated: “WARNING IF YOU ARE A CREDITOR
2 YOUR RIGHTS MAY BE IMPAIRED BY THIS PLAN.” The plan further
3 noted the deadlines for filing proofs of claim and objections to
4 confirmation of the plan. Id. at 265.
5 United received the notice and filed a proof of claim in an
6 amount representing both unpaid principal and accrued interest on
7 Mr. Espinosa’s student loan debt. However, United did not object
8 either to confirmation of Mr. Espinosa’s chapter 13 plan or to
9 his failure to initiate an adversary proceeding to seek a
10 determination that his student loan debt was dischargeable,
11 imposing an undue hardship on him, as required under § 523(a)(8).
12 The bankruptcy court confirmed Mr. Espinosa’s plan. One
13 month later, the chapter 13 trustee sent United a form notice
14 stating that “[t]he amount of the claim differs from the amount
15 listed for payment in the plan,” and “[y]our claim will be paid
16 as listed in the plan.” Id. United did not appeal the
17 confirmation order and did not respond to the trustee’s notice.
18 Thereafter, Mr. Espinosa made all payments required under his
19 plan and received a discharge.
20 Three years later, the United States Department of Education
21 commenced efforts to collect the unpaid interest on Mr.
22 Espinosa’s student loan debt. Mr. Espinosa filed a motion in the
23 bankruptcy court to enforce the discharge order “by directing the
24 Department and United to cease all efforts to collect the unpaid
25 interest on his student loan debt.” Id. at 266. United opposed
26 and filed a cross-motion to vacate the confirmation order under
27 Civil Rule 60(b)(4), applicable in bankruptcy under Rule 9024, as
28 void. It argued that Mr. Espinosa’s chapter 13 plan was
6
1 inconsistent with the Bankruptcy Code requirement to make undue
2 hardship findings before discharging student loan debt, citing
3 §§ 523(a)(8) and 1328(a)(2). It further argued that confirmation
4 of the plan violated requirements of the Rules, in that undue
5 hardship findings must be made in the context of an adversary
6 proceeding (Rule 7001(6)), and that United was not properly
7 served with a summons and complaint (see Rules 7003 and 7004).
8 Id. at 266.
9 The bankruptcy court ruled in favor of Mr. Espinosa and
10 against United. On appeal, the district court reversed, holding
11 that United was denied due process because the confirmation order
12 was entered without service of a summons and complaint as the
13 Rules required. On further appeal, the Ninth Circuit reversed.
14 It concluded that United had adequate notice of the plan. Even
15 if United had a meritorious objection and basis for appeal, it
16 was bound by the plan when it neither objected nor appealed. Id.
17 at 266-67.
18 The Supreme Court granted certiorari and affirmed the Ninth
19 Circuit in a unanimous decision, noting that Civil Rule 60(b)(4)
20 “does not provide a license for litigants to sleep on their
21 rights.” Id. at 275. United had notice of Mr. Espinosa’s plan
22 and its contents but did not object or file a timely appeal of
23 the confirmation order, in spite of submitting to the
24 jurisdiction of the bankruptcy court by filing a proof of claim.
25 In these circumstances, United “forfeited its arguments regarding
26 the validity of service or the adequacy of the Bankruptcy Court’s
27 procedures by failing to raise a timely objection in that court,”
28 and its Civil Rule 60(b)(4) motion did not work. Id.
7
1 Of particular significance in this appeal, the Supreme Court
2 went on to provide guidance to bankruptcy courts as to their
3 duties when confronted with debtor plan provisions that clearly
4 conflict with provisions of the Bankruptcy Code.
5 [A] Chapter 13 plan that proposes to discharge a
student loan debt without a determination of undue
6 hardship violates §§ 1328(a)(2) and 523(a)(8). Failure
to comply with this self-executing requirement should
7 prevent confirmation of the plan even if the creditor
fails to object, or to appear in the proceeding at all.
8 . . . That is because § 1325(a) instructs a bankruptcy
court to confirm a plan only if the court finds, inter
9 alia, that the plan complies with the “applicable
provisions” of the Code. . . . [T]he Code makes plain
10 that bankruptcy courts have the authority – indeed, the
obligation – to direct a debtor to conform his plan to
11 the requirements of §§ 1328(a)(2) and 523(a)(8).
