Penrod

The question presented in this case is whether a creditor has a purchase money security interest in the “negative equity” of a vehicle traded in at the time of a new vehicle purchase. Because we answer this question in the negative, we affirm the decision of the Bankruptcy Appellate Panel (“BAP”).

I. BACKGROUND

In September 2005, Marlene Penrod purchased a 2005 Ford Taurus from a California Ford dealership. According to the figures recited by the BAP, 1 the price of the car, including tax and license, was approximately $25,600. Penrod traded in her 1999 Ford Explorer and paid approxi *1160 mately $1,000 down for her new vehicle. She owed over $13,000 on the Explorer and she received $6,000 in credit for the vehicle. Therefore, there was over $7,000 in “negative equity” on the trade-in vehicle.

The dealership paid off the remaining balance on the Explorer and added the negative equity to the amount financed. Penrod financed approximately $31,700 in order to purchase a vehicle that cost approximately $25,600. According to the contract, Penrod was to pay twenty percent interest on the loan. The dealership subsequently assigned the contract to AmeriCredit Financial…