In The Matter Of Faith Ann Peaslee And Others

913 N.E.2d 387 (2009)

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Nature of the Case

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Facts

Peaslee (P) entered into a retail installment contract for the purchase of a 2004 Pontiac Grand Am. P traded in her vehicle, which had a negative trade-in value, or negative equity, of $5,980. That amount was rolled into the financing of her new car along with other charges, resulting in financing totaling $23,180. The lien against the trade-in was paid off by the dealer, and the dealer's security interest in the new vehicle was assigned to GMAC (D). Two years later P filed for chapter 13 bankruptcy, and a trustee was appointed. P proposed that she retain possession of the vehicle and D's secured claim would be reduced to $10,950, representing the alleged retail value of the vehicle. the remaining amount owed to D, $6,954.95, would be treated as an unsecured claim. D argued pursuant to the 'hanging paragraph' set forth in Bankruptcy Code § 1325 (a), it was entitled to have the entire $17,904.95 treated as a secured claim. The 'hanging paragraph,' states that section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-days preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle acquired for the personal use of the debtor.' The trustee moved to have the Bankruptcy Court determine that D had a secured claim of $10,950 and an unsecured claim for the balance. The Court held that the term 'purchase money security interest' (PMSI) did not include negative equity. The District Court disagreed. The Second Circuit concluded 'that state law governs the definition of PMSI in the hanging paragraph' and certified to us the question of whether the New York Uniform Commercial Code considers that portion of a retail installment sale attributable to the negative equity of a trade-in vehicle to be part of the purchase-money obligation arising from the sale of a new car.