Gap Insurance, Warranty Not PMSI

“TRANSFORMATION” RULE AND NEGATIVE EQUITY DISCUSSED; GAP
INSURANCE, SERVICE CONTRACT NOT PART OF COLLATERAL
In re Miller, Case No 08-40935
December 2008, Judge Karlin

Debtor sought, and was permitted, to pay only the cost of the car, rather than cost plus other charges. Court did not rule on whether certain fees not adequately addressed by either side were part of the PMSI. Good discussion of the transformation rule and negative equity.

Digest by:  Jan Hamilton, Trustee

Negative Equity

NEGATIVE EQUITY ISSUE NOT RULED UPON IN 1327 CASE
In re Kuhasz, Case No. 07-20282
November 2008, Judge Somers

Court noted split within the district. Judge Karlin excluded negative equity from PMSI claim in In re Padgett, 389 BR 203, while Judge Nugent included it. In re Ford 387 BR 14827 but declined to rule on the issue because the plan had been confirmed and the elements of 1329 had not been met.

NEGATIVE EQUITY ROLLED INTO LOAN IS NOT PMSI
In re Padgett, Case No. 07-41284
May, 2008 Judge Karlin

Car creditor objected to debtor’s attempt to avoid paying the negative equity in a 910 case. After analyzing the UCC as it exists in Kansas, the Court confirmed its opinion in Vega, but disagreed with Judge Nugent’s decision in Ford.

NEGATIVE EQUITY IS PMSI FOR PURPOSES OF 910 CAR LOANS
In re Ford, Case No. 07-11561
May 2008, Judge Nugent

Court held that negative equity in a trade in vehicle, financed by lender, is a part of the price of the collateral and constitutes value given to enable debtors to acquire collateral. The entire balance was found to be a “910” obligation under the hanging paragraph of 1325.

NEGATIVE EQUITY IS NOT PMSI
In re Kellerman, Case No. 06-22028
August 2007, Judge Berger

Pre petition payments are to allocated between refinanced negative equity and the PMSI portion of a 910 vehicle claim under 1325(a)’s hanging paragraph by reference to KSA 84-9-103(c). Under Kansas law, PMSI is the purchase price, not negative equity. Start with the vehicle’s cash purchase price and the apply pre petition payments in accordance with the parties written agreement. If no agreement or other manifested intent, the prepetition payments are applied first to unsecured negative equity and then to PMSI.

Is Force Placed Insurance Part of 910 Vehicle Claim?

COST OF FORCED PLACED INSURANCE IS PART OF PMSI FOR 910 VEHICLE
In re Townsend, Case No 07-20956
April 2008, Judge Somers

Noting that BAPCPA does not define PMSI but that the phrase is a term of art under the UCC, the Court found that under Missouri law, 9-103 governs and forced place insurance falls within the Missouri definition of PMSI.

GAP Insurance Not In Car Lender's PMSI

GAP insurance, service contracts, administrative fees and the traded-in car payoff are not part of a car lender’s purchase-money secured claim in chapter 13 bankruptcy and can be crammed-down if the car is worth less than the loan balance, Judge Janice Miller Karlin ruled this week in In Re Miller, Case No. 08-40935, (Bankr. D.Kan. December 2, 2008).

Judge Karlin suggested the ruling may be different for service contracts in a future case if the creditor convinces her the contract enhances the value of the vehicle.  Creditors have the burden of proof to establish their purchase money security interest (PMSI) claim, she said.

Non-PMSI charges are still part of the creditor’s secured claim and must be paid in chapter 13 bankruptcy up to the value of the car. A debtor must pay the entire PMSI to retain a car even if the amount is greater than the car’s value if the loan was incurred within 910 days of bankruptcy. [Read more…]

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