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.

AmeriCredit Fin. Servs., Inc. v. Moore, No. 07-1315

In a Chapter 13 bankruptcy case, a decision finding that debtors were permitted under 11 U.S.C. section 1325(a)(5)(C) to surrender a car, financed by appellant, in full satisfaction of the debt, is reversed pursuant to the court's ruling in Capital One Auto Finance v. Osborn, ____ F.3d ___ (8th Cir. 2008).

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Capital One Auto Fin. v. Osborn, No. 07-1726

The hanging paragraph in 11 U.S.C. section 1325 does not eliminate an under-secured creditor's deficiency claim when, in a Chapter 13 plan, debtors propose to surrender a car purchased within 910 days before filing for bankruptcy. The creditor is entitled to an unsecured deficiency claim if there is a right to a deficiency judgment under state law.

Full opinion Capital One vs. Osborn

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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In re Davis, 2006 Bankr. LEXIS 3465

The hanging paragraph provision of Section 1325(a) is not invoked by a vehicle that is acquired for the use of a non-debtor spouse. The debtor and her husband purchased a car for the husband's use within 910 days pre-petition. Both spouses' names were on the note and certificate of title; however, the husband was the only one who used the car. Applying a literal interpretation, the hanging paragraph applies only to vehicles that are purchased for the "personal use of the debtor."

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 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