Perfecting an Auto Loan --need to be educated.

[my2girls]

Hi All,
Long story short we had to file fast (I'll save you the details). We have been stalling on purchasing a new car for my DH his is 7 years old and needs about $2500 in repairs. We're at the point were it needs to be replaced but 1 of the attorneys in the office said it's risky right now because there's a chance the loan may not be perfected in time (having FIL co-sign) and we could end up losing the car. Can anyone educate me on this and if we should/could proceed in getting a car quick (like next week?)

BTW, the other attorney said the chances of it not getting perfected are low and said we should proceed. Don't know what to do.

Thanks!

[despritfreya]

Long story short we had to file fast. . .We have been stalling on purchasing a new car. . . but 1 of the attorneys in the office said it's risky right now because there's a chance the loan may not be perfected in time. . .

"Perfected in time" for what? You have already filed a Chapter 7. If you purchase/finance a new auto now, it does not matter. After acquired assets (with a few exceptions) are not property of the estate.

Theoretically you could go out and buy a Rolls Royce (not with money you had before you filed or with an inheritance since filing) and it would not matter. So, I don't understand your attorney's comment. I would ask him/her why it matters post petition.

Now, if you had not already filed it would matter. But your post says you “had (past tense) to file fast” so I assume you have already filed. If my assumption is not correct let me know and either I or someone else can comment on the “perfection” issue.

Des.

[btbeme]

A general rule on an auto loan "perfection" is that he loan should be recorded against the vehicle as a lien and that the title should be reissued with that lien in place. In the strictest sense, that is perfecting the lien.

The timeframe can vary. If you purchase from a dealer, using some sort of dealer financing, it can take days or weeks for this to happen. If you purchase from a private seller who is financing you (you will make payments to them) then it is easy to bring the title and notarized bill of sale and notarized loan note to your local DMV, wait in line, and git 'er done right then and there.

If you talk to the dealer you can request that your deal be perfected ASAP. this can usually be done same or next day for a small fee.

Your mileage may vary...

Of course, if you have already filed your Ch 7 petition (as Des says above) you are fine.

[my2girls]

Hi Again,
I wanted to clarify our situation regarding the loan perfection. We filed with our attorney but it hasn't been actually filed with the court. It's ready to go but we've been holding off due to the car situation. We were told it may be tricky perfecting the loan and we could run the risk of losing the vehicle if the loan is not perfected in proper time. We need the car. My DH's car is ready to fall apart and unsafe to drive. Time is of the essence b/c I am receiving a promotion which will increase our income. Can we do this successfully in a short amount of time. If I understand bebtme we can request the loan be perfected for an extra fee. Do we have to reveal we are filing in a few days after? Any advice on how to handle? Additional loan payment would help on means test so we don't want to wait. Thanks!

[btbeme]

You can request it be perfected quickly - ask. It MAY be a service they provide. It may not be. But ask. In general, a perfected lien is one where the secured entity (the auto loan folks) request the lien be recorded on title and it is done. Generally, this is something they do, but sometimes only in batches, and sometimes only once or twice a month. You would ask them to record or perfect the lien on title ASAP. It wouldn't be bad to ask for a photocopy (non-legal - its like a copy of a check) to put in your file so the Trustee can have a copy if needed.

Holding off isn't a bad thing - there isn't anything that can happen to you in the meantime that can't be undone in a BK. The worst mistake people can make (other than lying) is to rush to get this done. There are too many things that can happen by rushing, all of them bad.

[despritfreya]

11 USC 547 allows a Trustee to avoid a preference. Placing a lien on a title within 90 days prior to filing bk is a preference HOWEVER, 547(c)(3) states:

The Trustee may not avoid under this section a transfer. . . that creates a security interest in property acquired by the debtor - (A) to the extent such security interest secures new value that was - (i) given at or after the signing of the security agreement that contains a description of the property as collateral; (ii) given by or on behalf of the secured party under such agreement; (iii) given to enable the debtor to acquire such property; and (iv) in fact used by the debtor to acquire such property and (B) that is perfected on or before 30 days after the debtor receives possession of such property.

Translation: If you file bk within 90 days after the purchase of the vehicle, the lender had no more than 30 days after you took possession to perfect the lien.

Most lenders will properly perfect liens within 30 days of you taking the vehicle off the lot. For those lenders who do not a Trustee can and will set aside any perfection outside the 30 day window if a debtor files bk within 90 days of the purchase.

To be safe, if the lien on the title is not placed on it within 30 days after you take possession hold of filing until the 91st day after the lien is placed on the title (or however your State handles “perfection”).

Des.

[my2girls]

11 USC 547 allows a Trustee to avoid a preference. Placing a lien on a title within 90 days prior to filing bk is a preference HOWEVER, 547(c)(3) states:

The Trustee may not avoid under this section a transfer. . . that creates a security interest in property acquired by the debtor - (A) to the extent such security interest secures new value that was - (i) given at or after the signing of the security agreement that contains a description of the property as collateral; (ii) given by or on behalf of the secured party under such agreement; (iii) given to enable the debtor to acquire such property; and (iv) in fact used by the debtor to acquire such property and (B) that is perfected on or before 30 days after the debtor receives possession of such property.

Translation: If you file bk within 90 days after the purchase of the vehicle, the lender had no more than 30 days after you took possession to perfect the lien.

Most lenders will properly perfect liens within 30 days of you taking the vehicle off the lot. For those lenders who do not a Trustee can and will set aside any perfection outside the 30 day window if a debtor files bk within 90 days of the purchase.

To be safe, if the lien on the title is not placed on it within 30 days after you take possession hold of filing until the 91st day after the lien is placed on the title (or however your State handles “perfection”).

Des.

Hi Des,
We cannot wait to file...we have 2 pending judgements plus our income is about to potentially change. We need a car now. Our attorney's are waiting to file the paperwork. I'm not sure I understand this process so I'll just ask a simple ?...should we or shouldn't we purchase the car pre-bk. What happens if the loan is not perfected in 30 days? I think it was explained we would lose the car but I'm not clear why. I'm going to look in old posts. The additional car payment would also help our means test numbers since we are over the median income. One way or another bk is getting filed by Friday/Monday at the latest.

[btbeme]

If the loan is not perfected by the date you file, the Trustee will most likely claim the vehicle and void the exemption and expense claim. Your attorney should be able to tell you if you do or do not pass the Means Test with or without the vehicle expense claim. If you do, then you are probably OK to file sans vehicle. If not, and you need the vehicle expense to qualify, you are playing with fire.

A car purchase lien needs to be perfected within 30 days after purchase before filing. Bottom line. Or wait 91 days before filing after it is perfected.

[despritfreya]

We cannot wait to file... We need a car now. . . should we or shouldn't we purchase the car pre-bk. What happens if the loan is not perfected in 30 days? I think it was explained we would lose the car but I'm not clear why. . . The additional car payment would also help our means test numbers since we are over the median income. . .

1. If the lien is not perfected within 30 days after taking possession the Trustee can recover the vehicle. Why. . . only because that is what the bk Code says.

2. Notwithstanding the issue of means testing, your best course of action is to wait until after filing to purchase the vehicle, assuming you really need to file this week. However, any "down payment" given after the date of filing is problematic if you had the funds the day before filing as those funds, unless exempt, belong to the Trustee on the day you file. Discuss this with your attorney.

Des.