12 Id. at 277 (emphasis added). Accordingly, the Supreme Court
13 expressed its unanimous view in Espinosa that bankruptcy courts
14 should police chapter 13 plans to ensure that they are consistent
15 with the “clear and self-executing” requirements of the
16 Bankruptcy Code. Id.
17 We consider the following Bankruptcy Code provisions in this
18 appeal. Section 1325(a)(1) provides in relevant part: “[T]he
19 court shall confirm a [chapter 13] plan if – (1) the plan
20 complies with the provisions of this chapter and with the other
21 applicable provisions of this title.” Section 1325(a)(5)(A)
22 provides: “[T]he court shall confirm a [chapter 13] plan if – (5)
23 with respect to each allowed secured claim provided for by the
24 plan – (A) the holder of such claim has accepted the plan.” As
25 noted above, § 1325(a)(5)(B) provides an alternative basis for
26 confirming a chapter 13 plan with respect to an allowed secured
27 claim provided for in the plan if the secured creditor retains
28 its lien, and the allowed secured claim is paid in full in equal
8
1 periodic payments under the plan. Section 1325(a)(5)(B)(iii)(II)
2 sets forth a condition to the application of § 1325(a)(5)(B), as
3 follows: if the claim is secured by personal property, “the
4 amount of such [periodic] payments shall not be less than an
5 amount sufficient to provide to the holder of such claim adequate
6 protection during the period of the plan.”
7 The Trustee argues that the Plan’s provision of a six-months
8 delay in commencing equal monthly payments to the Secured
9 Creditors is “in direct violation” of the adequate protection
10 requirement of § 1325(a)(5)(B)(iii)(II), and in light of
11 Espinosa, a “creditor’s silence is not acceptance when the plan
12 expressly violates the Code.” The Trustee bases her argument on
13 her conclusion that Espinosa fundamentally altered the rules on
14 secured creditor “silence as acceptance” of a debtor’s chapter 13
15 plan, calling into question pre-Espinosa Ninth Circuit
16 authorities such as Great Lakes Higher Educ. Corp. v. Pardee (In
17 re Pardee), 193 F.3d 1083 (9th Cir. 1999), and Andrews v. Loheit
18 (In re Andrews), 49 F.3d 1404, 1409 (9th Cir. 1995) (“Here,
19 § 1325(a)(5) is fulfilled because subsection (A) was satisfied
20 when the holders of the secured claims failed to object. In most
21 instances, failure to object translates into acceptance of the
22 plan by the secured creditor.” (citations omitted)). We note,
23 as argued by the Debtor and as recognized by the bankruptcy
24 court, that there are authorities within the Ninth Circuit (post-
25 Espinosa), and from other circuits (pre-Espinosa) that recognize
26 that failures to object to confirmation of a chapter 13 plan can
27 constitute acceptance for purposes of applying § 1325(a)(5)(A).
28 See, e.g., Shaw v. Aurgroup Fin. Credit Union, 552 F.3d 447 (6th
9
1 Cir. 2009); Wachovia Dealer Servs. v. Jones (In re Jones), 530
2 F.3d 1284, 1291 (10th Cir. 2008) (“[I]f a secured creditor fails
3 to object to confirmation, the creditor will be bound by the
4 confirmed plan’s treatment of its secured claim under
5 § 1325(a)(5). . . . This is because the failure to object
6 constitutes acceptance of the plan.” (citations omitted)); In re
7 Rosa, 495 B.R. 522, 524 (Bankr. D. Hawaii 2013) (“The Ninth
8 Circuit and the overwhelming majority of courts hold that a
9 secured creditor’s failure to object to a chapter 13 plan
10 constitutes acceptance.” (citations omitted)); In re Hill, 440
11 B.R. 176, 183 (Bankr. S.D. Cal. 2010) (“While Chapter 11 cases
12 provide a mechanism for plan acceptance by creditors,
13 § 1325(a)(5)(B) only applies where the holder of the secured
14 claim objects to the Chapter 13 plan. Acceptance is implied when
15 no objection is raised.” (citing In re Andrews, 49 F.3d at
16 1409)); In re Thomas, 2010 WL 9498475 (Bankr. E.D. Cal. Sept. 13,
17 2010).
