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“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:Â Jan Hamilton, Trustee
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…]
