Under Water Vehicles

In re: Steal, was a case out of the Northern District of Texas where within 910 days of the Petition date, the Chapter 13 debtor financed the purchase of a vehicle.  The cash price for the vehicle was $20,800.00 but the total amount financed was $35,000.00.  The amount financed included a number of additional items, including the $12,000.00 differential between the value of the two automobiles traded in by the debtor and the remaining debt on those vehicles.  The debtor in his Chapter 13 Plan provided for a secured claim on behalf of the auto lender in the amount of $20,800.00 which was the vehicle’s purchase price.  The lender objected to the Plan asserting that the full amount of the debt was entitled to secured status pursuant to the hanging paragraph in Section 1325(a).

The Bankruptcy Court took a middle path. The principle question for the Court was the determination of whether the various components of the debt were secured by a purchase money security interest.  To define the scope of a PMSI, the Court looked at State Law and the Texas UCC.  The Court held that in addition to the value of the vehicle itself, the debt secured by PMSI were: sales taxes, license and registration fees, inventory tax, document fees, and the extended warranty charges.  Conversely, the negative equity in the vehicle and insurance did not fall under the ambit of PMSI and was thus excluded from the hanging paragraph of 1325(a).