In re Gray, (Bkrtcy.E.D.Tenn.)

Plans - Security interest was purchase money security interest, as required to prevent claim bifurcation under hanging paragraph.

A Chapter 13 debtor's prepetition retail installment financing agreement for a vehicle applied the cash down payment and rebates to satisfy the negative equity in the vehicle that the debtor was trading in as a part of the transaction, such that no portion of the loan extended to the debtor to buy the new vehicle was used to pay the negative equity. Therefore, under Tennessee's version of the Uniform Commercial Code, the creditor's security interest in the vehicle was entirely a purchase money security interest, as required for the creditor's secured claim to be protected from bifurcation under the plan confirmation statute's hanging paragraph.

In re Lisa Kay Weiser

The Hanging Paragraph of Section 1325(a) protects a purchase money creditor where the loan proceeds were used to not only finance the purchase of a new car, but also to pay off the lien on a separate car being traded in, if the evidence shows that the debtor would not have been able to purchase the new car unless the lien on the trade-in was paid off. Therefore, the creditor's purchase money security interest includes funds used to pay off the old car. In addition, the PMSI covers the portion of the loan used for gap insurance and an extended service warranty, since they represent expenses incurred in connection with acquiring rights in the vehicle.

Date of decision: 12/18/07

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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.

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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