## Facts

- In February 2003, Elmer Eugene Rose filed a Chapter 13 bankruptcy case.
- First Bank of Ohio, Tiffin held a lien on Rose’s automobile (a 1995 Chevrolet Monte Carlo).
- During the case, Rose and the Bank agreed on the vehicle’s value, and the Bank’s secured claim was provided for in Rose’s confirmed Chapter 13 plan.
- Rose later stopped making the plan payments to the trustee that were intended to pay the Bank’s secured claim.
- The Bank moved for relief from the automatic stay to enforce its lien and repossess the car.
- The Bank and Rose then reached an agreement permitting Rose to keep the car if he resumed making payments under the plan.
- Rose again defaulted, and the bankruptcy court granted the Bank relief from the automatic stay to repossess the vehicle.
- When the Bank attempted to repossess, it found the car stripped of valuable parts: the tires were missing, the motor was blown, and the interior had been removed.
- The Bank concluded that repossession, towing, storage, and auction expenses would exceed the car’s salvage value, so it chose not to repossess or sell the vehicle.
- The Bank sought payment of the unpaid amount of its secured claim and requested administrative-expense treatment under 11 U.S.C. § 503(b).
- Rose objected, arguing that the Bank could not pursue a deficiency without repossessing and conducting a commercially reasonable disposition under U.C.C. § 9-601 and related provisions.

## Issues

1. Whether the Bank’s unpaid balance, stemming from postpetition deterioration of its collateral while the debtor retained the vehicle, qualified as an administrative expense under 11 U.S.C. § 503(b)(1)(A) (and related priority concepts).
2. Whether the Bank’s choice not to repossess and sell essentially worthless collateral barred any deficiency claim because there was no commercially reasonable disposition under U.C.C. Article 9 (including U.C.C. § 9-601).

## Decision

- The court denied the Bank’s request to allow its claim as an administrative expense under § 503(b).
- The court found the Bank did not show the type of postpetition estate-related transaction and concrete benefit to the estate required for administrative-expense status.
- The court rejected the debtor’s contention that the Bank’s claim necessarily failed solely because the Bank did not repossess and conduct an Article 9 sale, where the collateral’s condition made repossession and liquidation uneconomic.
- Even if the Bank could assert a deficiency under nonbankruptcy law, the court held that the deficiency was not entitled to administrative priority under § 503(b).

## Legal Principles

- Administrative expenses under 11 U.S.C. § 503(b)(1)(A) are limited to “actual, necessary costs and expenses of preserving the estate” and are applied narrowly.
- To obtain administrative-expense status, a claimant generally must show a postpetition transaction with the estate and a direct, demonstrable benefit to the estate.
- A secured creditor’s loss from depreciation or destruction of collateral tied to a prepetition lending relationship does not, without more, become an administrative expense.
- Priority relief associated with failed adequate protection is not automatic; a creditor still must satisfy the statutory requirements for administrative status.
- Under U.C.C. Article 9, the duty to conduct a commercially reasonable disposition applies when a secured party disposes of collateral; Article 9 does not necessarily require a creditor to repossess and sell collateral when doing so would likely produce no net proceeds.

## Conclusion

In *In re Elmer Eugene Rose*, the bankruptcy court denied First Bank of Ohio’s effort to convert the unpaid balance of its secured claim into an administrative expense after the debtor’s vehicle collateral was effectively destroyed during the Chapter 13 case. The court concluded the Bank had not shown a qualifying postpetition, estate-preserving benefit that would justify § 503(b) priority, and it declined to treat the Bank’s claim as forfeited merely because the Bank did not repossess and sell collateral that had become economically pointless to liquidate.


In re Elmer Eugene Rose, 347 B.R. 284 (2006)