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In re Dale

Portions of a claim attributable to the pay-off of negative equity in a trade-in vehicle, gap insurance, and an extended warranty constitute "purchase-money obligations" under the Texas Business and Commercial Code �9.103. Therefore, the hanging paragraph exception in Chapter 11 of the Bankruptcy Code �1325(a), preventing bifurcation of debt, applies. No. 08-20583, 09-08-2009

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Published opinion

Before JONES, Chief Judge, and PRADO and HAYNES, Circuit Judges.

This appeal involves the proper construction of the “hanging paragraph”*fn1 in 11 U.S.C. § 1325(a), which was added to the Bankruptcy Code (Code) by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Under the Code, a lien creditor generally holds a secured claim only to the extent of the present value of the collateral that the lien encumbers. If the amount of the secured claim exceeds the present value of the collateral, the Code treats the excess amount as a separate, unsecured claim. This process is known as bifurcation or “stripping down” the secured claim to the value of the collateral. The hanging paragraph is an exception to this general rule, preventing bifurcation of a claim when the creditor has a “purchase-money security interest” (securing the claimed debt) in a motor vehicle acquired for the debtor’s personal use within 910 days of the debtor’s bankruptcy filing. The issue here is whether the purchase-money security interest exception contained in the hanging paragraph applies to those portions of a claim attributable to the pay-off of negative equity in a trade-in vehicle, gap insurance, and an extended warranty. The district court found that it does. We AFFIRM.

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