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Bankruptcy
Failure
to Perfect Security Interests within 30 Days; Lien Avoidance
If
a consumer files bankruptcy before a security interest is
recorded on the certificate of title, federal bankruptcy law
allows the “Trustee in Bankruptcy” to take the vehicle
free of all liens and sell it for the benefit of the
consumer’s creditors.
Federal bankruptcy law allows the Trustee to do this
if:
1)
A creditor has not perfected (recorded) its security
interests on or before 30 days after the consumer takes
delivery of their vehicle [before October 15th,
2005, creditors only had 20 days]; AND
2)
The consumer’s bankruptcy is filed within 90 days of
the date the lien is actually recorded.
Most
Agreements between financial institutions and dealers include
a recourse provision which obligates a dealer to repurchase
the contract in the event of bankruptcy and lien avoidance.
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