South Carolina Bankruptcy Lawyer Unleashes Vulcan Intellect on the Hanging Paragraph

09 Nov South Carolina Bankruptcy Lawyer Unleashes Vulcan Intellect on the Hanging Paragraph

Dennis Toney's Hand

In a move that shocked and amazed the South Carolina bankruptcy community, attorney Dennis Toney of Charleston scored a big victory for his clients by successfully challenging the application of the 910-day rule. Toney’s keen analysis has led some to question whether Toney is part Vulcan, or 100% human as previously thought. An investigation is ongoing.

It all started with a fairly routine Chapter 13 filing in the Charleston division (In re Brown, Case No. 09-03846). Toney’s clients, Harold and Gertrude Brown, proposed to “cram down” Mr. Brown’s 2007 Toyota Camry. A cram down occurs when the secured creditor will only be paid the value of its collateral, rather than the entire balance owed on the loan.

In this case Mr. Brown owed $21,788 on the vehicle, but he proposed to pay only $15,375–the value of the vehicle–to Regions Bank on its secured claim. The cram down provision called for separation of the claim into two parts: a secured claim in the amount of $15,375 to be paid with interest, and an unsecured claim in the amount of $6,414. The unsecured claim would receive only a small percentage of the total claim, and no interest. Predictably, the bank objected to confirmation of the plan.

The problem with Toney’s proposed plan was that the valuation of the vehicle seemed to be prohibited by the 910-day rule, which is part of the new 2005 bankruptcy law. The 910-day rule prohibits cram down of an automobile loan if the vehicle was “acquired for the personal use of the debtor” and if the debtor purchased the vehicle within 910 days of the bankruptcy filing.

The rule is found in the so called “hanging paragraph” of section 1325(a). Congress tacked the provision onto section 1325(a) but didn’t bother giving it a numerical subsection number (such as 1325(a)(10)).

Chief Bankruptcy Judge John E. Waites, who authored the opinion, repeatedly cited the section as “1325(a)(*),” so it’s now appropriate to refer to that subsection as “paragraph asterisk” as well as “the hanging paragraph.” Ironically, Congress subcontracted out the drafting of the new bankruptcy law to the credit card industry, but with paragraph asterisk, rolled up its sleeves and did a bit of drafting on its own at the behest of then Michigan Senator Spencer Abraham.

Unfortunately for automotive lenders, the confusion plaguing the rest of the new law has infected paragraph asterisk as well, despite valiant Congressional efforts to protect creditors at all costs.

And so it was with the Browns’ case. Mr. Brown purchased the vehicle well within the 910 days prior to filing his bankruptcy, and the vehicle was purchased for personal use, rather than business use. Application of the rule seemed inevitable.

But Congress underestimated guys like Dennis Toney. Toney asked Mr. Brown about the purchase of the vehicle and learned that Mr. Brown purchased the vehicle solely for his wife’s personal use. “Mr. Brown told me that the only time he drove the vehicle was when he drove it home from the dealership to give it to his wife,” Toney said.

At that point, Toney knew he had a chance of blocking application paragraph asterisk. “Application of the 910-rule would be quite illogical,” Toney reflected in an eerily Vulcan manner. “The vehicle was not purchased for the personal use of the debtor who financed it.” Toney went on to explain that “while section 302 permits the filing of a joint case, if the court were to find that the hanging paragraph applied to Mr. Brown’s purchase of the vehicle, it would result in the Browns being penalized for filing a joint case.”

Toney successfully fought to gain confirmation of the Browns’ plan and, consequently, has taught other bankruptcy lawyers to pay close attention to 910-day issues in their own cases. “You’ve got to measure the 910-day period, of course, but you must also pay attention to whether the debtor who finances the vehicle did so for his personal use or for the personal use of someone else, like a spouse or a child,” Toney explained.

Congratulations and thanks to Dennis Toney for his hard work and application of his Vulcan intellect. Rumor has it that Toney’s next project has him preoccupied with time warp calculations.

Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 bankruptcy.

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Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer who represents consumer debtors in Chapter 7 and Chapter 13 bankruptcy. He is the author of the Charleston Bankruptcy Blog. He is also a member of the South Carolina Bankruptcy Blog. He files bankruptcy cases for clients in the Charleston, South Carolina division, which runs from Myrtle Beach to Beaufort. The DeMott Law Firm also represents clients in foreclosure defense and mortgage modification. You can also connect with Russ on Google Plus Russell DeMott. Russ can be contacted directly at (843) 695-0830 or by email at

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