Jamie Allen Westfall and Angela Ann Westfall

OCR transcription for search; preserved printed pages are authoritative

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

IN RE: CHAPTER 13

JAMIE ALLEN WESTFALL AND CASE NO. 06-60297

ANGELA ANN WESTFALL,
JUDGE RUSS KENDIG

Debtors.

AMENDED
MEMORANDUM
OF OPINION’

Before the court are two objections to confirmation of debtors’ fourth amended
chapter 13 plan. The plan proposed by debtors attempts to cram down (to reduce to a value
other than the balance owed) secured liens on two automobiles, each purchased within nine
hundred ten (910) days of debtors’ filing, where a portion of the loan proceeds was used to
pay off negative equity (the amount by which the debt securing the traded vehicle exceeded
the trade-in value) on trade-in vehicles. Creditor Nuvell Credit Corporation (hereafter
“Nuvell”) filed its objection to confirmation on August 28, 2006; Creditor WFS Financial,
Inc. (hereafter “WFS”)’ filed its objection on July 28, 2006. Following a hearing, the court
established a briefing schedule. The chapter 13 trustee, Toby L. Rosen, and both creditors
have filed briefs in support of their positions on the objections to confirmation.

The court has jurisdiction of this case pursuant to 28 U.S.C. §§ 1334 and the general
order of reference entered in this district on July 16, 1984. Venue in this district and division
is proper pursuant to 28 U.S.C. § 1409. The following constitutes the court’s findings of fact
and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

FACTS

Debtors filed a chapter 13 petition on March 13, 2006. In the fourth amended plan,
filed July 9, 2006, debtors proposed to pay WFS a secured value of $18,874.03, plus interest
at 8%, on a 2005 Chevrolet Impala. WFS’s proof of claim, filed April 6, 2006, alleges the
total amount owed on the loan is $25,631.03. Debtors obtained a loan on the Impala on or
about May 31, 2005, in the amount of $26,189.49, plus interest at 12.29% annually. The
sales contract indicates that part of the loan was used to pay $6,757.62 for negative equity
on a 2003 Chevrolet Cavalier traded in by debtors. The WFS loan is secured by a lien on the

title to the vehicle.

' This opinion was amended to make three grammatical changes and to correct a
misspelling; no substantive changes were made.

? Nuvell and WFS may also hereafter be referred to as “creditors.”

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Nuvell is a secured creditor by virtue of a lien on the title to debtors’ 2005 Chevrolk
Silverado. The Nuvell debt was incurred on or about May 31, 2005 when debtors borrowe
approximately $18,723.65 for the Silverado, related expenses, and approximately $3,588.4
of negative equity on a Chevrolet Blazer traded by debtors. Nuvell filed a proof of claim o
March 15, 2006 alleging it is owed $18,289.89. Debtors propose to pay Nuvell $14,701.85
plus interest at 7%, for the 2005 Chevrolet Silverado under debtors’ fourth amended plan.

aS SoS

The parties do not dispute that the vehicles were purchased within the 910 days prio
to debtors’ filing, nor is there a dispute that the vehicles were purchased for debtors’ personé

use.

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LEGAL BACKGROUND AND PARTIES’ ARGUMENTS

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In order to confirm a plan, chapter 13 debtors must abide by the directives set fort
in 11 U.S.C. § 1325. Included in section 1325(a) are guidelines for treatment of secure

claims:

_

(5) with respect to each allowed secured claim provided for by the plan--
(A) _ the holder of such claim has accepted the plan;
(B) (a) the plan provides that--

(1) the holder of such claim retain the lien
securing such claim until the earlier of--

(aa) thepayment of the underlying debt determined
under nonbankruptcy law; or

(bb) discharge under section 1328; and

(I) ifthe case under this chapter is dismissed or converted
without completion of the plan, such lien shall also be
retained by such holder to the extent recognized by
applicable nonbankruptcy law;

CV

(ii) the value, as of the effective date of the plan, of property to b
distributed under the plan on account of such claim is not less
than the allowed amount of such claim; and

(iii) if

(1) property to be distributed pursuant to this subsection
is in the form of periodic payments, such payment
shall be in equal monthly amounts; and

(I) the holder of the claim is secured by personal
property, the amount of such payments shall not bg
less than an amount sufficient to provide to the holder

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of such claim adequate protection during the period o
the plan; or

(C) the debtor surrenders the property securing such claim to
holder.

