In re McCauley 08-11644 ABC
Honorable A. Bruce Campbell, BK District of Colorado
Sorry, I don't have a direct link to the case.
For those that don't know, the 910 rule does not allow debtors in a chapter 13 to cram down vehicles if the loan on that vehicle was taken out within the previous 910 days before filing your petition.
The issue is that lien holders must have a "purchase money security interest" in the vehicle. Some debtors have been challenging the rule arguing that not all of the loan was related to purchasing the car, i.e. taxes, admin fees, financing of negative equity and therefore not PMSI.
The courts basically agree that incidental costs such as admin fees, registration, attorneys fees, taxes etc, count as PMSI because those costs are required to allow the buyer to purchase the vehicle, but there has been a split as to whether the financing of negative equity on a trade-in counts. Further, if the financing of negative equity does not count as PMSI, does that mean the FULL loan balance is not PMSI (and hence the 910 rule does not apply), or only that portion of the loan that financed the negative equity is not PMSI and therefore can be striped?
This court decision held that the financing of negative equity on a trade in does NOT count as PMSI. But, that the lender still maintains a PMSI for the loan balance that is not related to the financing of negative equity.
Bottom line, if you purchased a car in the previous 910 days, but part of the loan balance was the financing of negative equity on a trade-in, you CAN CRAM DOWN at least that amount. But you cannot cram down to current fair market value of the vehicle.
Example
You purchase Ford Mustang and trade in your upside down Hyundai.
Mustang price $18,000, incidental costs, 2,000, trade-in negative equity $3000
Total loan balance, $23,000
Under this decision, if you filed chapter 13 within 910 days of the purchase of that Mustang, you can reduce the principle amount owed on the car by $3,000 (of course, you would have to pay off the car INSIDE the chapter 13 plan).
Honorable A. Bruce Campbell, BK District of Colorado
Sorry, I don't have a direct link to the case.
For those that don't know, the 910 rule does not allow debtors in a chapter 13 to cram down vehicles if the loan on that vehicle was taken out within the previous 910 days before filing your petition.
The issue is that lien holders must have a "purchase money security interest" in the vehicle. Some debtors have been challenging the rule arguing that not all of the loan was related to purchasing the car, i.e. taxes, admin fees, financing of negative equity and therefore not PMSI.
The courts basically agree that incidental costs such as admin fees, registration, attorneys fees, taxes etc, count as PMSI because those costs are required to allow the buyer to purchase the vehicle, but there has been a split as to whether the financing of negative equity on a trade-in counts. Further, if the financing of negative equity does not count as PMSI, does that mean the FULL loan balance is not PMSI (and hence the 910 rule does not apply), or only that portion of the loan that financed the negative equity is not PMSI and therefore can be striped?
This court decision held that the financing of negative equity on a trade in does NOT count as PMSI. But, that the lender still maintains a PMSI for the loan balance that is not related to the financing of negative equity.
Bottom line, if you purchased a car in the previous 910 days, but part of the loan balance was the financing of negative equity on a trade-in, you CAN CRAM DOWN at least that amount. But you cannot cram down to current fair market value of the vehicle.
Example
You purchase Ford Mustang and trade in your upside down Hyundai.
Mustang price $18,000, incidental costs, 2,000, trade-in negative equity $3000
Total loan balance, $23,000
Under this decision, if you filed chapter 13 within 910 days of the purchase of that Mustang, you can reduce the principle amount owed on the car by $3,000 (of course, you would have to pay off the car INSIDE the chapter 13 plan).
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