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 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 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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In re Sanders Case No: 07-50783

Date of decision: 10/18/07

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In re Acaya Case No: 06-51741

The consumer protection purposes of ASFA suggest that ASFA’s definition of “cash price”
should not be incorporated into the California UCC for purposes of determining a purchase money security interest. Consequently, WFFA’s purchase money security interest does not include amounts used to pay the negative equity in a trade-in vehicle. Instead, the dual status rule provides an appropriate tool in determining the extent of WFFA’s purchase money security interest. For these reasons, the objection of WFFA to confirmation of the debtor’s plan is sustained. Acaya may file an amended plan consistent with this decision.

Date of decision: 5/18/05


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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

In re Barnes Case No: 06-11169

The purchase money obligation is 90% of the total amount financed. So, it would seem that 90% of the remaining amount due should be purchase money obligation, and 10% of the remaining amount due is an unsecured claim.

Date of the decision: 5/8/07

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In re Burt Case No: 07-23193

Plans - Negative equity payoff did not affect "purchase money" status of "910 creditor's" security interest.

A creditor that provided financing to the debtor less than 910 days prior to his Chapter 13 filing to allow the debtor to acquire a motor vehicle for his personal use held a "purchase money security interest" (PMSI) in the vehicle for the entire amount financed, and was thus protected by the "hanging paragraph" from having its claim bifurcated for purpose of "cramming down" a plan. It did not matter that the amount advanced included not only a sum sufficient to pay for the cash price of the new vehicle that the debtor was acquiring, including applicable taxes and fees, but to purchase an extended service contract on the vehicle, to pay for gap insurance, and to pay off the debtor's negative equity in a trade-in vehicle. The negative equity payoff and other charges represented part of the "price" of the new vehicle and were "value given to enable the debtor to acquire rights" in the new vehicle, within the meaning of a Utah statute defining "purchase money" obligations, especially where the parties structured the purchase transaction as a "package deal," and where, because of the debtor's marginal credit, he was required to trade in his old vehicle and to pay off the negative equity in order to qualify for financing on the new vehicle.

Date of decision: 10/24/07

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