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11 U.S.C. § 1325.° In accordance with this section, a court can confirm a plan in one of thre
instances: the creditor accepted the plan; the creditor is receiving payment on its secure
claim in accordance with 11 U.S.C. § 1325(a)(5)(B), or the debtor surrenders the collateral.
In this case, the creditors have not agreed to the plan, nor does the plan propose to surrende
the collateral. Therefore, the court must find that the plan conforms to the required payment
set forth in section 1325(a)(5)(B) before a confirmation order is entered.

pay

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Section 1325(a)(5)(B) also involves three considerations: retention of the lien
payment of at least the allowed amount of the claim, and equal monthly payment
constituting adequate protection. In the cases presently before the court, there are n
arguments regarding subsections (i) or (iii), but the issue raised involves subsection (ii). Th
trustee argues that debtors’ proposed cramdown is payment in full of the allowed claim}.
WES and Nuvell, for the reasons discussed below, argue that the plan does not pay th
allowed amount of their respective claims.

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In addition to the three requirements found in section 1325(a)(5)(B), there is also
language, following 1325(a)(9) and now commonly referred to as the “hanging paragraph,)
which offers further explanation of secured claims falling under section 1325(a)(5) which
are referred to as “910 claims.” The hanging paragraph states, in its entirety:

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 the collateral for that debt
consists of any other thing of value, if the debt was
incurred during the 1-year period preceding that filing.

Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act
(hereafter “BAPCPA”), debtors could, under authority of 11 U.S.C. § 506, bifurcate claims
into secured and unsecured portions based on the value of the collateral. To the extent th¢
claim was undersecured, debtor could pay that portion of the claim as an unsecured claim}
This is commonly referred to as the “‘cramdown” of a claim.

3 There is no argument that WFS and Nuvell hold secured claims, nor is it an issue of
whether the claims are allowable. Rather, the issue is the payments the creditors are
entitled to receive on their respective claims, the allowed amount of the claims.

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Following enactment of BAPCPA, many courts have had an opportunity to expoun
on the meaning and effect of the hanging paragraph. See In re Trejos, 352 B.R. 249, 25
(Bankr. D. Nev. 2006) (citing myriad cases in footnote 6). It is clear that the hangin
paragraph prevents bifurcation of certain claims under the authority of 11 U.S.C. § 506. T
be excepted from section 506 bifurcation, a vehicle claim must: (1) be a purchase mone
security interest; (2) arise from a debt incurred within the 910-day period preceding th
bankruptcy filing; and (3) secure collateral purchased for the personal use of the debtof.
Here, there is no dispute that the vehicles were purchased for the personal use of debtors i
the 910 day period preceding the bankruptcy filing. Consequently, the crux of the matter i
whether a purchase money security interest secures the debt. The inquiry focuses on wha
constitutes a purchase money security interest, and more specifically whether payment 9
negative equity from a trade is part of the purchase money security interest.

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It is trustee’s position that creditors do not have a purchase money security interes
in the amount used to pay off the negative equity on the trade-in. Trustee’s view is that th
purchase money security interest only extends to the amount used to purchase the vehiclg.
According to the trustee, two separate transactions took place with execution of each of th
retail sales installment contracts: the sale of debtors’ used vehicle and the purchase of th
new vehicle. Trustee points to O.R.C. § 1309.103, and the comments thereto, and argues tha
the purchase money security interests only arise to the extent that the value given by
creditor has a “close nexus” to the procurement of the collateral. Under this view, th
amounts paid on the negative equity did not constitute value extended by creditors for th

new vehicle purchases.

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ee

Trustee argues that the amount paid for the purchase represents the purchase mone]
security interest and the amount paid on the negative equity is the nonpurchase money
interest. Since there are both nonpurchase money security interests and purchase mone]
security interests involved in the transaction, the claim can be divided into secured an
unsecured positions. Under trustee’s argument, the secured, or purchase money position, 1
not subject to cramdown. However, the unsecured, or nonpurchase money, portion is subjec
to cramdown. Further, trustee argues that prepetition payments should have been applied pr
rata to each position, which affects the unsecured and secured claim amounts for the debts.