18 The Trustee retorts in effect that these authorities beg the
19 fundamental question at issue in this appeal: How can a secured
20 creditor’s failure to object to a plan provision that is
21 inconsistent with Bankruptcy Code requirements be treated
22 effectively and credibly as acceptance? Fortunately, there are
23 two bankruptcy court decisions that provide helpful analysis.
24 1. Montoya
25 In In re Montoya, 341 B.R. 41 (Bankr. D. Utah 2006), the
26 chapter 13 debtor proposed a plan to pay for a car that she
27 purchased within 910 days prior to filing her petition by paying
28 the secured value of the vehicle in full but only a small
10
1 percentage on the unsecured balance, contrary to the requirements
2 of the “hanging paragraph” found after § 1325(a)(9). Both the
3 debtor and the chapter 13 trustee argued that such treatment of
4 the secured car creditor’s claim should be allowed because the
5 secured creditor did not object to the debtor’s plan and,
6 consequently, should be deemed to have accepted the plan
7 treatment of its claim under § 1325(a)(5)(A). They further
8 asserted that since the confirmation requirements with respect to
9 secured claims in chapter 13 are set forth in the disjunctive in
10 § 1325(a)(5), the secured creditor’s deemed acceptance under
11 § 1325(a)(5)(A) should control despite the unmet requirements of
12 the hanging paragraph with respect to “910-day” vehicles. Id. at
13 42-43. The bankruptcy court noted that “[t]he majority of courts
14 interpreting the hanging paragraph hold that it precludes a
15 Chapter 13 debtor from using § 506 to cram down a 910-day
16 vehicle,” a holding with which the bankruptcy court agreed. Id.
17 at 44.
18 The bankruptcy court ultimately concluded that the debtor’s
19 plan was not confirmable based on the following rationale:
20 The Chapter 13 Trustee and the Debtor broadly
contend that failure to object to a properly noticed
21 plan constitutes acceptance of the plan. This position
overstates the case because the parties improperly
22 combine two significantly different concepts and Code
sections. It is correct that, if a plan is properly
23 noticed and otherwise meets the requirements of
§ 1325(a), the Court may deem a secured creditor’s
24 silence to constitute acceptance of a plan and the plan
may be confirmed. This “implied” acceptance is allowed
25 because Chapter 13, unlike Chapter 11, has no balloting
mechanism to evidence acceptance of a proposed plan,
26 and it is only the negative – a filed objection – that
evidences the lack of acceptance. When the creditor
27 simply does nothing, the judicial doctrine of “implied”
acceptance fills the drafting gap in the Code. The
28 concept of implied acceptance of an otherwise compliant
11
1 plan . . . , however, is quite different from proposing
a plan intentionally inconsistent with the Code and
2 then waiting for the trap to spring on a somnolent
creditor. Creditors are entitled to rely on the few
3 unambiguous provisions of the BAPCPA for their
treatment. They should not be required to scour every
4 Chapter 13 plan to ensure that provisions of the BAPCPA
specifically inapplicable to them will not be inserted
5 in a proposed plan in the debtor’s hope that the
improper secured creditor treatment will become res
6 judicata.
7 . . .
8 Section 1325(a)(1) provides that “the court shall
confirm a plan if (1) the plan complies with the provisions
9 of this chapter and with the other applicable provisions of
this title.” The parties agree that Menlove Dodge’s 910-day
10 vehicle claim cannot be bifurcated, yet the Plan proposes
this type of treatment. The Court has an affirmative duty
11 to review and ensure that the Plan complies with the Code
even if creditors fail to object to confirmation.
12
13 Id. at 45-46 (emphasis added). Thus, the In re Montoya court
14 determined that it could not confirm a plan, even if a concerned
15 secured creditor did not object, if the proposed plan included a
16 provision that was inconsistent with one of the “few unambiguous
17 provisions” of the Bankruptcy Code.
18 2. Thomas
19 In a more recent decision, In re Thomas, 2010 WL 9498475
20 (Bankr. E.D. Cal. Sept. 13, 2010), the chapter 13 debtors
21 submitted a plan that proposed to pay the allowed claims of two
22 creditors with claims secured by motor vehicles without interest.
