In the Chapter 13 bankruptcy case of Cobb, Sean C. and Cathy S., the bankruptcy court agreed with a creditor that the debtor’s plan should not be approved.

The details of the bankruptcy case:

Early in September 2008, the debtor purchased a 2009 Chevrolet Malibu from a dealer. He took possession of the car on the same day that he signed a contract to finance the purchase through GMAC. But a few weeks later the dealer notified the debtor that the GMAC financing did not go through and that he arranged better financing with Universal One Credit Union. On the evening of Sept. 27, the dealer sent a representative to the debtor’s home to have him sign the paperwork, which showed the dealer as the recipient of most of the loan proceeds. GMAC was not mentioned. However, on Sept. 30, a title was issued listing GMAC as the first lienholder. Then a replacement title was issued on Oct. 23, 2008, noting Universal as the first lienholder.

After the debtor and his wife filed for Chapter 13 bankruptcy relief, Universal objected to confirmation of the debtors’ plan because it proposed to decrease the creditor’s claim.  The bankruptcy court sided with the creditor saying that Universal had an interest in the vehicle and that the creditor’s claim could not be crammed down.

The debtor further asserted that the Universal loan was not the loan that helped them get the vehicle.  The court disagreed, citing Hunter v. McHenry (In re McHenry), 71 B.R. 60 (Bankr. N.D. Ohio 1987), which held that the financier of an automobile purchase obtained a purchase money security interest even though the borrower took possession of the vehicle 13 days before execution of the note and security agreement and disbursement of proceeds to the seller. According to McHenry, purchase money status was not dependent on whether the loan permitted the borrower to acquire rights in the collateral. Since the loans intention was to help the debtor purchase the vehicle, the bankruptcy court ruled that it has a purchase money security interest