Penrod v. AmeriCredit Fin. Serv.

Debtor filed a motion in the bankruptcy court seeking to recover from AmeriCredit all of the attorney’s fees she incurred in opposing AmeriCredit’s objection to confirmation of her Chapter 13 plan. The court noted that a claim secured by property worth less than the amount of the claim is “bifurcated” into two claims: a secured claim equal to the value of the property and an unsecured claim for the balance. The hanging paragraph creates a special rule for auto lenders by prohibiting bifurcation of claims that are secured by a “purchase money security interest” in a motor vehicle recently acquired for the debtor’s personal use. The bankruptcy court ruled that the purchase money security interest protected by the hanging paragraph does not include amounts attributable to the negative equity from a trade-in vehicle. The bankruptcy court denied debtor’s motion for attorney’s fees on the ground that she did not prevail “on the contract” because her success in the litigation with AmeriCredit turned on a question of federal bankruptcy law. The district court affirmed. California Civil Code 1717 makes reciprocal an otherwise unilateral contractual obligation to pay attorney’s fees. The court held that the hanging-paragraph litigation was an “action on a contract” in which debtor prevailed. The court concluded that, as the “party prevailing on the contract,” debtor is entitled to recover reasonable attorney’s fees under section 1717. Accordingly, the court reversed and remanded. View "Penrod v. AmeriCredit Fin. Serv." on Justia Law