## Facts

- In September 2006, Robert K. Huddle filed a Chapter 13 bankruptcy case.
- Before the filing, 1st Advantage made two consumer loans to Huddle: one to finance his purchase of a recreational vehicle (RV) (with funds paid to the RV dealer) and a separate loan to finance a motorcycle.
- After Huddle became delinquent on both loans, 1st Advantage refinanced the obligations through a new advance of $112,528.44.
- The refinancing proceeds were used to (i) pay off the prior RV note and (ii) bring the motorcycle loan current; 1st Advantage retained a security interest in the RV as collateral for the refinanced obligation.
- In the Chapter 13 case, Huddle proposed a plan, but the trustee rejected it and proposed a modified plan requiring payments of about $95,580 over five years and paying unsecured creditors in full.
- The parties disputed whether, after the refinancing and consolidation, 1st Advantage still held a purchase-money security interest (PMSI) in the RV—and, if so, whether the PMSI covered all or only part of the refinanced debt for Chapter 13 plan treatment purposes.

## Issues

1. Does refinancing that pays off an original RV purchase-money loan, while also advancing funds to cure delinquency on a separate motorcycle loan, eliminate PMSI status in the RV under U.C.C. § 9-103?
2. If PMSI status is not eliminated, is the creditor’s security interest in the RV purchase-money only “to the extent” of the RV purchase-money component (dual-status), with the remainder treated as non-purchase-money?

## Decision

- The court declined to apply a rule that would automatically strip PMSI status from the RV lien merely because the creditor refinanced and consolidated purchase-money and non-purchase-money components.
- The court applied a dual-status analysis, recognizing that the security interest could be purchase-money in the RV only to the extent it secured the RV’s purchase-money obligation.
- The court held that the portion of the refinanced debt attributable to the motorcycle delinquency (and any other non-RV purchase-money component) was not PMSI in the RV and could not receive PMSI-based treatment in the Chapter 13 plan.

## Legal Principles

- A purchase-money security interest exists only to the extent the collateral secures an obligation incurred as all or part of the collateral’s price, or for value given to enable the debtor to acquire rights in (or use of) the collateral, and that value is in fact so used. (U.C.C. § 9-103)
- Refinancing and consolidation do not necessarily destroy PMSI status as a matter of law; a refinancing can preserve purchase-money character for the portion of the obligation that remains traceable to the purchase-money financing of the collateral.
- Under the dual-status approach, a single security interest may secure both purchase-money and non-purchase-money debt at the same time; PMSI status is retained only for the purchase-money portion.
- Amounts that do not enable the acquisition of the specific collateral (such as amounts used to cure arrears on a different loan) are not part of the purchase-money obligation for that collateral and do not become PMSI merely because they are included in a consolidated refinancing secured by the collateral.
- In consumer-goods transactions, Article 9 does not mandate a single allocation rule for determining the extent of a PMSI after refinancing; courts must determine the purchase-money extent based on the record and the relationship between the debt components and the collateral.

## Conclusion

The court held that 1st Advantage’s refinancing did not automatically eliminate purchase-money status in the RV, but it also did not convert the entire refinanced balance into a purchase-money obligation. Instead, the lien on the RV was PMSI only for the portion of the refinanced debt tied to the RV’s purchase-money financing, while the rolled-in motorcycle component was non-purchase-money and had to be treated accordingly under the Chapter 13 plan.


In re Huddle, 2007 Bankr. LEXIS 2770, 63 U.C.C. Rep. Serv. 2d 634 (2007)