Arkansas Attorney Blog

Section 506 applies in situations where the secured claim is based on what is called a “purchase money security interest.” The full legal details of what this entails is beyond the scope of this article, but, essentially, it is understood that a new vehicle purchase is classified as a “PMSI” for Section 506 purposes.  So, why is this important? Several court cases have established that a vehicle “refinance” is not a “PMSI” under the strictest of definitions. The reason under the law is fairly straightforward: when you refinance a piece of property you are not putting up any new collateral. Why is this important for a debtor in bankruptcy? If you purchased a vehicle more than 910 days before the filing of your petition, but refinanced said vehicle more recently to lower payments, lower interests, or to remove a former spouse you can still take advantage of the Section 506 “cramdown” to the vehicle’s current value because we trace the purchase of the vehicle back to the date of the creation of the “PMSI.”

Call Bradford Nye, an Arkansas Bankruptcy Attorney, for more information and a FREE consultation.