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WhatUSay
USA
1861 Posts |
 Posted - 07/26/2010 : 08:04:14
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The Ninth District Court ruled that negative equity is unsecured debt in a bankruptcy filing, breaking with the other federal courts on this matter.
Marlene Penrod purchased a 2005 Ford Taurus at California Ford dealership in 2005. She paid $1,000 down and traded in her 1999 Ford Explorer.
The dealership paid $6,000 for the Explorer, but Penrod owed $13,000 on it. The negative equity was added to her contract for paying off the debt. AmeriCredit and Penrod entered into a retail installment contract where she agreed to pay $31,700, of which $25,600 was for the car, with 20 percent interest.Penrod filed for Chapter 13 bankruptcy protection about a year and a half later.
The Chapter 13 plan Penrod proposed included splitting out the negative equity from the rest of the contract into an unsecured claim.AmeriCredit objected. A Bankruptcy Appellate Panel sided with Penrod.
The case then went to the Ninth District. The National Automobile Dealers Association, California Bankers Association and several captive finance companies and banks filed briefs in support of AmeriCredit.But the panel of three judges agreed with the bankruptcy panel.The issue came down to a definition of price.
AmereiCredit’s lawyers argued that the negative equity was part of the cost for Penrod in buying the car.
The judges stated that while AmeriCredit assuming the existing debt may be necessary for the sale, it has no bearing on the price of the vehicle. Eight other circuit courts have ruled the two are so closely connected that they should be counted together.
“We decline to adopt the reasoning of our sister circuits,” the court’s decision states. “We acknowledge that our decision creates a circuit split, and we do not do this lightly.”
Attorney Larry Young said this decision means nothing for dealers and finance companies outside the West Coast.
“It just means, like a lot of other things, that the Ninth Circuit is different,” he said.There are still two circuits were this matter remains without a decision – the first and the third.
Meanwhile, dealers and finance companies in the nation’s largest car market will need to consider how much risk they want to take on when a consumer has negative equity in a trade.
AmeriCredit’s lawyers told the court that more than a third of vehicle purchases include negative equity
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Edited by - WhatUSay on 07/26/2010 08:07:27 |
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JimD
USA
11849 Posts |
Posted - 07/26/2010 : 08:13:24
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seperating the neg equity from the line 1, and splitting a singular secured contract into secured AND unsecured debt. Strikes me, the court over-reached it's authority and I'd think would be subject to appeal reversal. I of course, am applying logic and not legalese to the thought process, so it may be irrelevant. 
I used to wonder if the insane aren't the lucky ones. Now I've decided they are. "No they aren't."..."Yes they are"..."NO, they aren't!"..."YES, they ARE!" |
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CU Defender
Vatican City
2398 Posts |
Posted - 07/26/2010 : 08:40:20
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Everything is different in California. The 9th Circuit is known for this stuff.
As with so many other new laws, regulations, and court rulings the only people being helped are stiffs. The average Joe is going to pay more or not even be able to finance a new car if this becomes the norm. No financial institution is going to take that risk.
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Honk if you love peace & quiet. |
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JimD
USA
11849 Posts |
Posted - 07/26/2010 : 08:46:39
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My thoughts precisely Bob. No way a lender is going to allow "neg equity" on the contract; if the courts are going to seperate it from the remaining principal balance and treat it as "unsecured". With TILA/FACT doing away with inflating Line 1 and showing an over-allowance on the trade, yet arriving at the exact same line3; now clearing neg equity from thee recoverable balance...it would be the end of neg trades if it becomes the accepted standard.
I used to wonder if the insane aren't the lucky ones. Now I've decided they are. "No they aren't."..."Yes they are"..."NO, they aren't!"..."YES, they ARE!" |
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swiftus27
USA
1373 Posts |
Posted - 07/26/2010 : 08:46:54
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| Isnt the 9th the most notorious from legislating from behind the bench? |
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JimD
USA
11849 Posts |
Posted - 07/26/2010 : 08:47:43
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Even I would agree, that the term "activist judges" is applicable to the 9th.