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WES and Nuvell argue that they have a purchase money security interest for the entir
claim in the respective vehicles, making the hanging paragraph applicable to prevent th
bifurcated treatment proposed by debtors in the plan. According to creditors, debtors woul
not have been able to obtain the loans unless the existing vehicle loans were paid off, so an
money used to put the collateral in the hands of the purchaser qualifies as purchase money}
Thus, creditors argue that there is a close nexus between the value paid and acquisition o
the collateral, contrary to trustee’s argument. Since there is a close nexus, creditors maintai
they are entitled to payment in full on their secured claims.

The issue is one of first impression for the court.

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LAW AND ANALYSIS

I. Current Interpretations

Although “purchase money security interest” is a term of art in commercial and
bankruptcy law, and the term “nonpurchase-money* security interest” is utilized in the
Bankruptcy Code, see 11 U.S.C. § 522(f), the term is not a defined term within the
Bankruptcy Code. See In re Price, 2007 WL 664534 (Bankr. E.D.N.C. March 6, 2007)
(reporter citation not yet available); Trejos, 352 B.R. 249; Vega, 344 B.R. 616.

In the breach, courts seeking a definition of the term “purchase money” turn to
state law. See Price, 2007 WL 664534; Vega, 344 B.R. 616; In re White, 352 B.R. 633
(Bankr. E.D. La. 2006). Here, the applicable state law is the Uniform Commercial Code
provisions adopted into the Ohio Revised Code.’ See O.R.C. § 1309.103. The following}
illustrates how the subject would be treated by following Ohio law.

(A) As used in this section:

(1) “Purchase-money collateral” means goods or software
that secures a purchase-money obligation incurred with
respect to that collateral; and

4 “Purchase money” is found with hyphenation and without hyphenation in the text of
this decision. The hyphenated version is used when quoting statutory law where the
language appears with a hyphen; otherwise, a non-hyphenated version is used.

° This is one of many points at which BAPCPA’s amendments to 11 U.S.C. §§ 101
et seq. (the “Bankruptcy Code”) create uncertainty. In this particular instance, the most
critical term is undefined. Courts have immediately turned to state law to define a term
that easily could be defined for the limited purpose of use in the Bankruptcy Code. This
does not appear to be an instance in which it is legally necessary to use state property law
but one in which state law is used to fill the void. A uniform federal definition for
purposes of chapter 13 appears to do no violence to state law. For example, state law
must be used to determine whether a security interest is valid. There cannot be a separate
state and federal law on what is a security interest or commercial certainty would be lost.
Whether something was secured should not depend on whether one is in state or federal
court. This would cause commercial chaos. In the instant matter, no such problem arises
because the term would be defined solely for its use within chapter 13 of the Bankruptcy
Code, which is solely federal. There would be no unintended state law consequences.
Thus, it is unclear whether courts in these matters turn to state law with the conviction
that state law is binding, out of habit, or as a corollary that is not binding but is being
followed in the absence of anything else. For example, would the bankruptcy courts
immediately change the cramdown treatment if the state changed its definition of
purchase money? The absence of defined terms results in a diminution of certainty and
the logical working of the Bankruptcy Code as an organic whole.

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(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.

(B) 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 ....

O.R.C. § 1309.103. Thus, to understand when a security interest is a purchase money
security interest, it is first necessary to define a purchase money obligation to define
purchase money collateral, which will then provide a definition and understanding of a

purchase money security interest.

The definition of “purchase-money obligation” covers transactions involving
either a seller or a financier. “Price” is used in the context of a seller, while “value given)’
applies to transactions where a financier is providing money, or credit, for a buyer to
obtain goods. In all other aspects, the terms “price” and “value given” are virtually
synonymous. Official Comment 3 offers additional insight into these terms:

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 colla-
teral or the “value given to enable” includes obliga-
tions for expenses incurred in connection with ac-
quiring 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.

The concept of “purchase-money security interest”
requires a close nexus between the acquisition of
collateral and the secured obligation. Thus, a secu-
rity interest does not qualify as a purchase-money
security interest if the debtor acquires property on
unsecured credit and subsequently creates the secu-
rity interest to secure the purchase price.

Clearly, “price” and “value given” may include an amount greater than the actual value of
the collateral. In this case, the WFS sales contract indicates the “Cash Price” of the
vehicle was $23,336.62, which includes the negative equity; the Nuvell contract lists the
“Cash Price” at $18,539.93, which also includes negative equity. Relying on Official

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Comment 3, trustee essentially argues that the payment of the negative equity was not an
“expense” incurred in order to obtain rights to the collateral and therefore does not have
the requisite “close nexus” to be deemed a purchase money security interest.
Consequently, trustee posits that the payment of the negative equity is not a purchase
money obligation.

