The Bankruptcy Court in Maine recently decided a case which may eventually result in a decision from the First Circuit Court of Appeals on an issue of interpretation of a section of the Bankruptcy Code enacted in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act. The case was In re Look and the Bankruptcy Court held that where a consumer bought a vehicle and financed not only the purchase of the vehicle, but also rolled into the purchase price, debt from the vehicle loan which was traded in by the consumer at the time the new vehicle was purchased, the consumer could cramdown the vehicle loan down the value of the vehicle.
Prior to 2005, the Bankruptcy Code routinely allowed a debtor in Chapter 13 to only pay the value of his or her vehicle in a Chapter 13 in order to keep the vehicle, rather than pay the amount owed on the vehicle loan. For example, if a debtor owed $10,000 on a car which was only worth $6,000 at the time of filing a Chapter 13, the debtor only had to pay the $6,000 value of the vehicle over time in order to keep the vehicle. In 2005, Congress changed the Code to prohibit cramdown of vehicle loans used for personal purposes if the vehicle was bought 910 days before filing the Chapter 13 petition.
One of the first challenges to that 910 day rule was the circumstance where a debtor combined the cost of the new vehicle in the new vehicle loan with the remaining loan cost of the traded-in vehicle. In re Look will give the First Circuit an opportunity to decide this important issue soon after the Second Circuit decides the case of In re Peaselee which addresses the same issue. If the First Circuit upholds the Bankruptcy Court, debtors will have additional reasons to seek relief under Chapter 13 to deal with their financial problems.