I used to wonder if the insane aren't the lucky ones. Now I've decided they are. "No they aren't."..."Yes they are"..."NO, they aren't!"..."YES, they ARE!" |
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dux hunt
USA
178 Posts |
Posted - 07/26/2010 : 11:25:36
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AmeriCredit’s lawyers told the court that more than a third of vehicle purchases include negative equity
And GM jumped in with 2 feet for a piece of that action! Tell Obama to get ready to write them another check. |
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Damcon
Bahrain
1142 Posts |
Posted - 08/11/2010 : 19:59:49
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This would end the over advance. If this became common practice you can bet that banks would no longer finance over 100% of value. Is that such a bad thing?
JB
"Catch a man a fish, and you can sell it to him. Teach a man to fish, and you ruin a wonderful business opportunity." |
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JimD
USA
11849 Posts |
Posted - 08/12/2010 : 05:19:59
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it is for F&I
You are not ready to live, until you are ready to die. |
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snowman
Vanuatu
1763 Posts |
Posted - 08/12/2010 : 06:12:27
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| It would also be a bad thing for the entire automobile industry. If banks could not negative equity, car sales would fall off a cliff. I bet up to 20% of all deals include negative equity. Let's see gov'ment motors deal with that! |
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jimbo67
USA
1638 Posts |
Posted - 08/12/2010 : 07:03:18
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Lets force Americans to:
*pay off more of their car's loan before they trade them
*buy smaller, more fuel efficient cars
*buy health insurance
*pay more taxes
*bail out large corporations to keep them in business after making stupid mistakes that cost billions
If the right relationship is everything, why does every deal have to stand on its own merit to be approved? |
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JimD
USA
11849 Posts |
Posted - 08/12/2010 : 07:25:13
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The American consumer, has become like a spoiled brat not getting their way in a Toyr-S-Us at Christmas time. We all see it, every day.
The financial industry, not the govt, is going to "force Americans to pay off more of their car before they trade them". Let's try and curtail a little bit of the biased nonsense. This discussion, is validly concerned with the marketing ramifications of our current reality.
I recall when the "extended term" financing moved from 48 months, to 60. Then to 66, then to 72. Now some will offer 84 or I've even seen 96 month terms. (Granted, I have not seen 96m terms in a few years but I once wrote such a deal on 2 F250s for a customer.) Bumping the term from 48 to 60; simply cowtowed to the consumers desire to trade and yet keep the same payment. The consumer then got used to being able to do so, and now they expect to do so.
Certified Financial Planners have for YEARS, advised that if you dont have 25% down payment, then you are looking at too much car. They have also advised, that if you need a term beyond 24-30m in order to afford the payment, you are on too much car.
Paying down trades, would not be a bad thing for the consumer, regardless how it comes to be.
You are not ready to live, until you are ready to die. |
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jimbo67
USA
1638 Posts |
Posted - 08/12/2010 : 08:12:37
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No biased nonsense...just common sense. I am not political at all.
I can still get 130% advance for the right customer with several lenders. I even have a lender that will go 125% of retail/msrp. Lets allow the market dictate what and when people can buy and not the government. If the government says that negative equity is to be considered an "unsecured debt", and, therefore, subject to total loss in the event of bankruptcy, they are going to, in essence, regulate the market. We need less government interference, not more.
If the right relationship is everything, why does every deal have to stand on its own merit to be approved?
edit: and btw, it is not our business to give financial advice to customers, but if it was, I would advise customers to follow the same payment plan I do for a new used car...put money aside every month in an interest bearing account until you have enough to buy the car without financing. Then wait for exactly the right used vehicle to buy...even if it takes a year. Thank God that I am in the minority or I may have to become a cerified financial planner or something. |
Edited by - jimbo67 on 08/12/2010 08:24:27 |
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Wonder where this is going to take the industry
