In re Penrod

611 F.3d 1158 (2010)

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In re Penrod

United States Court of Appeals for the Ninth Circuit
611 F.3d 1158 (2010)

  • Written by Heather Whittemore, JD

Facts

Marlene Penrod (debtor) purchased a car from a dealership in California. The car’s price was $25,600. During the transaction, Penrod traded in an older vehicle with a negative equity—the amount that Penrod owed that exceeded the value of the vehicle—of $7,000. Penrod took out a loan of approximately $31,700, including the negative equity, to purchase the car. The dealership assigned the loan to AmeriCredit Financial Services (AmeriCredit) (creditor), which retained a security interest in the car. Penrod filed for Chapter 13 bankruptcy 523 days after purchasing the car. Penrod still owed AmeriCredit over $25,000, including the negative equity. Penrod proposed to bifurcate AmeriCredit’s claim into secured and unsecured portions. AmeriCredit opposed the bifurcation, arguing that it had a purchase-money security interest in the entire amount of the loan, including the negative equity. Under the hanging paragraph of 11 U.S.C. § 1325(a)(9), a debtor was prohibited from bifurcating a secured creditor’s claim if the creditor had a purchase-money security interest in a vehicle purchased within 910 days of the debtor’s filing for bankruptcy. The bankruptcy court held that AmeriCredit had a purchase-money security interest in the portion of the loan that reflected the remaining balance on the car’s purchase price, but not in the portion that reflected the negative equity of the trade-in vehicle. The bankruptcy appellate panel affirmed the bankruptcy court. AmeriCredit appealed.

Rule of Law

Issue

Holding and Reasoning (Mills, J.)

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