On August 29, 2008, I addressed the question of "What is a 'purchase money security interest?'" The case giving rise to my discussion was In Re: Myers, 2008 Bankr. LEXIS 2172, and the circumstances surrounded a bankruptcy case and whether a creditor's purchase money security interest (PMSI) extended to the negative equity part of a loan to purchase a vehicle. Although the primary purpose of my post was to define and illustrate a PMSI, I necessarily had to point out that Myers concluded that the entire loan was secured -- the creditor's PMSI covered the money used to finance the negative equity.
The purpose of today's post simply is to provide a footnote that bankruptcy courts within Indiana's circuit (the Seventh Circuit) are split on the negative equity issue. Although representative of the minority view, In Re: White, 2009 Bankr. LEXIS 3156 (.pdf) is a strong opinion from Judge Lorch that negative equity "is merely the debtor's antecedent debt which is assumed by the [creditor]." Thus it "does not fit within the definition of a PMSI...."
The Myers and White opinons offer differing views on the negative equity question, but both are helpful in understanding the nature of a PMSI and a secured lender's rights in such a lien.