In re Graupner

Stephen Michael Graupner (debtor) purchased a pickup truck from a dealer in Georgia. During the transaction, Graupner traded in another vehicle with a negative equity—the amount that Graupner owed for the vehicle that exceeded the vehicle’s value—of over $6,000. The total amount Graupner financed, including the negative equity, was approximately $36,000. The dealer assigned the loan to Nuvell Credit Corporation (Nuvell) (creditor), which retained a security interest in the truck. Graupner filed for Chapter 13 bankruptcy 301 days after buying the truck. At that time, the truck’s value was approximately $23,000 and Graupner owed almost $34,000 on the loan. Graupner proposed to bifurcate Nuvell’s claim. Nuvell objected, arguing that the hanging paragraph of 11 U.S.C. § 1325(a)(9) prohibited Graupner from bifurcating its claim. Section 1325(a)(9) prohibited bifurcation of a claim if the secured creditor had a purchase-money security interest in a vehicle purchased for the debtor’s personal use within 910 days of the debtor’s filing for bankruptcy. Graupner argued that Nuvell did not have a purchase-money security interest in the truck, because the loan that the truck secured included the negative equity in Graupner’s trade-in vehicle. The bankruptcy court held that Nuvell had a purchase-money security interest in the truck because the negative equity in the trade-in vehicle was part of the truck’s purchase price. The district court affirmed. Graupner appealed.