## Facts

- Stephen Michael Graupner bought a 2005 Chevrolet Silverado for personal use under a retail installment contract.
- Graupner traded in a 2002 Silverado that had “negative equity” (the trade-in was worth less than the debt owed); $6,347.50 of negative equity was included in the new financing.
- The total amount financed for the new truck was $36,384.62, and the contract was assigned to Nuvell Credit Corporation, which held a security interest in the truck.
- Graupner filed a Chapter 13 petition 301 days after the purchase and proposed a plan valuing the truck at its then-current value and treating the remainder of Nuvell’s claim as unsecured under 11 U.S.C. § 506(a).
- Nuvell objected, arguing that the “hanging paragraph” following 11 U.S.C. § 1325(a)(9) barred bifurcation because the debt was a 910-day personal-use vehicle loan secured by a purchase-money security interest (PMSI).
- The bankruptcy court held that, under Georgia law, the negative equity payoff was part of the purchase-money obligation and thus part of Nuvell’s PMSI; the district court affirmed.

## Issues

1. Whether, under Georgia law, negative equity from a traded-in vehicle that is financed as part of the new vehicle transaction is part of the “purchase-money obligation” secured by a PMSI.
2. If so, whether the § 1325(a) hanging paragraph prevents bifurcation (cramdown) of the creditor’s entire 910-day vehicle claim in Chapter 13.

## Decision

- The Eleventh Circuit affirmed.
- The court held that the negative equity financed in connection with the trade-in was part of the purchase-money obligation under Georgia law.
- Because Nuvell’s claim was secured by a PMSI and met the 910-day personal-use vehicle requirements, § 506(a) did not apply, and Graupner could not bifurcate the claim.

## Legal Principles

- Whether a creditor holds a PMSI is determined by applicable state law.
- Under Georgia law governing motor vehicle retail installment transactions, amounts financed to satisfy liens on a traded-in vehicle may be treated as part of the overall financed purchase transaction for the new vehicle.
- Under UCC § 9-103 and its Official Comment 3, a purchase-money obligation includes not only the price of the collateral but also obligations incurred as part of acquiring rights in the collateral or value given to enable the acquisition.
- For a qualifying 910-day personal-use motor vehicle debt secured by a PMSI, the § 1325(a) hanging paragraph bars use of § 506(a) to split the claim into secured and unsecured portions.

## Conclusion

The Eleventh Circuit held that, under Georgia law, trade-in negative equity rolled into a new vehicle’s financing is part of the purchase-money obligation secured by a PMSI, so the § 1325(a) hanging paragraph prevents Chapter 13 cramdown of the creditor’s entire 910-day vehicle claim.


In re Graupner, 537 F.3d 1295 (11th Cir. 2008)