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In the Matter of Faith Ann Peaslee and Others

Court of Appeals of New York
913 N.E.2d 387 (2009)


Faith Ann Peaslee (plaintiff) entered into a finance agreement for the purchase of a new vehicle. As part of the transaction, Peaslee traded in her car, which had a negative trade-in value or negative equity, meaning that the trade-in vehicle was subject to a lien that exceeded its value. The trade-in’s negative equity was rolled into the financing of Peaslee’s new car, along with other charges. The lien against the trade-in was paid off, and Peaslee’s loan was assigned to GMAC, LLC (GMAC). Two years later, Peaslee filed a Chapter 13 bankruptcy petition. The bankruptcy trustee proposed a plan that would allow Peaslee to keep the new car but would reduce GMAC’s secured claim by the negative-equity amount from Peaslee’s trade-in that had been included as part of the loan on the new vehicle. GMAC objected and argued that the entire loan amount was a secured claim. The bankruptcy court disagreed, holding that a purchase-money security interest (PMSI) under the Uniform Commercial Code (UCC) did not include negative equity. The bankruptcy trustee and Peaslee appealed. The federal district court held that state law governed the definition of a PMSI, and certified the question to the Court of Appeals of New York of whether a trade-in vehicle’s negative equity is part of the purchase-money obligation arising from the purchase of a new car under the UCC.

Rule of Law


Holding and Reasoning (Pigott, J.)

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