In re Adams Case No: 06-51651

The creditor financed the Chapter 13 debtor's purchase of a vehicle. The creditor's claim was secured by a purchase money security interest in a motor vehicle that was acquired within the 910 days preceding the date the debtor filed for bankruptcy relief. The creditor contended that the vehicle was "acquired for the personal use of the debtor" and that its claim was protected from bifurcation by the hanging paragraph of 11 U.S.C.A. § 1325(a)(5). The court disagreed and held that a vehicle acquired for use by the non-debtor wife was not "acquired for the personal use of the debtor" and that the claim was not protected from bifurcation by the hanging paragraph.

Date of decision: 3/1/07

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In re Tom Food's Inc. Case No: 05-40683

The court held that e-mails sent by the Chapter 11 debtor's president, CEO and board members to an attorney on the debtor's board of directors were not protected by the attorney-client privilege or joint-defense privilege. The court noted that the e-mails were widely distributed to other parties. The court also noted that the substance of the e-mails concerned matters within the debtor's business affairs.

Date of decision:

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In re Spratling Corp. Case No: 06-40614

Creditor Wells Fargo Corp. (Fargo) filed an objection to the confirmation of Debtor's Chapter 13 plan. In his plan, Debtor proposed to bifurcate and cramdown Fargo's undersecured claim using § 506 of the Code as was common practice prior to the enactment of certain provisions of BAPCPA. The "hanging paragraph" of § 1325(a), which was added by BAPCPA and became effective on October 17, 2005, prohibits bifurcation and cramdown where (1) the creditor has a purchase money security interest; (2) the debt was incurred within 910 days preceding the filing of the bankruptcy case; (3) the collateral for the debt is a motor vehicle; and (4) the motor vehicle was acquired for the personal use of the debtor.The Court SUSTAINED Fargo's objection holding that in the context of the retail installment sale of a motor vehicle in Georgia, "price," for purposes of Georgia's purchase money security interest statute, can include monies paid for an extended service contract and gap insurance.

Date of decision: 10/19/07

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In re Douglas Adversary Case No: 05-07021 and 05-07022

The discharge of student loans is reserved for those most extreme instances of financial destitution. It is the Court’s finding that this debtor finds herself in such a situation. The Court holds that Debtor has carried her burden of proving, under the standard set forth in In re Brunner and adopted by the Eleventh Circuit Court of Appeals in In re Cox, that excepting Debtor’s student loan debt from discharge would impose an undue hardship on Debtor and her dependent son. As such, the student loan debt at issue, representing loans made by ECMC and the DOE, is held to be dischargeable.

Date of decision: 3/14/07

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In re Murray Case No: 05-48017

Creditor Nuvell Financial Services Corp. (hereinafter, “Nuvell”) filed an objection to the confirmation of Debtors’ Chapter 13 Plan on the basis that the treatment of Nuvell in the plan did not comport with the requirements of the “hanging paragraph” of 11 U.S.C. § 1325(a) (hereinafter, “§ 1325(a)(*)”). Debtors purchased a motor vehicle within 910 days of filing their Chapter 13 bankruptcy petition. The vehicle was purchased for the personal use of Debtors. At the time the vehicle was purchased, Debtors also purchased an extended service contract and were assessed a documentary fee by the seller. Debtors argued that the purchase of the extended warranty and the payment of the documentary fee with monies meant for the purchase of the vehicle alone, prevented Nuvell from holding a purchase-money security interest.

The Court held that Nuvell in fact held a purchase-money security interest and that the other requirements of § 1325(a)(*) were met so as to qualify Nuvell’s claim for treatment under that section. Further, the Court held that § 1325(a)(*) does not prevent a claim qualifying under that section from being an “allowed secured claim” for purposes of § 1325(a)(5) and its present interest requirement. Section 1325(a)(*) serves to prevent the bifurcation of an under-secured claim into a secured and unsecured portion under § 506. This holding is consistent with the vast majority of cases considering the meaning of § 1325(a)(*). The Court’s interpretation is also consistent with the plain meaning of the statute and with the legislative history on the section.

The Court also considered the issue of post-petition interest rates to be paid in accordance with § 1325(a)(5) on secured claims that qualify for treatment under § 1325(a)(*). The Court concluded that the United States Supreme Court case of Till v. SCS Credit Corp., 541 U.S. 465 (2004), was applicable to claims falling under § 1325(a)(*). The Supreme Court held in Till that § 1325(a)(5) required that interest on allowed secured claims should be paid at a current rate determined by an adjustment from the prime rate based upon the risk of nonpayment. Being as the Court concluded that a claim qualifying under § 1325(a)(*) is an “allowed secured claim” for purposes of § 1325(a)(5), the interest rate set forth in Till is appropriate.

Date of decision: 6/6/06

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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.