Riezman Berger, P.C. Wins Major Negative Equity Victory Before 10th Circuit Bankruptcy Appellate Panel

Marilyn Washburn, Chair of the Creditor Rights Practice at Riezman Berger, P.C. successfully argued before the 10th Circuit Bankruptcy Appellate Panel (BAP) sitting in Kansas to reverse the U.S. Bankruptcy Court's ruling at trial which denied the creditor the full value of its 910 car claim in a Chapter 13 case, because the lower court did not view the amount paid by the creditor on a trade-in vehicle as part of the "purchase price" of the collateral. The Debtors purchased an automobile with a trade in vehicle burdened with substantial debt. The creditor funded the negative equity with its loan to the debtor. Six months after the debtors purchased the automobile, the debtors filed Chapter 13. In the Bankruptcy hearing, and on appeal, the Debtors argued that the negative equity is not a purchase money obligation and thus could be "crammed down". Marilyn Washburn argued to the bankruptcy court, and to the Bankruptcy Appellate Panel, that the entire amount financed by the creditor must be paid in full pursuant to the oft referenced "hanging paragraph" of 11 U.S.C. Section 1325(a). The BAP noted in its decision that "Since enactment of the BAPCPA in 2005, a multitude of bankruptcy and district courts throughout the United States have wrestled with the issue before us, and have reached divergent and incompatible conclusions." The BAP found that the negative equity is part of the price or value, and that the negative equity enabled the debtors to acquire the automobile, and thus is a purchase money obligation. The BAP also ruled that "Thus, whatever else may be said about the hanging paragraph, it seems clear that by it Congress intended to take away the right of the debtor to reduce their secured obligations on retained 910 vehicles to the value of the vehicles." In conclusion, the U.S. Bankruptcy Panel ruled that "the negative equity is debt secured by a purchase money security interest. Therefore, the hanging paragraph of Section 1325(a)(5) prevents debtor from cramming down the creditor's 910 vehicle claim through their plan." Marilyn noted that "the ruling is a major victory for creditors and the dollar value of the ruling is huge."

Marilyn J. Washburn’s practice is focused primarily in the areas of bankruptcy and creditors rights, with representative clients including major auto financing groups, credit unions, banks, and other financial services providers. She currently serves as President of Bankruptcy Association of Southern Illinois (BASIL), and is an Associate Member of the National Association of Chapter 13 Trustees (NACTT). In addition, she has served as a Seminar Planner and Speaker for BASIL seminars as well as the National Business Institute.

Marilyn is licensed to practice in the State and Federal Courts of Arkansas, Illinois, Minnesota and Missouri, and the Federal Courts of Kansas and Wisconsin.