Kimberly Rae Barnes

1The parties stipulated at the hearing that the applicable
interest rate for the HSBC claim would be 10.25%.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re
Kimberly Rae Barnes,
Debtor. 	No. 13-06-11169 SA
MEMORANDUM OPINION ON CONFIRMATION
This matter came before the Court for preliminary hearing on
confirmation of the Debtor’s Chapter 13 Plan as Modified (docs 2
and 22), and the objections thereto by the Chapter 13 Trustee
(doc 24) and by HSBC Auto Finance (doc 26). 	There is one issue
remaining for confirmation 1. 	That is, does negative equity in a
traded-in vehicle affect the extent of the purchase money
security interest that the seller holds? 	The Debtor and HSBC
Auto Finance have briefed the issue (docs 33, 34, 35, 36).
Having reviewed the briefs and being otherwise sufficiently
informed, the Court issues this memorandum opinion. 	The Court
finds below that a traded-in vehicle with negative equity should
and does impact the extent of the purchase money security
interest in the new vehicle. 	The Court has subject matter and
personal jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b);
this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A);
and these are findings of fact and conclusions of law as required
by Rule 7052 F.R.B.P.
FACTS
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Page -2-
The facts are not disputed. 	Debtor acquired her vehicle
within the 910 days preceding her bankruptcy filing and HSBC
possesses a valid, perfected, first priority lien against the
vehicle. 	The Retail Installment Sale Contract was attached as an
Exhibit to HSBC Auto Finance’s objection to confirmation (doc
26). 	It provides:
ITEMIZATION OF AMOUNT FINANCED
1. Cash price (including $421.92 sales tax) 	$25,485.77 (1)
2. Total Downpayment
Trade in 2005 DODGE NEON
Gross trade in allowance 	$11,000.00
Less Payoff made by seller 	$16,408.13
Equals Net trade in 	$-5,408.13
+Cash 	N/A
+Other REBATE 	$2,500.00
(If total downpayment is negative
enter “0" and see 4H below.
0.00 (2)
3. Unpaid balance of cash price 	$25,485.77 (3)
4. Other charges including amounts paid to
others on your behalf
(Seller may keep part of these
amounts)
...
C. Other Insurance paid to
insurance company
$600.00
...
F. Government License
and/or Registration Fees
$64.00
...
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2Neither party argued for or against the dual status or
transformation theory. 	See In re Vega, 344 B.R. 616, 622 n.29
(Bankr. D. Kan. 2006). 	Therefore, the Court will not address
those issues.
Page -3-
H. Other Charges (Seller
must identify who is paid
and describe purpose)
Franklin Ca for prior
credit or lease balance
$2,908.13
Quality Jeep Dealer
Transfer Service Fee
$177.10
Chrysler for Serv Contract 	$545.40
Total Other Charges and Amounts Paid
to Others on your behalf
$4,294.63 (4)
5. Amount Financed (3+4) 	$29,780.40 (5)
The only issue the parties dispute is whether the $2,908.13 paid
to “Franklin Ca” should be included in the purchase money
obligation 2. 	The parties have stipulated to include all other
charges as part of the purchase money obligation.
CONCLUSIONS OF LAW
The Bankruptcy Abuse Prevention and Consumer Protection Act
amended 11 U.S.C. § 1325(a) by adding several subsections, and a
“hanging paragraph” after subsection (9) that states:
For purposes of paragraph (5), 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-day [sic] preceding
the date of the filing of the petition, and the
collateral for that debt consists of a motor vehicle
(as defined in section 30102 of title 49) acquired for
the personal use of the debtor, or if collateral for
that debt consists of any other thing of value, if the
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Page -4-
debt was incurred during the 1-year period preceding
that filing[.]
Purchase money security interest is not defined by the bankruptcy
code. 	Therefore, the state law definition applies.
Section 55-9-103(b)(1) N.M. Stat. Ann. provides: “A security
interest in goods is a purchase-money security interest: (1) to
the extent that the goods are purchase-money collateral with
respect to that security interest[.]” Section 55-9-103(a) N.M.
Stat. Ann. provides: “In this section: (1) ‘purchase-money
collateral’ means goods or software that secures [sic] a
purchase-money obligation incurred with respect to that
collateral; and (2) ‘purchase money obligation’ means an
obligation of an obligor incurred as all or part of the price of
the collateral or for value given to enable the debtor to acquire
rights in or the use of the collateral if the value is in fact so
used.” 	Comment 3 Section 55-9-103 states, in part:
3. "Purchase-Money Collateral"; "Purchase-Money
Obligation"; "Purchase-Money Security Interest."
Subsection (a) defines "purchase-money collateral" and
"purchase-money obligation." These terms are essential
to the description of what constitutes a purchase-money
security interest under subsection (b). 	As used in
subsection (a)(2), the definition of "purchase-money
obligation," the "price" of collateral or the "value
given to enable" includes obligations for expenses
incurred in connection with acquiring rights in the
collateral, sales taxes, duties, finance charges,
interest, freight charges, costs of storage in transit,
demurrage, administrative charges, expenses of
collection and enforcement, attorney's fees, and other
similar obligations.
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3Which is the $29,780.40 total financed less the $2,908.13
negative equity payoff.
Page -5-
The Court finds that negative-equity in a trade-in vehicle is not
part of the price of the new car. 	Negative-equity is not similar
to sales taxes, duties, finance charges, interest, freight
charges, costs of storage in transit, demurrage, administrative
charges, expenses of collection and enforcement, or attorney's
fees. 	Furthermore, paying the negative equity does not “enable”
the debtor to acquire the new vehicle, it simply pays off the old
loan. 	Accord In re Price, ___ B.R. ___, 2007 WL 664534 at *6
(Bankr. E.D. N.C. 2007); In re Peaslee, ___ B.R. ___, 2006 WL
3759476 at *9 (Bankr. W.D. N.Y. 2006); In re Vega, 344 B.R. 616,
622 (Bankr. D. Kan. 2006). 	Contra In re Graupner, 356 B.R. 907,
920 (Bankr. M.D. Ga. 2006)(Court found definition of purchase-
money obligation ambiguous, so referred to the Motor Vehicle
Sales Financing Act for its definition of “cash sale price.”) 	In
re Ortega, No. 13-06-11157 (Bankr. D. N.M. Oct. 6, 2006)(Order
Denying Confirmation), cited by Debtor, is factually different
and does not apply in this case. 	In Ortega, the cash rebate was
applied to pay off the remaining negative equity. 	Therefore what
the debtor financed was all related to the vehicle only.
Based on the above, the Court finds that the purchase money
obligation for the purposes of 11 U.S.C. § 1325(a) is $26,872.27 3
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4The purchase money obligation is 90% of the total amount
financed. 	So, it would seem that 90% of the remaining amount due
should be purchase money obligation, and 10% of the remaining
amount due is an unsecured claim.
Page -6-
plus interest, less payments made 4. 	Debtor shall submit an order
of confirmation in conformity with this opinion, approved by
counsel for the Chapter 13 Trustee and HSBC Auto Finance within 2
weeks of this Memorandum Opinion.
Honorable James S. Starzynski
United States Bankruptcy Judge
copies to:
Arun A Melwani
Attorney for Debtor
10749 Prospect Ave NE Ste E
Albuquerque, NM 87112-3281
James E Shively
Attorney for HSBC
2999 N 44th St Ste 500
Phoenix, AZ 85018-7252
Kelley L. Skehen
Chapter 13 Trustee
625 Silver Avenue SW
Suite 350
Albuquerque, NM 87102-3111
United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
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