UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
ASHLAND DIVISION
IN RE:
RICKY DAVID SPARKS
LINDA SUE SPARKS
DEBTORS CASE NO. 93-10247
CHAPTER 13
MEMORANDUM OPINION
This matter is before the Court on the debtors' Objection to Claim, filed herein on December 21, 1993. A Response was filed by the creditor Ashland Armco Employees Credit Union ("the credit union") on February 2, 1994. The issue to be decided is whether the credit union's claim is secured.
The debtors herein filed their Chapter 13 petition in this Court on July 20, 1993. Their proposed Chapter 13 plan was filed simultaneously. On November 23, 1993, the credit union filed an Objection to Confirmation on the grounds that the plan did not provide for its secured claim. The debtors filed an Amendment to the plan on December 21, 1993, to include the secured claim, but stated therein that only a portion of the debt to the credit union was secured and the remainder unsecured. The debtors then filed their Objection to Claim, as set out above. The debtors' plan was confirmed on February 3, 1994.
The objection to the credit union's claim is based on the fact that the claim is for a credit card debt which the debtors contend is unsecured by the terms of the credit card contract. The credit union contends that when the debtors borrowed funds to purchase a vehicle pursuant to a "Loanliner" agreement, repayment of which was secured by the vehicle, they were bound by the terms of that agreement. It contains a provision which states that the security agreement secures "any other amounts you owe the credit union for any reason now or in the future."
The debtors advance various arguments to support the contention that the foregoing provision does not apply to their credit card debt, most of which have to do with notice. The debtors contend that the Truth in Lending Act, 15 U.S.C.
''1601 et seq., require certain disclosures of terms relative to the issuance of credit cards. They state that Regulation Z of the Federal Reserve Board implements 15 U.S.C. '1604, and it requires that the possibility of a future security interest must be disclosed to the card holder.In In re Kennemer, 143 B.R. 275 (N.D.Ala. 1992), the district court found that an identical Loanliner security agreement was a valid future advance clause. KRS 355.9-204(3) provides that "[o]bligations covered by a security agreement may include future advances or other value whether or not the advances or value are given pursuant to commitment...". In First National Bank of Grayson v. Citizens Deposit Bank and Trust, Ky. App., 735 S.W.2d 328, 331 (1987), the court held that even where the underlying installment note had been paid off, the future advance clause in the security agreement operated to secure other debts of the borrower, where the security agreement was never released.
There is no doubt that the Loanliner security provision at issue here is a valid future advance clause. The only other question is whether the loan documents complied with the Truth in Lending Act. As stated by the Kennemer court:
The Truth in Lending Act simply requires, for open end credit plans where the credit advances are secured by property, that the creditor provide the debtor with 'a statement that a security interest has been or will be taken in ... the property purchased as part of the credit transaction'. 15 U.S.C.
At page 279. The credit card debt in this matter was not a future advance, but it was "an amount presently owed to the Credit Union" at the time the debtors gave a security interest in the vehicle. The disclosure contained in the Loanliner Agreement was sufficient to make the debtors aware that the vehicle could secure any other amount they might owe the credit union.
In consideration of the foregoing, it is the opinion of this Court that the debtors' Objection to Claim should be overruled. An order in conformity with this opinion will be entered separately.
Dated:
By the Court -
_________________________________
Judge
Copies to:
Debtors
Paul Stewart Snyder, Esq.
Brian Conaty, Esq.
Chapter 13 Trustee