How to Defend Against a Secured Parties Claim

November 5, 2009 8:06 PM

[Bankruptcyfilter] YANML...speaking in hypotheticals only. Exempt furniture / wildcard exemption vs security interest of creditor in same said furniture with a UCC Security Agreement. Does the furniture get an exemption? Or does the furniture get Repossesed via Foreclosure of Security Interest in Personal Property? Furniture was just pledged as collateral...never was sold or belonged to the creditor. How is this determined... by the Bankruptcy Trustees discretion, or by law?
posted by Muirwylde to law & government (6 comments total)

I'd check this site and your state's bar association to try to find a real, certified bonafied bk specialist, and would ask him or her this question. Filing pro per is cool and all, but only your lawyer will be able to answer this for sure.

IANAL, but I did used to work in a bk office and would talk to the lawyers about how your 341(a) can get ugly if you don't have all your ducks in a row when you go in.
posted by Aizkolari at 8:22 PM on November 5

ianal (yet) but my hazy memory bankruptcy is that exemptions vary from state to state? check your state law.
posted by anthropomorphic at 9:10 PM on November 5

You really would need to speak with a bankruptcy lawyer familiar with the laws in your state.
posted by dfriedman at 9:20 PM on November 5

In general - the debt that is secured is never discharged. The filer has the option of exempting the property from the estate, allowing him to keep it and continue paying, or letting it go and allowing the holder of the security interest to foreclose.
posted by megatherium at 5:26 AM on November 6

You're confusing bankruptcy exemptions with security interests, and they're two different things. The bankruptcy exemption only refers to the debtor's property that is not subject to being taken by the trustee in, say, a Chapter 7 case. A security interest is something that arises by contract or by operation of law in favor of a creditor, which allows the creditor, under certain circumstances, to take the property. It's the concept that allows mortgage companies to foreclose and lenders to repossess cars and, in your case, furniture. If the furniture is worth more than the debt that it secures and it's not exempt property, then the trustee could, conceivably, take and sell it and pay off the secured debt.

The two concepts have very little intersection, at least in my experience (10 years' bankruptcy law practice). And I'm not even going to get started on when or if the automatic stay of 11 U.S.C. § 362 affects the creditor's right to repossess. And even if you get a discharge, the lien survives discharge-- you don't owe the money any more, but the creditor still has a right to repossess upon default.
posted by missouri_lawyer at 12:20 PM on November 6

I've only got time for two quick points ...

first, federal law prohibits certain credit practices involving liens on household goods. I've never worked with it, so I don't know how broad it is. You can see more here.

second, as pointed out above exemptions and security interests are very different things, but they do interact to a certain extent in bankruptcy. liens (that is, security interests) can be avoided in some circumstances (e.g. the lien can't be a "purchase money security interest") to the extent that they impair an exemption you would otherwise have had. see section 522(f) of the code. This isn't going to be all that useful to you, since it's quite complicated, but it may be enough to convince you to see a lawyer.
posted by lex mercatoria at 12:33 PM on November 6