Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the ability of a debtor to “cramdown” the secured amount of a motor vehicle claim was commonplace. BAPCPA seemingly precluding the cramdown of claims secured by a purchase money security interest in certain vehicles obtained within 910 days of the bankruptcy filing. But the 2005 BAPCPA amendments did not define the term “purchase money security interest” and therefore left unclear how to treat “negative equity” in an automobile retail installment contract under 11 U.S. C. §1325(a) of the Bankruptcy Code (“negative equity” consists of the amount owing above the value of the trade-in vehicle that is financed in the retail installment contract). The BAP recently clarified the issue in In re Penrod, adopting a “Dual Status Rule” wherein the amount financed for the purchase of the new vehicle is purchase money, but the negative equity is non-purchase money.
[Creditor] now wants to treat its entire claim as subject to the hanging paragraph of § 1325(a), including the portion represented by its assumption of Penrod’s unsecured debt. We disagree and hold that the portion of [creditor’s] collateral securing Penrod’s negative equity is not a purchase money security interest within the meaning of the hanging paragraph. That does not mean, however, that none of [creditor’s] security interest is purchase money. We reject the Transformation Rule and adopt the Dual Status Rule. Under that rule, [creditor] receives purchase money status for that portion of its collateral not allocable to negative equity.
The matter currently is on appeal.