The court agrees that the payment of the negative equity was not legally required
in order for debtors to acquire rights in the collateral. See Price, 2007 WL 664534, *5; In
re Peaslee, 2006 WL 3759476 (Bankr. W.D.N.Y. December 22, 2006) (reporter citation
not yet available); Vega, 344 B.R. 616. Although the creditors may have been unwilling
to lend money on the purchase of the new vehicles barring payoff of the old loans, this is
merely an accommodation which facilitates each transaction. Debtors were not required
to pay off the existing loans to gain a legal interest in the vehicles. Thus, the “value give}
to enable” debtors to obtain rights in the new vehicles did not include the payoff of
debtors obligations on the existing car loans. On the other hand, part of the value given
by creditors did enable debtor to acquire rights to new vehicles, so there is a purchase
money obligation flowing from the transactions even though the full amount of the loans
do not qualify as purchase money obligations. See id.; see also White, 352 B.R. 633; In
re Murray, 352 B.R. 340 (Bankr. M.D. Ga. 2006).

a)

Creditors relied heavily on the unpublished Wible case from Judge John T. Laney,
II, in the Middle District of Georgia for the proposition that the price did bear a
sufficiently close nexus to qualify as part of the price, thereby making the entire amount
of the loan subject to a purchase money security interest. In re Wible, Ch. 13 Case No.
06-40017 (Bankr. M.D. Ga. June 26, 2006) (unreported and unpublished). In Wible,
Judge Laney found that the negative equity was part of the purchase money obligation
and therefore was a purchase money security interest. Id. However, in a subsequent
published opinion, Judge Laney offered additional explanation and analysis. See In re
Graupner, 356 B.R. 907 (Bankr. M.D. Ga. 2006). In the Graupner case, he concluded
that, under Georgia’s Motor Vehicle Sales Financing Act (“MVSFA”), “price” includes
the payment of negative equity, so reading MVSFA statute in pari materia with the UCC
provisions adopted into Georgia statutory law, “price” under the definition of purchase
money obligation includes payment of negative equity. Id. at 920-21. Asa result, the
price paid, including the negative equity, was a purchase money obligation, resulting in a
purchase money security interest, and therefore subject to the hanging paragraph. Id.
Clearly, the reliance on Georgia statutory law makes Judge Laney’s opinions easily
distinguishable and therefore of little persuasive value.

Having found that there is a purchase money obligation, the next step is to apply
this to the definition of “purchase-money collateral” which is collateral that secures a
purchase money obligation. Since creditors have taken liens on the Silverado and Impala
as collateral for their security interests, including at least a partial purchase money
obligation, it follows that the vehicles qualify as purchase money collateral. Under Ohio
Revised Code § 1309.103(B), a security interest in goods (the liens on the vehicles) is a
purchase money security interest “to the extent that the goods are purchase money
collateral with respect to that security interest.” Consequently, the cars are purchase
money collateral only to the extent of the purchase money obligations.

The result is that the obligation is a “mixed” transaction, divisible into purchase

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money and nonpurchase money elements. This approach is particularly appealing
because it puts the parties in the same position as they would have been had there been
two transactions: the payoff and satisfaction of the old loan and the purchase of a new cat.
Under this view, the payoff of the old loan, including the negative equity, was payment of
an antecedent debt and comprises the nonpurchase money obligation. The extension of
credit for purchase of the new vehicle, and the subsequent security interest granted in the
collateral, embodies the purchase money obligation. In this regard, creditors’ arguments
fail.

Having concluded that the transactions contained both purchase money and
nonpurchase money components, the next question is the impact this conclusion has on
application of the hanging paragraph. Trustee argues that bifurcation of the claim is
permissible and urges the court to find that creditors have secured claims for the amount
of the purchase money security interests and unsecured claims for the nonpurchase money
transactions. Essentially, what trustee proposes is adoption of the “dual status” rule.
However, trustee does not offer any authority to support her contention that the dual
status rule is the appropriate rule under the Bankruptcy Code or under Ohio law.

CD

To determine the appropriate rule, Ohio Revised Code §§ 1309.103(F) and (H) ar
helpful. In applicable part, these provisions provide:

(F) In a transaction other than a consumer-goods trans-
action, a purchase-money security interest does not
lose its status as a purchase-money security interest,
even if:

(1) The purchase-money collateral also secures
an obligation that is not a purchase-money
obligation.

