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20. Secured Claims
Elimination of "cram down" for certain secured loans
Section 1325(a) is amended to limit the power of Chapter 13 plans to cram down secured claims to the value of the collateral under § 506(a). No cram down would be allowed for (1) purchase money security interests in motor vehicles purchased within 910 days of the bankruptcy filing (two days less than 2-1/2 years) or (2) as to all other secured debts (whether or not involving purchase money security interests) incurred within one year of bankruptcy. Under the old law, if a debtor's car was worth $6,000 and the outstanding loan was $10,000, the lender would be assured $6,000 in payment but would have to stand in line with other creditors to try to recover the $4,000 balance. Under the new law, the borrower in many cases will be required to repay the entire $10,000 if the vehicle was purchased within 30 months of the bankruptcy filing.
Valuation of certain secured claims
New § 506(a)(2) discussed above in connection with redemption, applies in Chapter 13 as well as Chapter7, and, in Chapter 13 has the effect of requiring that the crammed down value of a secured claim be based on the cost to the debtor of replacing the collateral without deduction for costs of sale or marketing-and that if the collateral was acquired for personal, family, or household purposes, this replacement cost is the retail price for property of similar age and condition.
Payments before and after plan confirmation
S.256 makes two changes requiring adequate protection payments on secured claims in Chapter 13. First, § 1325(a)(5)(B) is amended by the addition of a new subparagraph (iii) requiring that Chapter 13 plans provide for payment of secured claims in equal installments, at least sufficient to provide adequate protection. Second, § 1326(a)(1) is amended by the addition of new subparagraphs (B) and (C), which require that, prior to plan confirmation, and unless otherwise ordered by the court, the debtor must make adequate protection payments directly to the secured creditor, deduct the adequate protection payments from the pre-confirmation plan payments made to the trustee, and give proof of the adequate protection payments to the trustee. The amount required to be paid for pre-confirmation adequate protection is not clearly defined, but it appears that the debtor might have the choice of paying either the amount called for by the plan or the amount due under the loan. Pre-confirmation payments on personal property leases (primarily auto leases) would have to be paid directly to the lessor, with proof of the same provided to the trustee.
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