23 After the trustee objected, the debtors asserted that paying no
24 interest on one of the claims was in error and specified an
25 amended interest rate of 1.9%. As to the other secured claim, 0%
26 interest was consistent with the proof of claim filed by the
27 creditor. Neither motor vehicle secured creditor objected to its
28 proposed treatment under the debtors’ plan, and the debtors
12
1 argued that confirmation in these circumstances was appropriate
2 because the secured creditors’ failure to object should be deemed
3 acceptance for purposes of § 1325(a)(5)(A). The trustee, as in
4 this appeal, opposed confirmation on the ground that the proposed
5 plan did not comply with the requirements of § 1325(a)(5)(B), as
6 it did not provide for a rate of interest to the motor vehicle
7 secured creditors that would compensate them “for the delay in
8 paying their claims in full,” i.e., the proposed plan did not
9 provide adequate protection to the personal property secured
10 creditors by not providing that the secured creditors would
11 receive the present values of their allowed secured claims. Id.
12 at *1.
13 While the bankruptcy court ultimately determined that it
14 could not confirm the debtors’ plan because notice to the motor
15 vehicle secured creditors was inadequate, it addressed the
16 adequate protection issue raised by the trustee’s objection in
17 light of Espinosa.
18 The [Supreme] Court characterized the requirement for a
determination of undue hardship to discharge a student
19 loan debt as “self executing” and stated that failure
to comply with that requirement should prevent
20 confirmation of a plan even if the creditor fails to
object. . . . But is the requirement for provision of
21 present value in the absence of acceptance of a chapter
13 plan by a secured creditor the kind of compliance
22 about which the court in Espinosa was speaking?
23 Id. at *4. As in In re Montoya, the bankruptcy court in In re
24 Thomas concluded that it was making a decision that involved the
25 application of two different concepts. Id. at *5. First,
26 § 1325(a)(5) provides three alternatives to allow for
27 confirmation of a chapter 13 plan as it deals with allowed
28 secured creditor claims, and one of those alternatives is to
13
1 treat a secured creditor’s failure to object as acceptance for
2 purposes of § 1325(a)(5)(A). However, in some cases, application
3 of that alternative is not compatible with
4 the idea that a plan intentionally inconsistent with
the Code ought not to be confirmed even in the absence
5 of objection. Good examples are a plan that attempts
to discharge a student loan claim without a proper
6 proceeding to determine undue hardship and a plan that
improperly bifurcates a 910 claim into a secured and an
7 unsecured portion. Another example is a plan that
provides for payments over a period that is longer than
8 five years in contravention of Bankruptcy Code
§ 1322(d).
9
10 Id. The bankruptcy court recognized that the “adequate
11 protection” provision in § 1325(a)(5)(B)(iii)(II) is different
12 from such clear and “self executing” provisions. “The
13 requirement of present value is not self executing. It requires
14 evidence and it requires proof.” Id. at 6.
15 We agree with the analysis of the bankruptcy court in In re
16 Thomas as it considered adequate protection. Congress provided
17 some guidance as to what could constitute “adequate protection”
18 in § 361:
19 Adequate Protection. When adequate protection is
required under section 362, 363, or 364 of this title
20 of an interest of an entity in property, such adequate
protection may be provided by –
21 (1) requiring the trustee to make a cash payment
or periodic cash payments to such entity, to the extent
22 that the stay under section 362 of this title, use,
sale, or lease under section 363 of this title, or any
23 grant of a lien under section 364 of this title results
in a decrease in the value of such entity’s interest in
24 such property;
(2) providing to such entity an additional or
25 replacement lien to the extent that such stay, use,
sale, lease, or grant results in a decrease in the
26 value of such entity’s interest in such property; or
(3) granting such other relief, other than
27 entitling such entity to compensation allowable under
section 503(b)(1) of this title as an administrative
28 expense, as will result in the realization by such
14
1 entity of the indubitable equivalent of such entity’s
interest in such property.
2
3 However, nothing in § 361 provides any guidance as to the timing
4 to provide adequate protection, and the reference to “adequate
5 protection” in § 1325(a)(5)(B)(iii)(II) adds nothing to assist us
6 in determining what “adequate protection” means in a particular
7 case.
