Opinion ID: 1375685
Heading Depth: 1
Heading Rank: 2

Heading: Negative Equity Financing Bears a Close Nexus with the Acquisition of the Collateral

Text: In addition to clarifying the meaning of price and value given to enable, Comment 3 further instructs that a PMSI requires a close nexus between the acquisition of the collateral and the secured obligation. Ohio Rev.Code § 1309.103 cmt. 3. Financing negative equity as part of a new vehicle purchase enables the purchaser to utilize the value of their trade-in and occurs as part of a single transaction. Releasing the lien on the trade-in vehicle allows the dealer to sell it and, in turn, makes the purchase of the new vehicle possible. As the Eleventh Circuit explained, [t]he financing was part of the same transaction and may be properly regarded as a `package deal.' Payment of the trade-in debt was tantamount to a prerequisite to consummating the sales transaction, and utilizing the negative equity financing was a necessary means to accomplish the purchase of the new vehicle. Graupner, 537 F.3d at 1302. Thus, the portion of the secured obligation arising from the negative equity bears a close nexus with the acquisition of the collateral. Id.; see also Muldrew, 396 B.R. at 926 (A closer nexus to the collateral can hardly be imagined.). And contrary to Debtors' concerns, treating negative equity financing as a PMSI remains unlikely to encourage predatory lending aimed at turning unsecured antecedent debt into a secured PMSI because the close nexus requirement limits the reach of such a holding. See Price, 562 F.3d at 627. The pernicious tactics that Debtors warn ofpredatory lenders folding pre-existing credit card or other debts into new car purchaseswould present very different circumstances unlikely to satisfy the close nexus requirement. Id. We recognize that, in these circumstances, the UCC and BAPCPA create a creditor-friendly rule. Yet this rule only applies if the debtor chooses to retain the vehicle. The debtor may instead opt to surrender the vehicle in satisfaction of the creditor's secured claim, leaving the creditor with only an unsecured deficiency claim. See In re Long, 519 F.3d 288, 297-98 (6th Cir.2008). The debtor may then provide for partial repayment and discharge of the creditor's unsecured claim on the same terms as other unsecured claims. See id. Thus, by choosing to surrender the vehicle, the debtor can effectively bifurcate the secured creditor's claim and compel the creditor to accept less than the amount owed. This substantially mitigates the impact of the rule recognized here.
For these reasons, we REVERSE the district court's judgment and REMAND to the bankruptcy court for further proceedings consistent with this opinion.