Conversion Moots Negative Equity Case

Court watchers will have to wait for another case to find out how the U.S. Court of Appeals for the Tenth Circuit will rule on the so-called negative equity issue.   The Court dismissed the appeal in In re: Hunt, No. 07-3297, as moot after the debtor converted his case from chapter 13 to chapter 7 bankruptcy.

The ruling disappointed the creditor, Wells Fargo Bank, N.A, which urged the Court to proceed with the appeal despite the conversion.  The Court ruled against the creditor saying the existence of other cases on the same legal issue and the desire for binding appellate authority was not sufficient reason to make an exception to the mootness doctrine. Courts are required dismiss a case when a controversy no longer exists.

Negative equity is bankruptcy jargon for the amount of money a lender pays out to pay off a car buyer’s trade-in loan balance and rolls that balance into the new car loan.  The issue before the Court is to what extent that negative equity is protected by the bankruptcy code provision requirement in 11 U.S.C. 1325(a) for full payment of purchase money vehicle financing incurred within 910 days of a chapter 13 bankruptcy.

The Hunt case was appealed from orders of the Kansas Bankruptcy Court and the Bankruptcy Appellate Panel. The circuit court ruled the negative equity is pending in Ford v. Ford Motor Credit, No. 08-319, which originated in Wichita.

About Jill Michaux

Jill Michaux is a Kansas bankruptcy attorney with Neis Michaux Law Office. She and her partner, Mark Neis, are Topeka's only consumer bankruptcy law specialists. They are board certified by the American Board of Certification.

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