In the bankruptcy case of Smith, Philip J. and Tracy K.; In re, the bankruptcy court denied confirmation of the debtors' plan because the purchase of a leased vehicle created a new transaction subject to the anti-modification protection.
The details of the bankruptcy case:
"On Jan. 2, 2004, the debtor-husband leased a new 2004 Toyota Sienna minivan. The lease called for 48 monthly payments of $525.27. The debtor had the option of buying the vehicle at the end of the lease for $12,793. A certificate of title was issued to Toyota Motor Credit Corp. as owner and lessor. On April 15, 2008, the debtor exercised the option to buy the vehicle and signed a retail installment contract calling for 48 monthly payments of $469.26. A certificate of title was issued to the debtor listing TMCC as the holder of a lien. The debtor and his wife filed for Chapter 13 relief on March 17, 2009, and proposed a plan that bifurcated the TMCC's claim. The bankruptcy court sustained the creditor's objection, ruling that the claim was protected from modification because the debt was incurred less than 910 days prepetition."
The bankruptcy court ruled that since the agreement with Toyota was a true lease, the debtor had not right of ownership until he exercised the purchase option. Since the debtor purchased the vehicle on April 15, 2008 with new financing and not the refinancing of an existing debt, Toyota Motor Credit's claim could not be modified in bankruptcy.