(2) Collateral that is not purchase-money
collateral also secures the purchase-money
obligation.

* cy aK *

(H) The limitation in divisions (E), (F), and (G) of this section
to transactions other than consumer-goods transactions is
intended to leave to a court the determination of the proper
rules in consumer-goods transactions. The court shall not
infer from that limitation the nature of the proper rule in
consumer-goods transactions and may continue to apply
established approaches.

Clearly, the dual status rule was adopted in commercial transactions. See O.R.C.
§ 1309.103(F). It is equally as evident, through reading of § 1309.103(H), that whether
the dual status rule applies in consumer transactions is left to the courts.

From a bankruptcy viewpoint, emerging positions on the question reject the dual

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status rule. See Price, 2007 WL 664535; Peaslee, 2006 WL 3759476; cf Wible, Case No.
06-40017 (unpublished); Graupner, 2006 WL 3759457. Instead, bankruptcy courts favor
the transformation rule, finding its application to be easier. See id. Under the
transformation rule, a mixed transaction results in loss of the purchase money security
protection. In the absence of the purchase money security interest, the hanging paragraph
does not apply and strip-down of the lien is permissible based on the value of the

collateral.

This is also most consistent with construction of Ohio Revised Code §
1309.103(A)(2)’s requirement that value be given to “enable” the purchase. The term
“enable” must be given full effect. Enabling in an everyday street usage means anything
that makes something possible. This is the practical sense of enabling. The use of the
word in the context of the statute implies the legal sense of the word, which is a sense of
what is required to legally authorize or fulfill the legal requirements. This is the
difference between a practical definition or a legal definition of enabling. In the context
of an automobile purchase, payment of sales tax and a fee for issuance of the certificate 9
title are necessary to legally authorize the sale and to fulfill the legal requirements. For
example, the Enabling Act of 1802 authorized the admission of Ohio into the United
States while establishing the legal requirements to be fulfilled. Adopting a practical
definition would allow payment of an endless string of expenses that made it possible for
a debtor to acquire the vehicle. The debtor would not have made it to the dealer’s lot
were it not for the emergency appendectomy, therefore payment of the doctor’s
outstanding fee would certainly cover an enabling expense. A legal definition is far
more workable and historically consistent than a practical definition which would
quickly prove to be impractical. Moreover, a legal definition harmonizes the
transformation rule with the Uniform Commercial Code section (O.R.C. § 1309.103) and

Official Comment 3.

i

Available Ohio case law is extremely limited, particularly following adoption off
the 2001 amendments to Chapter 1309 of the Ohio Revised Code. One post-2001 state
court case which did specifically address the two rules was a commercial case and
therefore is of limited value. See Key Bank Nat’] Ass’n v. Huntington Nat’] Bank, 2002
WL 701941 (Ohio Ct. App. 2002) (referencing, in a commercial case, that the
transformation rule was rejected with the 2001 amendments to the Ohio Revised Code).
Although cases prior to 2001 are sparse, there is support for adoption of the
transformation rule. See, e.g., Inre Keeton, 161 B.R. 410 (Bankr. S.D. Ohio 1993)
(adopting transformation rule in context of consumer goods refinancing fact pattern).
However, there is also an argument for the proposition that a loan can have both purchasg¢
money and nonpurchase money components. See, e.g., Inre Krueger, 172 B.R. 572
(Bankr. N.D. Ohio 1994).

Absent clear guidance from Ohio courts, and under the clear authority of O.R.C.
§ 1309.103(F), the court would be inclined to adopt the transformation rule. First, as
other recent bankruptcy courts have noted, adoption of the transformation rule will avoid
certain application problems intrinsic to the dual-status rule. See Price, 2007 WL
664535; Peaslee, 2006 WL 3759476; Keith G. Meyer, A Primer on Purchase Money
Security Interests Under Revised Article 9 of the Uniform Commercial Code, 50 U. Kan.
L. Rev. 143 (2001). Second, the transformation rule is arguably more appropriate in
consumer transactions where there is often a vast difference in the level of sophistication

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between the parties.