8 In Paccom Leasing Corp. v. Deico Electronics, Inc. (In re
9 Deico Electronics, Inc.), 139 B.R. 945 (9th Cir. BAP 1992), the
10 Panel specifically considered the question of “the appropriate
11 ‘begin’ date for adequate protection payments contemplated by the
12 bankruptcy code” in a chapter 11 case. Id. at 946. The Panel
13 analyzed the issue as follows:
14 The bankruptcy code does not specifically provide
for a date upon which adequate protection payments
15 should commence, but the purpose of adequate protection
lends assistance to that inquiry. In United Saving
16 Association v. Timbers of Inwood Forest, 484 U.S. 365
. . . (1988), the Supreme Court held that undersecured
17 creditors are entitled to adequate protection to
compensate them for the depreciation in their
18 collateral. Adequate protection prevents creditors
from becoming more undersecured because of the delay
19 that bankruptcy works on the exercise of their state
law remedies.
20
Accordingly, adequate protection analysis requires
21 the bankruptcy court to first determine when the
creditor would have obtained its state law remedies had
22 bankruptcy not intervened. Presumably, that will be
after the creditor first seeks relief. The court must
23 then determine the value of the collateral as of that
date. This is consistent with Collier’s admonition
24 that value should be determined as of when the
protection is sought.
25
The amount by which the collateral depreciates
26 from that valuation is the amount of protection
adequate to compensate the creditor for the loss
27 occasioned by bankruptcy. But collateral may not
always depreciate according to a precise monthly
28 schedule. Moreover, requiring a lump sum of past due
15
1 protection could suffocate a debtor otherwise able to
reorganize.
2
Therefore, while the amount of adequate protection
3 to which an undersecured creditor is entitled is equal
to the amount of depreciation its collateral suffers
4 after it would have exercised its state law remedies,
neither that determination nor the schedule for its
5 tender are appropriate for application of a rigid
formula. Instead, the bankruptcy court must have
6 discretion to fix any initial lump sum amount, the
amount payable periodically, the frequency of payments,
7 and the beginning date, all as dictated by the
circumstances of the case and the sound exercise of
8 that discretion.
9 Id. at 947 (emphasis added). We reiterated the conclusion of the
10 Panel in Deico that the bankruptcy court has broad discretion to
11 fix the commencement date for adequate protection payments in our
12 en banc disposition in People’s Capital and Leasing Corp. v.
13 Big3D, Inc. (In re Big3D, Inc.), 438 B.R. 214, 222, 224 (9th Cir.
14 BAP 2010) (en banc). Accordingly, the timing for commencement of
15 adequate protection payments is a fact-based determination
16 depending on the circumstances of a particular case.
17 3. This Appeal
18 In this case, the Plan provides for a six-month delay in the
19 commencement of payments to the Secured Creditors. However, the
20 Plan further provides for the payment in full of the allowed
21 secured claims of the City of Oakland, the FTB and the IRS well
22 within the sixty-months term of the Plan. With no objection
23 filed by any of the Secured Creditors, the bankruptcy court had
24 no way of knowing whether the Secured Creditors were satisfied
25 that the payments proposed by the Debtor in the Plan provided
26 them with adequate protection or whether the amounts involved
27 and/or the risk of nonpayment in light of the proposed six-months
28 delay in commencing payments simply did not justify the costs
16
1 entailed in filing and prosecuting objections to confirmation of
2 the Plan, and neither do we. However, we conclude, consistent
3 with In re Thomas, that the provision for “adequate protection”
4 in § 1325(a)(5)(B)(iii)(II) is not the type of clear, “self
5 executing” provision of the Bankruptcy Code that would preclude
6 the bankruptcy court from translating the Secured Creditors’
7 failures to object to confirmation as acceptance for purposes of
8 § 1325(a)(5)(A) and confirming the Plan as consistent with the
9 requirements of § 1325(a)(1), under Espinosa.2
10 CONCLUSION
11 Based on the foregoing analysis, we AFFIRM the orders of the
12 bankruptcy court overruling the Trustee’s objection to
13 confirmation of the Plan and confirming the Plan.
14
15
16
17
18
19
20
21
22
23
24 2
Having concluded that the adequate protection provision
25 in § 1325(a)(5)(B)(iii)(II) is not a clear, “self-executing”
requirement of the Bankruptcy Code within the meaning of
26 Espinosa, we do not consider further the argument that
27 § 1325(a)(5)(A)’s express inclusion of secured creditor consent
as a possible basis for confirmation, standing alone, also or
28 independently supports affirmance.
17