Graupner v. Nuvell Credit Corp., Case No. 4:07-CV-37, 2007 U.S. Dist. LEXIS 46144 (M.D. Ga. June 26, 2007) (Land).

The issue presented by this appeal is whether the "cramdown" provisions of § 506 of the Bankruptcy Code apply under the facts of this case. The resolution of this issue depends solely upon whether the Creditor obtained a purchase-money security interest as contemplated by § 1325 (a) (*) of the Bankruptcy Code when the total amount financed as part of the Debtor's purchase of his motor vehicle included negative equity. ...

It is undisputed that the debt in this case was incurred within the 910 days preceding the filing of Debtor's petition for bankruptcy protection and that the collateral for the debt was a motor vehicle acquired for personal use. Therefore, if the Creditor possessed a purchase money security interest securing the debt, the cramdown provisions of § 506 do not apply.

Under Georgia law, "[a] security interest in goods is a purchase money security interest . . . [t]o the extent that the goods are purchase money collateral with respect to that security interest." O.C.G.A. § 11-9-103(b)(1). "'Purchase money collateral' means goods that secure[] a purchase money obligation incurred with respect to that collateral." O.C.G.A. § 11-9-103(a)(1) [*6] . "'Purchase money obligation' means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used." O.C.G.A. § 11-9-103(a)(2) .

In this case, the Creditor contends that the "price of the collateral" includes the negative equity that was included in the total amount financed. Debtor responds that the "price of collateral" should include only the purchase price of the vehicle, excluding the negative equity, and since the amount financed was not limited to this amount, the Creditor did not obtain a purchase money security interest for the full value of the debt.

The Court finds that under the facts in this case the price of the collateral included the negative equity. The trade-in of the vehicle was an integral part of the sales transaction. The value of that trade-in along with its accompanying debt affected the ultimate price that was paid for the new pick-up truck. The negative equity is inextricably intertwined with the sales transaction and the financing of the purchase. This close nexus between the negative equity and this package transaction [*7] supports the conclusion that the negative equity must be considered as part of the price of the collateral. Accordingly, the Court finds that the Creditor has a purchase money security interest for the full amount of its debt. Thus, § 506 shall not apply to modify the amount of the secured obligation.

In re Jackson, Case No: 06-21044

In Jackson, the Court found that: (1) where the applicable retail installment contract did not itself indicate that negative equity had been refinanced, any interested party objecting to a motor vehicle financer’s secured claim receiving treatment under that Section 1325(a)(9) Hanging Paragraph had the initial burden to demonstrate that the secured claim included debt that was not secured by a purchase money security interest; (2) the objecting party could utilize the appropriate NADA Guide value to meet their initial burden of proof as to the trade-in value of a trade-in vehicle, the retail value of a used replacement vehicle, or manufacturer’s suggested retail price of a new replacement vehicle; (3) notwithstanding a determination by the Court that an interested party using NADA Guide values may have met their initial burden of proof to demonstrate the refinancing of negative equity, so that a motor vehicle financer’s secured claim included debt that was not secured by a purchase money security interest, the motor vehicle financer always retained the right to demonstrate that in fact no negative equity in the trade-in vehicle was refinanced and to request a hearing for the Court to make that determination; and (4) in the event the Court determined that the allowed secured claim of a motor vehicle financer was to be treated under Section 506(a)(1), the motor vehicle financer always retained the right to dispute any alleged retail value for the vehicle in question, and to request a hearing for the Court to determine the actual retail value.

Date of decision: 1/10/07

In re Peaslee, Case No: 2006 WL 3759476 06-21200

In Peaslee, the Court found that Section 506(a)(1), rather than the Section 1325(a)(9) Hanging Paragraph, governs the treatment of the secured claim of a motor vehicle financer, even though the debtor has purchased a replacement motor vehicle within 910 days of the filing of their petition for personal use, where: (1) it is shown that the secured claim includes amounts loaned to the debtor to pay off the debtor’s negative equity in a trade-in vehicle, not to pay any part of the actual purchase price of the replacement vehicle, so that not all of the debt included in the secured claim is secured by a purchase money security interest; and (2) the Court, on all of the facts and circumstances presented in these refinancing of negative equity cases, in the exercise of its discretion, as specifically provided for by Section 9-103(h) of the New York Uniform Commercial Code, determined that a transformation rather than a dual status rule would be in the best interests of all of the parties and the Bankruptcy System.

Date of decision: 12/22/06