Related topics

Court Rules on Bankruptcy Lenders

January 13, 1998

WASHINGTON (AP) _ The Supreme Court today made it a bit riskier for lenders who make secured loans to people who later file for federal bankruptcy protection.

The court ruled unanimously in a Missouri case that creditors can force bankrupt debtors to pay them only if the loans were ``perfected,″ or publicly recorded, within the 20-day deadline provided by federal bankruptcy law _ not the more leisurely deadlines some state laws provide.

The decision is a defeat for Fidelity Financial Services, which thought the new-car loan it made to Denise Renee Beasley in the summer of 1994 was secured by a lien on her car, a 1994 Ford Probe.

State and federal laws generally encourage lenders to perfect certain liens, including real estate mortgages and security interests on vehicles and other big-ticket items.

Fidelity perfected the secured loan 21 days after receiving a promissory note from Ms. Beasley. Missouri law allows 30 days for such action.

When Ms. Beasley filed for bankruptcy protection later that year, bankruptcy trustee Richard Fink sought to have the Fidelity loan put behind claims of other creditors.

Fink argued that the loan was not properly secured because it had not been perfected within the 20-day deadline spelled out in federal bankruptcy law. Lower courts agreed with him, and today the Supreme Court upheld those rulings.

Creditors may hold on to their secured-loan priority ``only by acting to perfect its security interest within 20 days after the debtor takes possession of the property,″ Justice David H. Souter wrote for the court.

The case is Fidelity Financial Services vs. Fink, 96-1370.

Update hourly