By: Vitaly Libman
St. John's Law Student
American Bankruptcy Institute Law Review Staff
In the first appellate decision on point, the Eleventh Circuit Court of Appeals held in In re Graupner that the anti-bifurcation protection granted to certain purchase money security interests by BAPCPA’s “hanging paragraph” applies even though the loan includes negative equity. The Second Circuit, meanwhile, opted to defer determination of this issue by certifying the question of whether negative equity is to be included in such purchase money security interests to the New York Court of Appeals.[AA] In Graupner, the debtor traded in a vehicle with negative equity as part of his purchase of a new car. Both the purchase price of the new car and the negative equity from the earlier loan were included in the amount financed by the dealer. Rejecting the debtor’s argument that the inclusion of negative equity meant that the security interest was not a purchase money security interest, the court held that the entire unpaid balance was deemed to be a secured claim, including the negative equity.