July 2010 6th Circuit Bankruptcy Case Summaries

Debtor purchased a vehicle with financing from a Bank within 90 days of filing chapter 7 bankruptcy. Under Kentucky law, a lender perfects a security interest in a vehicle by having its lien noted on the vehicle's title. The Bank submitted the proper paperwork and fee to a county clerk to have its lien noted on the vehicle's title. However, there was a delay of almost 2 weeks between the date the Bank submitted the paperwork to the clerk and the date the lien was recorded by the clerk on the vehicle's title. The Bankruptcy Trustee moved to avoid the Bank's security interest as a preferential transfer under 11 U.S.C. Section 547. The Court determined that the Bank's perfection of its security interest did not occur until the date the lien was actually noted on the vehicle's title. Therefore, the transfer of the security interest did not fall within the 20 day "enabling loan exception" to the Trustee's avoidance powers. The troubling conclusion from this case is that a Kentucky bank may lose a lien on a vehicle during a bankruptcy proceeding as a consequence of a county clerk's delay in recording the lien on the vehicle's title.

Within 6 months of filing a chapter 13 bankruptcy, the Debtor lost his job. The Debtor remained unemployed for 3 months, but he secured employment before filing bankruptcy. Official Bankruptcy Form 22 attempts to calculate a debtor's disposable income for the purpose of determining a chapter 13 debt repayment plan by reviewing a debtor's average income in the 6 months prior to bankruptcy. In this case, the Debtor's disposable income calculation was inaccurate on his Form 22, because the Form did not take into consideration the Debtor's new employment which would result in future income at a higher amount than the 6 months prior to bankruptcy. The Court determined that when calculating a debtor's projected disposable income for a chapter 13 debt repayment plan, a Bankruptcy Court may consider changes in income and expenses that are not demonstrated by Form 22. The Court's decision is a good example of using substance over form.