Case No. 94-10122, Chapter 7United States Bankruptcy Court, D. Wyoming
December 6, 1994
ORDER ON MOTION TO REDEEM
PETER McNIFF, United States Bankruptcy Judge.
THIS MATTER came before the court on the motion of the debtors to redeem a 1979 Dodge pickup truck, V.I.N. W14JE9S221627, from the lien of the WESC Federal Credit Union. The court, having heard the arguments of counsel, having considered the evidence and testimony presented at the hearing, and being fully advised, hereby enters its order granting the motion.
At the hearing, counsel raised three (3) issues: whether the creditor’s security interest is validly cross collateralized; what effect a cross collateralization clause has on the amount required to redeem; and redemption at what value.
Findings of Fact
The parties do not dispute that the 1979 Dodge pickup is encumbered by a validly perfected, consensual lien granted to the WESC Federal Credit Union by the debtors. This lien cannot be avoided under 11 U.S.C. § 522(f). The lien is a non-purchase money security interest. The creditor also has a lien on a 1991 Dodge Monaco.
The amount of the lien recorded on the title to the pickup is $1,173.10. The debt specifically owed on the Dodge pickup loan is $502.00. The total cross collateralized debt owed at the date of the petition was $23,245.31. The parties presented testimony concerning the value of the 1979 Dodge pickup. For the reasons state below, the court finds that the fair market value of the vehicle is $975.00, and the amount of the lien encumbering the pickup is at least $1,173.10.
Conclusions
First, the parties dispute the extent to which the lien on the pickup secures all obligations owed. The executed and filed security agreements contain a clause which has been variously called a dragnet or cross collateralization clause. Such a provision is intended to secure all future advances and presently owing obligations with the collateral given at the time the agreement is executed. Thus, the security agreement on the pickup was intended to secure all other debt incurred by these debtors with the WESC Federal Credit Union.
In Wyoming, cross collateralization clauses are valid. First Nat’l Bank v. First Interstate Bank, 774 P.2d 645 (Wyo. 1989). In that case, the Wyoming Supreme Court also held that to the extent a dragnet clause is intended to secure previously existing debt, a statement on the filed security agreement of the total amount secured is not necessary. Id. at 650.
Despite that ruling, the debtors argue that a lien on a vehicle is different. Because the amount of a security interest must be separately recorded on a vehicle title, the vehicle is only encumbered up to the specific sum there stated. See Wyo. Stat. § 34.1-9-302(f) (1994). However, for purposes of the redemption issue before the court today, this need not be resolved. The security agreement clearly states that the pickup is intended to secure existing indebtedness and future advances. Those clauses are valid in Wyoming, and the recorded lien on the Dodge pickup secures debt at least to that amount, i.e., $1,173.10.
A debtor in bankruptcy may redeem exempt property from a lien by paying the lien holder “the amount of the allowed secured claim of such holder that is secured by such lien.” 11 U.S.C. § 722. Courts generally require a lump sum payment in the lesser of the fair market value of the property (the allowed secured claim) or the amount of the claim secured by the lien. In re Taylor, 3 F.3d 1512, 1514 n. 2 (11th Cir. 1993), reh’g en banc denied, 11 F.3d 169 (1993).
Value is determined in light of the purpose of the valuation and the proposed disposition or use of the property. 11 U.S.C. § 506 (a). The fair market value is the method of valuation suggested in the legislative history of § 722. In re Penick, 170 B.R. 914, 918 (Bankr.W.D.Mich. 1994). To determine fair market value, the court must look to a hypothetical sale in a hypothetical market. The bankruptcy court i Penick rejected both a liquidation (distressed sale) value and a retail value which included not-bargained-for profits. Id. at 918. And, consistent with other courts, the Penick court concluded that the wholesale “blue book” amount was the correct value in a redemption context.
In this case, the parties presented testimony concerning the fair market value. The debtors proposed the amount a used car dealer stated he would pay them for the pickup in the range of $400 to $500. The creditor proposed the retail “blue book” value of $2,200, but also provided the wholesale “blue book” value of $975.00.
The court concludes that the valuation urged by the debtors is too low because of the bare bones nature of the dealer’s offer. Although characterized as the wholesale value, that value is closer to a distressed sale amount, giving no consideration to the costs associated with a market sale. On the other hand, the used car guide provides a regional statement of value based on average values obtained at actual sales.
The court holds that the fair market value of the pickup is $975.00. This is less than the debt secured by the lien. Therefore, the debtors must pay the creditor $975 to redeem.
Finally, the credit union requested the court’s assistance concerning the debtors’ § 521 statement of intention and their failure to comply by reaffirming this obligation. In response, the court refers the creditor to the cases of Lowry Federal Credit Union v. West, 882 F.2d 1543, 1545 (10th Cir. 1989), and In re Weir, 1994 W.L. 577737 (Bankr.E.D.Cal. 1994).
It is, therefore, ORDERED that the debtors shall have fifteen (15) days from the date of this order within which to redeem the 1979 Dodge Pickup for $975.00, failing which the automatic stay shall be modified in accordance with the court’s simultaneous order entered herein.