In re: Ballard, was a tenth circuit case where the debtors purchased a vehicle for personal use less than 910 days before filing a Bankruptcy Petition. The vehicle was financed by a loan from Chrysler giving it a purchase money security interest in the car. Mr. Ballard proposed surrendering the vehicle in full satisfaction of Chrysler’s claims even though the car was worth less than the outstanding amount of the loan. Chrysler objected on the grounds that surrendering the vehicle would not fully satisfy the claim and that it may therefore assert an unsecured claim based on state law for the deficiency.
The Bankruptcy Court concluded that federal law does not allow deficiency claims under those circumstances, and the Bankruptcy Appellate Panel affirmed. The question presented related to the hanging paragraph in section 1325.
The debtors surrendered the vehicle and the court held that “because a 910 car claim is treated as fully secured when a debtor retains the vehicle, the Bankruptcy Court and the Bankruptcy Appellate Panel reasoned that it must also be treated as fully secured when the debtor surrenders the vehicle. Following this logic, surrender fully satisfies the claim and precludes an unsecured claim for a deficiency.” The question then becomes whether the Bankruptcy Court and the Bankruptcy Appellate Panel were correct or whether “a creditor may pursue an unsecured deficiency claim when the debtor surrenders the vehicle.”
The court found for the latter and that the hanging paragraph does nothing to alter a creditor’s right to pursue a deficiency claim under state law. This conclusion was reached on the basis of the plain language and the general proposition that claims allowed under state law are valid unless exceptionally disallowed in the code. This was a 2008 case. The tenth circuit only has persuasive authority over the fifth circuit where debtors who file for protection under the Bankruptcy Code in Plano, Texas and have their appealed cases heard when they are appealed from the Bankruptcy Court.