The effect of the transformation rule is that the existence of both purchase money
and nonpurchase money obligations in the transactions results in a conversion of all the
obligations to nonpurchase money obligations. Since purchase money obligations do nof
exist, creditors do not hold purchase money security interests. The result renders the
“hanging paragraph” inapplicable to creditors’ claims. Thus, the claims are subject to
cramdown under the authority of 11 U.S.C. §§ 506 and 1325(b).

Il. Possible Interpretations

The court finds that Ohio law would impel the conclusion that these are not
purchase money obligations. This assumes the answer to the unspoken question: is Ohio
law binding? Put differently, are federal courts free to create a federal definition of
purchase money security interest solely for application in section 1325(a)(9)?

Such a definition solely for this purpose does not appear to intrude upon the state
law of exclusivity for determining property rights. Moreover, it would allow for an
interpretation free from rules that were used to create a definition in another context. Th¢
various state law definitions have been passed for a number of different reasons, but we
can be certain that how it would affect a bankruptcy cramdown was never a
consideration.°

There would be clear advantages and disadvantages to the suggested approach.
The court will allow each party until April 30, 2007 to address the question whether the
court may develop a federal, bankruptcy law definition of purchase money security
interest solely for application in section 1325(a)(9) and, if the answer is yes, how such a
definition would be applied to decide the present case.

CONCLUSION

Creditors financed a transaction which allowed debtors to purchase a new car
while “selling” their old car to the dealership. If Ohio law is employed to define
“purchase money security interest,” the court concludes that the amount paid on the
negative equity of the trade-in was not a necessary fee or expense which enabled debtors
to obtain rights to the collateral. As a result, the payment of the negative equity was not 4
purchase money obligation. Since the collateral only provides security to the extent the
vehicles were purchase money collateral, the portion of the loan paid in the negative

6 A brief review of cases reveals that little attention has been paid to this issue in the post,
BAPCPA cramdown cases. A great deal of attention has not usually been paid to similar
issues in the past. “The term “rights” is nowhere defined in the Bankruptcy Code. In the
absence of a controlling federal rule, we generally assume that Congress has ‘left to the
determination of property rights in the assets of a bankrupt’s estate to state law,’ since
such ‘[p]roperty interests are created and defined by state law.’” Nobleman v. American
Sav. Bank, 508 U.S. 324, 329 (1993) (citations omitted) (emphasis added). Questions
leap to mind when reviewing passages in which similar issues have been considered. See
Butner v. United States, 440 U.S. 48, 54-55 (1978).

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equity is not a purchase money security interest. The portion of the loan which did allow
debtors to buy a new vehicle, however, is a purchase money obligation secured by the
collateral and does qualify as a purchase money security interest.

When a transaction is “mixed,” or has both purchase money and nonpurchase
money components, the entire transaction is transformed into a nonpurchase money
transaction as allowed by O.R.C. § 1309.103(F). Thus, creditors’ loans to debtors are
nonpurchase money transactions not subject to the hanging paragraph following 11
U.S.C. § 1325(a)(9). Inapplicability of the hanging paragraph results in the permissible
bifurcation of 910 vehicle claims under 11 U.S.C. § 506. In other words, the vehicle
loans are subject to cramdown.

However, the court has not been advised whether resorting to Ohio law for the
definition of “purchase money security interest” is either necessary or wise. Instead, the
court questions whether there is an opportunity to develop a definition, strictly for
application under 11 U.S.C. § 1325(a)(9), to embody the spirit of the amendments and
provide a base for logical application in the chapter 13 context. The court will provide an
opportunity for the parties to brief this issue by no later than April 30, 2007.

An order in accordance with this opinion shall be entered immediately.

ie] Buss Kendig
RUSS KENDIG
U.S. BANKRUPTCY JUDGE

MAY 17 26g

Service List:

Theodore A. Konstantinopoulos
Lindsey Hall

Javitch, Block & Rathbone
1300 East Ninth St., 14" Floor
Cleveland, OH 44114-1503

Charles C. Butler

Bish, Butler & Thompson, Ltd.
1210 West High St.

Bryan, OH 43506

James F. Ciccolini
209 S. Broadway St.
Medina, OH 44256

Jamie Allen Westfall
Angela Ann Westfall
605 Township Road 150
Sullivan, OH 44880

06-60297-rk Doc5/ FILED 05/17/07 ENTERED 05/17/07 14:41:01 Page 11 of 12

Toby L. Rosen

Charter One Bank Building, 4" Floor
400 W. Tuscarawas St.

Canton, OH 44702

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