In re Spratling, No. 06-40614, 2007 WL 3102154 (Bankr. M.D. Ga. October 19, 2007).
Following up on the case of Graupner v. Nuvell Credit Corp., Case No. 4:07-CV-37, 2007 U.S. Dist. LEXIS 46144 (M.D. Ga. June 26, 2007), where the Court held that a security interest still qualified as a purchase money security interest even though it included negative equity from a trade-in, the Middle District held that the financing of an extended warranty or gap insurance also does not mean the security interest becomes non-purchase money —
The Uniform Commercial Code (“UCC”) comment to the purchase money security interest provision expands the meaning of “price” beyond simply the “sticker” cost of the collateral. The comment provides that:
[T]he definition of “purchase-money obligation,” the “price” of collateral or the “value given to enable” includes obligations for expenses incurred in connection with acquiring rights in the collateral, sales taxes, duties, finance charges, interest, freight charges, costs of storage in transit, demurrage, administrative charges, expenses of collection and enforcement, attorney’s fees, and other similar obligations. The concept of “purchase-money security interest” requires a close nexus between the acquisition of collateral and the secured obligation.FN21
FN21. U.C.C. comm. n. 3 to O.C.G.A. 11-9-103 (2002).
Applying the close nexus standard to the case at hand leads the court to believe that gap insurance should be included in the PMSI. Debtor and Creditor entered into a contract for both the vehicle and the gap insurance at the same time, and the gap insurance would not exist without the vehicle. Further, the only function of the gap insurance is to protect debtor’s investment in the vehicle. Therefore, the court holds that there is a sufficiently close nexus between the acquisition of the car and the gap insurance, and gap insurance should be considered part of the PMSI.
Applying the O.C.G.A. § 10-1-31(a)(1) definition of “cash sale price” to the facts of this case, the monies paid on Debtor’s behalf for the extended service contract and gap insurance are part of the purchase price of Debtor’s new vehicle for purposes of O.C.G.A. § 11-9-103, Georgia’s purchase money security interest statute. The other requirements of O.C.G.A. § 11-9-103 being met, Fargo’s security interest in the vehicle is one of purchase money. Thus, § 506 does not apply to allow the debtor to modify the amount of the secured obligation in a Chapter 13 plan.