Kentucky Bankruptcy Law

Counsel with Care

Post-Holiday Pitfalls in Bankruptcy part 1

There are some bankruptcy code provisions that take on extra significance for the Debtor who files Chapter 7 or Chapter 13 in the weeks following the Christmas season. People tend to rack up greater debt and on higher priced items during this season. It is hard to resist the lure of commercialism, even when one is already feeling the squeeze of debt. Even then, folks want to give good gifts to their children, extended family, and friends.

The code provision I want to highlight today is 11 USC Sect. 522(f)(B). Ordinarily, this provision is used to “strip off” (make unsecured) a secured debt on exempt household goods. However, this only applies to NONpurchase money debts. These are ones where you already had the item and went to a lender who then asked to put up your property as collateral. Purchase money security interests (PMSI), however, create a security interest at the moment of purchase. This matters because even though your personal obligation to repay the debt gets discharged in the bankruptcy, the lender continues to have an interest in the property.

So, even if your go through a bankruptcy and it seems to all be over and done, that creditor can still come back and demand the property be surrendered to them (no deficiency debt would exist though). This can be very troubling if you really want  to hang on to that particular item or if you gave that 60 inch HD television to your retired dad so he can watch The Price Is Right in high-definition down in the basement.

The only way you may know that a PMSI exists on a particular item is if you have the receipt and any other paperwork you signed when you purchased it. You may only have a recollection that you had to sign two places instead of one. That second signature would have been the security agreement. Regular credit card purchases rarely involve a PMSI, but in-store credit or store specific credit cards often do involve purchase money security interests.

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January 2, 2013 - Posted by | Bankruptcy, Chapter 13, Chapter 7, Planning, PMSI (purchase money), Property (exempt, Security interests | , , , , , , , , ,

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