[1]     

UNITED STATES COURT OF APPEALS

, [5]     

August Term, 1995

, [6]      IN RE: RALPH J. VALENTI AND MARY PHYLLIS VALENTI, " />

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In Re Valenti, 105 F.3D 55 (2d Cir. 01/15/1997)

UNITED STATES COURT OF APPEALS

No. 1422

Docket No. 95-5079

105 F.3d 55, 1997.C02.0000019 <http://www.versuslaw.com>

August Term, 1995

IN RE: RALPH J. VALENTI AND MARY PHYLLIS VALENTI,

Before: CARDAMONE, ALTIMARI, AND PARKER, Circuit Judges.

[8]    

FOR THE SECOND CIRCUIT

[9]    

Argued: May 8, 1996

Decided January 15, 1997

Debtors,

GENERAL MOTORS ACCEPTANCE CORPORATION,

Plaintiff-Appellant, v.

RALPH J. VALENTI and MARY PHYLLIS VALENTI,

Defendants-Appellees,

ANDREA E. CELLI, ESQ., Chapter 13 Trustee,

Trustee-Appellee.

This appeal is from the judgment of the United States District Court for the Northern District of New York (Con. G. Cholakis, Judge), which upheld the bankruptcy court's confirmation of the debtors-appellees' Chapter 13 reorganization plan.

We affirm in part and vacate and remand in part.

PARKER, Circuit Judge:

Appellant General Motors Acceptance Corporation ("GMAC") appeals from the judgment of the United States District Court for the Northern District of New York (Con. G. Cholakis, Judge), which upheld the bankruptcy court's confirmation of the Chapter 13 reorganization plan of debtors-appellees Ralph and Mary Valenti. There are two issues on appeal: (1) whether the district court erred when it upheld the valuation of the Valentis' automobile under 11 U.S.C. Section(s) 506(a) based upon the average of the wholesale and retail values of the car; and (2) whether the district court erred when it determined that the present value of GMAC's claim under 11 U.S.C. Section(s) 1325(a)(5)(B)(ii) was properly based upon the market rate of interest GMAC paid for the funds it borrowed at the time of confirmation of the Valentis' reorganization plan. We affirm the district court on the issue of valuation. With respect to the applicable interest rate, we vacate the district court's holding and remand for a recalculation of that rate based upon the treasury rate plus an additional risk premium.

I. BACKGROUND

In April 1993, the Valentis purchased a 1990 Pontiac Bonneville. To purchase the car, the Valentis borrowed money from GMAC. GMAC secured the loan by retaining a lien on the car. In December 1994, the Valentis filed for bankruptcy under Chapter 13 of the Bankruptcy Code.

Chapter 13 gives individual debtors an alternative to total liquidation (which occurs under Chapter 7). Chapter 13 bankruptcy, which is only available to debtors with income, effects a reorganization of the debtor's debts and establishes a plan of repayment to creditors, giving the debtor a fresh start at the end.

Chapter 13 removes the secured creditor's right to repossess and foreclose on its security interest. Instead, Chapter 13 gives the debtor the option of either surrendering the property to the secured creditor, or maintaining possession of the property. See 11 U.S.C. 1325(a)(5)(B)-(C). When the debtor opts to maintain possession of the collateral, the creditor keeps its security interest in the collateral. In addition, the debtor's reorganization plan must provide for payments to the creditor totaling no less than the present value of the creditor's allowed claim. See 11 U.S.C. Section(s) 1325(a)(5)(B). Where, as here, the reorganization plan is confirmed over the creditor's objections, the plan is colloquially referred to as a "cramdown." The Valentis opted to keep their car. The bankruptcy court valued the car at $6700, the average of the wholesale and retail values of the car. In so valuing the car, the bankruptcy court followed Northern District of New York Local Bankruptcy Rule 312(b) ("Local Rule 312(b)"), which states in relevant part:

Unless otherwise determined by the court, valuation of motor vehicles shall be the average of trade-in and retail values, including options and mileage, as contained in the Eastern Edition of the N.A.D.A. Official Used Car Guide for the month the debtor's petition was filed.

The bankruptcy court also identified an interest rate of nine percent to compensate GMAC for the fact that it would be receiving the value of its claim over a period of time.

GMAC raised two objections to the Valentis' reorganization plan. First, GMAC argued that the car should have been valued at its retail price, which the parties agreed was $7850. Second, GMAC objected to the nine percent interest rate. According to GMAC, the correct interest rate was 15.7%, which was the rate that GMAC charged at the time of the plan's confirmation to consumers in the Valentis' geographic area.

The bankruptcy court rejected GMAC's objections. GMAC appealed to the district court, which affirmed the bankruptcy court on both issues. General Motors Acceptance Corp. v. Valenti


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