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New bankruptcy law extends time for dealers to perfect vehicle liens

November 22, 2010
Landmark bankruptcy legislation signed last week by President Bush includes one provision that extends to 30 days the time to perfect a motor vehicle loan, and another that protects secured motor vehicle creditors for 30 months under "cramdowns."
The federal lien perfection provision extends to 30 days from 20 days the time given to creditors to perfect a lien. Dealers are protected under federal bankruptcy law as a secured creditor if the lien is perfected within 30 days of the customer taking possession of the vehicle.
Under the new law, if a customer files for bankruptcy within 90 days, and the dealer does not perfect a vehicle loan within 30 days on behalf of a finance company, the dealer might have to absorb the loss.
The provision was advanced by the National Automobile Dealers Association, which argued that delays beyond a dealer's control-customers' misplaced titles and out-of-state titlework-often extended beyond 20 days.
Another dealer provision revises the "cramdown" procedure that allows bankruptcy judges to reduce the debtor's obligation to reflect interest rates and the market value of a vehicle at the time of bankruptcy.
If a car is purchased within 30 months of a bankruptcy declaration, the secured debt cannot be crammed down under Chapter 13.
The NADA stressed the importance of timely lien perfection for both federal and state law to protect dealers' interest in a motor vehicle. The changes are effective Oct. 17, 180 days after Bush signed the bankruptcy bill into law.