U.S. High Court Rejects Case Involving Bifurcation Of Auto Loan Debt In Bankruptcy

U.S. High Court Rejects Case Involving Bifurcation Of Auto Loan Debt In Bankruptcy

WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on Oct. 3 declined to hear a case in which a lender argued that a debtor should not be permitted to bifurcate a secured creditor's claim regarding an automobile finance transaction in which the dealer extended financing to include an advance that allowed the debtor to discharge her debt on a trade-in vehicle (AmeriCredit Financial Services Company Inc. v. Marlese A. Penrod, No. 10-1443, U.S. Sup.).


Marlene A. Penrod filed for Chapter 13 bankruptcy in the U.S. Bankruptcy Court for the Northern District of California 523 days after she purchased a new car, and AmeriCredit Financial Services Co. Inc., which had provided financing for the purchase, filed a secured claim in the Bankruptcy Court. 

Penrod proposed that she bifurcate AmeriCredit's claim into secured and unsecured components based on the value of the car, but the lender objected on the basis that it was entitled to protection from bifurcation under the hanging paragraph of the Bankruptcy Abuse Prevention and Consumer Protection Act  (BAPCPA) of 2005, 11 U.S. Code Section 1325. 

The Bankruptcy Court ruled that AmeriCredit was not entitled to the protection it sought, and the lender appealed to the Bankruptcy Appellate Panel (BAP) for the Ninth Circuit U.S. Circuit of Appeals.  The Ninth Circuit BAP affirmed the Bankruptcy Court but also said that other aspects of AmeriCredit's secured claims were protected from bifurcation. 

The lender argued that the Supreme Court needed to hear the case to resolve a conflict among circuit courts. 

[Editor's Note:  Full coverage will be in the Oct. 5 issue of the LexisNexis Bankruptcy Report.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.] 

For more information, call editor James Cordrey at 215-988-7724, or email him at james.cordrey@lexisnexis.com.

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