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New bankruptcy law starts Oct. 17; lien perfection time extended

November 22, 2010

The federal lien perfection provision extends the time creditors have to perfect a lien from 20 days to 30 days, when landmark bankruptcy legislation takes effect Oct. 17. 

Under the legislation signed in April by President Bush, dealers are protected under federal bankruptcy law as a secured creditor if the lien if perfected within 30 days of the customer taking possession of the vehicle.


Also under the new law, if a customer files for bankruptcy within 90 days, and the dealer does not perfect a 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’ misplace titles and out-of-state paperwork—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.


Timely lien perfection is vital for both federal and state laws to protect dealers’ interest in a motor vehicle.