In this case, debtors owed more than $15,000 to Hancock Bank on a loan secured by debtors’ Chevrolet Caprice. The amount owed was not in dispute.

Debtors’ Chapter 13 Plan proposed to repay Hancock Bank the value of its security, which was listed at $8,175. The balance of the funds owed to Hancock of approximately $6,800 was classified as an unsecured claim by the debtors.

Hancock filed a proof of claim for the full amount of the secured claim and properly identified its security. The court confirmed debtors’ repayment plan.

Debtors completed payments to the Chapter 13 Trustee and requested Hancock to discharge its lien on the collateral. Hancock refused to release its lien since it had not been paid in full on the secured loan.

Debtors filed to reopen the bankruptcy case and compel Hancock to release its lien. The court held that the bank must release its lien since the repayment plan was confirmed to repay the bank only the reduced value of the collateral. Robert Schultz v. Hancock Bank, 153 B.R. 170.

EDITOR’S COMMENT:

The case above should be distinguished from the U.S. Supreme Court case reported reported in 11 U.S.C. 1322(b)(2) which proscribes modification of the rights of a homestead mortgagee. Said provision does not, however, prohibit a cram down on personal property pledged as collateral.

Author: Charles R. Harroun, Attorney at Law.