PETER McNIFF, United States Bankruptcy Judge.
This case comes before the court for confirmation of the debtors, second amended chapter 13 plan and the objection filed thereto by the Wyoming Employees Federal Credit Union (WEFCU) and the WEFCU's motion for order determining lien priorities and response thereto filed by Lee Boyd, d/b/a/ Lee Is Auto (Boyd). The matters before the court are intertwined, and the court will rule on them together.
Most of the matters in issue at the hearing are either not actually disputed or were already determined in the court's order entered May 28, 1997. Nonetheless, the parties persist in their efforts to either reargue their positions or to raise new arguments. The extent of litigation in this case is somewhat surprising given the limited value available to satisfy the competing claims to the debtor's vehicle.
VALUE: At the outset, WEFCU asks the court to revisit its determination of value of its collateral, a 1988 Chevrolet pickup, in light of Associates Commercial Corp. v. Rash, ___ U.S . ___, 117 S.Ct. 1879 (1997). In Rash, the Court adopted the replacement value standard to be factually determined in light of the nature of the property, the use of the property, and the condition of the property. Id. at 1886 n. 6.
Since the value was set in this case, the court has had occasion to consider chapter 13 valuations in light of Rash. In the court's view, the retail NADA value is representative of vehicles in fully repaired condition and marketed under sale conditions usually not present under the circumstances of a chapter 13 case. Thus, in the absence of any other evidence to the contrary, the wholesale NADA value is still the closest approximation of a used vehicle's replacement cost to a debtor in its "as is" condition.
In this case, the court set the value of the pickup at $6,525. There is no evidence that to replace the 1988 Chevrolet pickup, Ms. Archer would have to purchase a completely repaired, clean vehicle from a dealer. The cost she would incur to obtain a like asset for the same use is still $6,525.
LIENS: The WEFCU requests an order determining the priority of the liens which encumber the vehicle. Pursuant to Fed.R.Bankr.P. 7001, an adversary proceeding, with its procedural protections, is necessary to determine the extent and priority of a lien.
An adversary proceeding is also required to avoid an unperfected lien, the WEFCU's latest argument with respect to Boyd's interest. But even if the WEFCU had standing to seek avoidance of Boyd's interest, the lien appears to be valid in light of § 546(b) and the facts presented to the court.
As the situation stands at confirmation, Boyd's lien has not been avoided, it cannot be avoided under § 522(f), and there is no determination that it is not perfected. Nor has the lien of the WEFCU been avoided. For purposes of confirmation, the liens of the two creditors will be treated as valid.
At the previous hearing, the parties agreed that Boyd's lien has priority over the WEFCU lien pursuant to Wyoming law. Considering all of the foregoing, the priority of the liens on the vehicle for confirmation purposes is no different than will be treated as previously determined either. Boyd's lien is entitled to payment as the first priority lien, and the remainder of the value in the vehicle is encumbered by and shall be paid to the WEFCU.
EXEMPTION TREATMENT: The proposed plan deducts the amount of the debtor's claimed exemption from the value to be paid under the plan on the secured claims. The WEFCU objects. This issue is not a priority issue, but rather a fund distribution question.
A statement of the basic legal principles appears necessary. Section 522 permits a debtor to claim an exemption from property of the estate. The section does not permit a debtor to claim an exemption from a lien, except as specifically provided for lien avoidance under § 522(f), not applicable here. As previously ruled, a vehicle exemption can only be realized from equity in the property after payment of a consensual, unavoided, valid lien.
In this case, Boyd has conceded that his lien claim is subject to the debtor's exemption. The WEFCU's lien is not.
In a chapter 13 case, assuming a properly prepared plan summary, a debtor's exemption from property of the estate is included as a part of the liquidation analysis. That calculation determines the amount a debtor must pay the unsecured creditors in order to achieve confirmation. Thus, in most cases the debtor receives the value of the exemption through the treatment of the unsecured claims. To permit a further deduction from the payment of the secured claims defies logic and is inequitable.
The real issue here is how much money the debtor must pay the WEFCU through the plan on the value of its secured claim. Whether one views the value in the vehicle as a fluid fund of money, or as a fund that must be paid in a defined order of priority, the result is the same. Because of the property's value, the provisions of § 506(a), and the validity of the liens, neither creditor can be adversely affected by the exemption.
Boyd's lien is first in priority. Because the value of the vehicle is sufficient to pay his lien, regardless of the exemption, Boyd is protected. The proposed treatment of Boyd's lien is confirmable.
However, the proposed plan attempts to do what the court previously stated is impermissible, that is, to reduce the amount of the WEFCU's secured claim by the amount of the exemption. There is no equity in this vehicle. If the property is viewed as a fluid fund, the WEFCU claim attaches to any exemption funds that the debtor might realize. Or, stated another way, no equity exists from which the exemption can be satisfied because the WEFCU's lien is legally valid and protected.
If this vehicle were sold at an execution sale under state law, and the exemption proceeds were paid to the debtor, that money would still be subject to the WEFCU's lien. If this were a chapter 7 case, there would be no property of the estate to which the exemption could be asserted before both liens were satisfied. The mere fact of a chapter 13 case with distribution over time cannot change those basic distribution rules.
DISABILITY PAYMENTS: One final issue remains. Any postpetition disability insurance payments made to the WEFCU must be applied to the principal amount due on the claim and must be applied to the secured portion of the claim under the plan. Thus, the debtors may propose a plan which reduces the amount remaining to be paid on the secured claim, up to the value of the collateral. Or, if a plan is confirmed, the trustee may consider those payments as part of the amount necessary for distribution on the claim after the WEFCU amends its claim to account for the payments. In any case, one hopes that this relatively simple administrative matter could be resolved by the parties without further court intervention.
CONCLUSION: This case has been pending since January without a confirmed plan. This plan cannot be confirmed for, among other reasons, the debtors are in default. The debtors must propose a plan which includes a proper plan summary and proposes payment on both liens in the stated order of priority up to the value of the vehicle in accordance with this order.
Accordingly, it is ORDERED that:
1. Confirmation of the second amended plan is denied;
2. The debtors shall become current on their payments to the trustee within ten days of the date of this order, absent which, on affidavit of the trustee, the case will be dismissed; and
3. The debtors shall file, within 15 days of the date of this order, a confirmable chapter 13 plan and plan summary in accordance with this order, absent which the case will be dismissed.