## Facts

- Two Chapter 13 cases were heard together because they involved the same creditor and the same legal question about cross-collateralization in consumer loan documents.
- Oregon Federal Credit Union (OFCU) made multiple consumer loans to the debtors, including vehicle-purchase loans secured by the vehicles.
- The Moodys financed a 1996 Ford F-350 pickup; the parties stipulated to a replacement value of $23,630.
- Wollin financed a 1995 Ford Probe; the parties stipulated to a replacement value of $9,341.
- OFCU also extended revolving and non-vehicle credit to the debtors, including lines of credit and Visa credit card accounts.
- The vehicle security agreements included a dragnet clause stating the vehicle collateral secured the vehicle advance and also “any other amount” the debtor owed the credit union “for any reason now or in the future.”
- OFCU did not discuss cross-collateralization with the debtors; the debtors did not read the documents and were unaware OFCU claimed the vehicles secured other debts.
- OFCU filed secured proofs of claim asserting the vehicles secured not only the vehicle loans but also other indebtedness under the dragnet clause.
- The debtors’ Chapter 13 plans treated OFCU as secured only for the vehicle loans and treated the remaining OFCU debt as unsecured; OFCU objected to confirmation and the debtors objected to OFCU’s secured-claim scope.

## Issues

1. Whether, under Oregon law, dragnet language in consumer vehicle security agreements extends the vehicle lien to secure the debtors’ other revolving and non-vehicle obligations, including debts incurred before and after the vehicle loans.
2. Whether OFCU could require Chapter 13 plans to treat those non-vehicle obligations as secured claims under the vehicle collateral based on the dragnet clause.

## Decision

- The court applied Oregon law and strictly construed the dragnet provisions.
- The court held the vehicles did not secure the debtors’ unrelated non-vehicle obligations (Visa and line-of-credit debts) merely because the documents contained broad dragnet language.
- OFCU’s secured claims were limited to the vehicle-purchase obligations (up to the stipulated replacement values); the remaining OFCU debt was not secured by the vehicles.
- The court rejected OFCU’s objections to confirmation to the extent they depended on treating the non-vehicle debts as secured and sustained the debtors’ objections to OFCU’s claims to that same extent.

## Legal Principles

- State law governs the scope and enforceability of security interests and dragnet clauses in bankruptcy.
- Under Oregon law, dragnet clauses are enforceable only under strict construction and with attention to the parties’ intent.
- Broad “all debts now or in the future” language does not automatically extend collateral to obligations of a different character from the stated secured transaction.
- Courts consider whether the allegedly secured obligations are of the same class or similar in character to the primary secured debt; consumer vehicle-purchase loans are generally not the same class as revolving Visa or general line-of-credit debt.
- In consumer settings, courts are reluctant to enforce dragnet clauses to create unexpected liens where the debtor lacked meaningful notice that specific collateral would secure unrelated obligations.

## Conclusion

The court limited OFCU’s vehicle liens to the specific vehicle-purchase debts and refused to treat the debtors’ Visa and line-of-credit obligations as secured by the vehicles, allowing the Chapter 13 plans to treat those non-vehicle amounts as unsecured notwithstanding expansive dragnet language.


In re Wollin, 249 B.R. 555 (Bankr. D. Or. 2000)