Case No. 00-31731-T Chapter 13United States Bankruptcy Court, E.D. Virginia, Richmond Division
April 11, 2001
James R. Sheeran, Esquire, Chesapeake, Virginia, Counsel for Tidewater Finance Company.
John K. Dixon, Esquire, Richmond, Virginia, Counsel for Debtor.
MEMORANDUM OPINION AND ORDER
Douglas O. Tice, Jr., Chief Judge, United States Bankruptcy Court.
Hearing was held on March 28, 2001, on Tidewater Finance Company’s request for payment of an administrative expense. At conclusion of the hearing, the matter was taken under advisement. For the reasons stated herein, Tidewater’s request will be denied.
The parties stipulated to the facts. On February 25, 2000, debtor entered into a credit retail installment sale contract to purchase a new car. Tidewater is the assignee of that contract.
This chapter 13 case was filed on March 21, 2000. Debtor’s first monthly payment of $704.62 was due on April 4, 2000. Debtor made the first payment approximately one week late.
Debtor’s chapter 13 plan was confirmed on June 12, 2000, and provides that Tidewater will be paid directly by debtor.
Debtor did not make a payment to Tidewater in May, June or July. On July 19, 2000, Tidewater filed a motion to terminate the automatic stay and a motion for an expedited hearing.
On August 18, 2000, a consent order was entered conditioning the automatic stay. Debtor was to meet the following payment schedule: May 2000 payment due August 3, 2000; June 2000 payment due August 3, 2000; July 2000 payment due August 18, 2000; August 2000 payment due September 15, 2000; September 2000 payment due September 29, 2000; October 2000 payment due October 13, 2000; and payments thereafter to be made in accordance with the terms of the contract.
Debtor made the following payments:
April 11, 2000 $700.00
August 3, 2000 $1410.00 (2 payments)
August 18, 2000 $705.00
September 21, 2000 $710.00
Debtor then became aware that he would not be able to continue making these payments, and he contacted the dealership to inquire about returning the vehicle.
Tidewater repossessed the vehicle on December 20, 2000, and sold it on January 22, 2001, for $22,300. After applying all credits, the balance remaining under debtor’s contract is $9,966.69.
On February 12, 2001, Tidewater filed a request for payment of administrative expense pursuant to 11 U.S.C. § 503(b). Tidewater alleges that it is entitled to the allowance of an administrative expense for the $9,966.69 deficiency it received from the sale of the vehicle. In support of its position, Tidewater cites Grundy National Bank v. Rife, 876 F.2d 361 (4th Cir. 1989).
On February 26, 2001, debtor filed a response opposing Tidewater’s motion.
Hearing was held on March 28, 2001. Counsel for Tidewater argues that this case is similar to Rife, and therefore Tidewater is entitled to an administrative expense.
In Rife, the Fourth Circuit was “persuaded that § 507(b) converts a creditor’s claim where there has been a diminution in the value of a creditor’s secured collateral by reason of a § 362 stay into an allowable administrative expense claim under § 503(b).” Rife, 876 F.2d at 363-64.
In order to assert a claim under § 507(b), a creditor must meet three criteria:
First, the trustee must have, under sections 362, 363, or 364(d), provided adequate protection of the interest of the holder of a claim secured by a lien on the property. Second, such creditor must have a claim allowable under section 507(a)(1). Third, the claim must have arisen from either the stay of action against property under section 362, from the use, sale, or lease of property under section 363, or from the granting of a lien under section 365(d).
COLLIER ON BANKRUPTCY ¶ 507.12[1] (Lawrence P. King ed., 15th ed. Rev. 2000). The most common method of obtaining adequate protection arises when a debtor offers adequate protection to prevent termination of the automatic stay. See id. at ¶ 507.12[1][a].
Tidewater filed for relief from stay in this case. However, the consent order entered on August 18, 2000, merely conditioned the stay and specifically provides that the order “does not adjudicate adequate protection of Tidewater’s interest in the Firebird.” Therefore, it appears that Tidewater fails to meet the first criteria necessary to assert a claim under § 507(b).
In Rife, the Fourth Circuit focused on the third criteria — the bank’s claim arose from the stay of action. However, Rife differs factually from this case. In Rife, “[t]he bankruptcy judge allowed the debtor to use the automatic stay provision to hold Grundy at bay while the debtor used the secured property . . . for nine months without making any payments whatsoever.” Rife, 876 F.2d at 364.
In this case, debtor made his first payment, albeit late, and several payments in August and September in an attempt to comply with the order conditioning the automatic stay.
Debtor also testified that after he purchased the vehicle his hours at work were reduced, he was not getting overtime, and that his mother became ill. Debtor is earning approximately $1400 per month less than he was when he filed his chapter 13 plan. When debtor became aware that he could not continue making payments, he contacted the dealership about where to return the vehicle. It does not appear that debtor used the automatic stay to hold Tidewater at bay and this court did not allow debtor to do so.
Furthermore, in Rife, debtor turned over the abandoned vehicle to the bank after it would no longer run. See id. In this case, debtor testified that he kept the vehicle in good condition and maintained insurance on the vehicle.
Although the Fourth Circuit has held that § 507(b) may convert a creditor’s claim into an allowable administrative expense claim under § 503(b), the creditor first must meet the criteria for asserting a claim under § 507(b). Here, Tidewater failed to meet the first criteria because debtor has not provided adequate protection. Moreover, this case differs factually from Rife, and the debtor did not abuse the automatic stay. Accordingly, IT IS ORDERED that Tidewater’s request for an administrative expense is DENIED.