Fifth Circuit Hold Cross-Collaterization Creates One Loan Out of Two

Bruce W. Akerly - Founding Member
Jan 26 2021

The Fifth Circuit Federal Court of Appeals has held, in a Chapter 13 case, that when two claims are secured by the same personal collateral, i.e., cross-collateralized, the debtor's Chapter 13 plan cannot provide for the surrender of the collateral for one loan and cram down the other. In other words, cross-collateralizing two personal loans - e.g., here two automobile loans - converts the claims into one claim, with the result that the debtor may only employ one of the options presented under section 1325(a)(5) of the Bankruptcy Code.


Judge Owen, affirming the district court, relied on Williams v. Tower Loan of Mississippi (In re Williams), 168 F.3d 845 (5th Cir. 1999). Williams involved a Chapter 13 debtor who "sought to address one secured claim by surrendering some of the collateral securing the claim and paying the cram down value of the remaining collateral." Accord First Brandon National Bank v. Kerwin (In re Kerwin), 996 F.2d 552 (2d Cir. 1993). Applying the facts to the law, Judge Owen held that the plan "must select the same § 1325(a)(5) option for both items of collateral."