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June 1, 2008

6th Circuit Rules on Ford's Right to Administrative Claim for Post-Confirmation Default by Chapter 13 Debtor

Ford Motor Credit Company v. Parmenter (In re Parmenter)  --- F.3d --- (6th Cir.,  May, 2008)

Issue:   When the chapter 13 plan provides that the debtor will assume a vehicle lease and pay it outside the plan, does the lessor have the right to an administrative claim when the debtor fails to make the payments?               

Holding:    No. 

Appeal from District Court
Counsel for Ford is Ricardo Kilpatrick

In their chapter 13 plan, the debtors “agreed to assume the Ford lease and to pay the remaining lease payments directly to Ford.”  There were no objections and the plan was confirmed.  Post-confirmation, the debtors defaulted on the lease, Ford obtained relief from stay, repossessed the vehicle and sold it.  Ford then “filed a motion for administrative expenses of $5,919.28, which included the deficiency balance on the lease and attorney fees.”  The bankruptcy court denied the motion and the District Court affirmed. 

The 6th Circuit Court of Appeals also affirmed in a per curiam opinion with a dissent.   The opinion says that the confirmed plan was res judicata as to these issues, Section 1327(a).  Ford was a class three creditor in the plan and now wants to “jump to class one.”  “The plan says nothing about permitting the estate to make lease payments to Ford.  Yet Ford’s motion, if granted, would allow the company to impose an obligation on the estate where none existed and indeed would give that claim the highest priority permitted.  Well before the [debtors] defaulted, Ford had made its own bed outside the plan and now must lie in it: If the car company wishes to obtain any additional relief against the [debtors], it must do so outside the plan.”  The opinion does not even suggest what this relief “outside the plan” means.  Modification of the plan does not apply, according to the court, because the allowance of an administrative claim would be “the creation of a new obligation on the estate.”  “If Ford wanted the security of receiving payments directly from the Trustee, it should have objected to the proposed plan.”

The opinion distinguishes chapter 11 cases where this administrative expense clearly would be allowed and chapter 13 cases.  “Whereas a Chapter 11 debtor-in-possession acts on behalf of the estate when it assumes a lease and thus creates a legal obligation on the estate, a Chapter 13 debtor who assumes and
pays for a lease outside of the plan does not.”  It does not explain how it reached that conclusion. 

The dissent begins with “First, I see no convincing reason for treating creditors dealing with a Chapter 13 debtor differently from creditors dealing with a Chapter 11 debtor-in-possession.  The Code offers no basis for treating the two scenarios differently.”  “[S]econd, . . . I see no basis for drawing a line between Chapter 13 creditors who receive lease payments directly from the debtor and those who receive them indirectly through a trustee.”  As to res judicata, the dissent disagrees.  The plan did not deal with and therefore resolve any issues about the right to administrative claims for post-confirmation defaults.

June 1, 2008 in Other Circuit Briefs | Permalink

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