## Facts

- Rebecca Ann Dale bought a 2006 Ford F-150 for personal use under a retail installment contract financed by Ford Motor Credit Co., which took a security interest in the truck.
- The financed “total sale price” included the vehicle’s cash price, payoff of $4,760 in negative equity on a trade-in, gap insurance, taxes and fees, and an extended warranty.
- Dale filed Chapter 13 and proposed to treat Ford’s claim as secured only up to the truck’s current value and to treat the remainder (including negative equity, gap insurance, and warranty amounts) as unsecured.
- The bankruptcy court permitted bifurcation, concluding Ford lacked a purchase-money security interest (PMSI) as to negative equity, gap insurance, and the extended warranty.
- The district court reversed, holding Ford had a PMSI protected by the “hanging paragraph” following 11 U.S.C. § 1325(a), which bars bifurcation of certain 910-day PMSI vehicle claims.

## Issues

1. Whether, for purposes of the § 1325(a) hanging paragraph, a creditor’s PMSI in a personal-use vehicle includes amounts financed to pay negative equity on a trade-in.
2. Whether the PMSI also includes amounts financed for gap insurance and an extended warranty bundled into the retail installment contract.
3. If so, whether the hanging paragraph bars bifurcation of the creditor’s entire claim in the debtor’s Chapter 13 plan.

## Decision

- The Fifth Circuit affirmed the district court.
- The court held Ford had a PMSI in the entire amount financed under the retail installment contract, including negative equity, gap insurance, and the extended warranty.
- Because the debt was secured by a PMSI in a motor vehicle acquired for Dale’s personal use within 910 days of filing, the hanging paragraph applied.
- Dale could not bifurcate Ford’s claim into secured and unsecured portions.

## Legal Principles

- In Chapter 13, secured claims are generally limited to the present value of the collateral, with any excess treated as unsecured, unless an exception applies.
- The hanging paragraph following 11 U.S.C. § 1325(a) prevents bifurcation of a qualifying 910-day claim secured by a purchase-money security interest in a personal-use motor vehicle.
- Because the Bankruptcy Code does not define “purchase-money security interest,” courts look to state law and UCC Article 9, including whether the obligation is part of the “price” of the collateral or “value given to enable” the debtor to acquire rights in the collateral.
- Amounts financed to retire negative equity on a trade-in can constitute “value given to enable” acquisition of the new vehicle when the payoff is tied to completing the purchase transaction.
- Contract-financed gap insurance and an extended warranty, when included in the overall vehicle purchase financing, may be treated as part of the purchase-money obligation secured by the vehicle for hanging-paragraph purposes.

## Conclusion

The Fifth Circuit held that a 910-day auto lender’s PMSI covered not only the vehicle’s cash price but also financed negative equity, gap insurance, and an extended warranty included in the retail installment contract, thereby barring bifurcation of the creditor’s claim in the debtor’s Chapter 13 plan.


Ford Motor Credit Co. v. Dale (In re Dale), 582 F.3d 568 (5th Cir. 2009)