IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
LINDA KAY GREEN, No. 96-13203
Memorandum of Decision
There are currently two predominant methods of financing the purchase of a new car. The
purchaser can either utilize traditional methods of purchase money financing or lease the vehicle.
The latter method has some benefits for the purchaser, in that the amount of cash necessary to
drive away in a new car is generally less than the amount needed as a down payment to purchase
the car, and the monthly payments are lower.
There is a significant disadvantage to leasing a car when the purchaser has filed a Chapter 13
petition. In that event, a traditional purchaser could use section 1325(a)(5)(B) to pay the
lienholder only the value of the car regardless of the amount of the debt. However, a lessee must
either perform all of the terms of the lease or surrender the car; there is no option to redeem it
for its value.
In this Chapter 13 case, the debtor is a lessee. She argues that the lease is a disguised security
transaction, so that she may in fact use section 1325(a)(5)(B) even though she leased her
truck.The lessor, Mazda American Credit Company, objects.
The pros and cons of treating a vehicle lease as a disguised security transaction are set forth
in exhaustive detail in In re Cole
, 100 B.R. 561 (Bkrtcy.N.D.Okl.1989), and In re Thompson
101 B.R. 658 (Bkrtcy.N.D.Okl.1989), which came out on opposite sides of the issue. Appeals
from both decisions were considered by the district court in In re Cole
, 114 B.R. 278
(N.D.Okl.1990), which reversed the lower court holding that the leases were disguised security
transactions. This rule is generally followed. See, e.g., In re Bumgardner
, 183 B.R. 224
In fact, of the dozen or so reported cases on the issue, none other than the reversed Oklahoma
case has come out on the debtor's side. Courts have pretty much uniformly held that section
1325(a)(5) cannot be used to modify the rights of a vehicle or equipment lessor. See, e.g., In re
, -- B.R. -- (Bkrtcy. S.D.Ga.1996); In re Weske
, -- B.R. -- (Bkrtcy.E.D.Wis.1996); In
, 191 B.R. 309 (Bkrtcy.E.D.Pa.1996); In re Winston
, 181 B.R. 589 (Bkrtcy.
N.D.Ala.1995); In re Wallace
, 122 B.R. 222 (Bkrtcy.D.N.J.1990); In re Haigler
, 119 B.R. 531
(Bkrtcy. D.S.C.1989); In re Farrell
, 79 B.R. 300 (Bkrtcy.S.D.Ohio 1987); et al., all the way back
to In re Peacock
, 6 B.R. 922 (Bkrtcy.N.D.Tex.1980).
In this case, the debtor argues that because she puts so many miles on her truck, when the
lease is over she will owe Mazda American Credit an excess mileage fee of $3,750.00, which is
only $340.00 less than her price to purchase the truck. She therefore argues that she falls under
section 1201(37)(a)(iv) of the California Commercial Code because she has the option to become
the owner of the truck for nominal consideration upon compliance with the lease. She points to
subdivision (d)(i) of that section, which provides that consideration is nominal if it is less than
the lessee's reasonably predictable cost of performing if the option is not exercised.
The court does not follow the debtor's argument. Using her figures, the option to purchase
is still $340.00 more
than the cost to her if she does not exercise the option. Moreover,
subsection (d)(ii) of the California statute provides that the test is to be applied to the cost
reasonably predicted when the lease was made, not the actual cost some years later.
The court recognizes that leasing a vehicle is an alternative method of financing, as the debtor
argues. If there were not specific statutes, the court would have no difficulty using its equitable
powers to determine that a leased vehicle is subject to the cramdown provisions of section
1325(a)(5) of the Code. However, the extensive applicable statutory law leaves no room for the
court to proceed equitably. Accordingly, the debtor's position cannot be sustained.
For the foregoing reasons, the objection of Mazda American to the debtor's plan will be
sustained, and confirmation denied. Mazda's motion to assume or reject will be granted, and the
debtor will have 30 days from the effective date of an appropriate order to assume the lease or
it will be deemed rejected. Mazda's motion for relief from the automatic stay will be granted,
effective on the date the lease is deemed rejected. The debtor may have a stay pending appeal,
provided that she makes her regular lease payments and maintains insurance on the truck and
otherwise performs all her obligations under the lease except those which are already past due.
Counsel for Mazda shall submit appropriate orders regarding plan confirmation, assumption
of the lease, and relief from the automatic stay. Counsel for the debtor shall submit an
appropriate order regarding the stay pending appeal, if she desires such a stay.
Dated: January 19, 1997 _______________________