Legal Question in Bankruptcy in Utah

Unperfected Lien

When we tried to purchase a vehicle several months ago, we were unable to get a loan. Therefore, my father-in-law took out a loan in his name in order to purchase the vehicle for our use. (We were not even able to cosign on the loan.) The vehicle was meant to be titled in his and our names and have a lien listed by his bank. Somehow, this did not end up being the case. We are listed on the title (not my father-in-law) and the bank is not listed as a lienholder.

We have filed Chapter 7 bankruptcy and are afraid the trustee is going to try and say we own the truck free and clear and that our father-in-law has an unsecured debt with the bank that is unrealted to the vehicle. Does it make a difference that our father-in-law signed a security agreement with the bank at the time the vehicle was purchased stating that the vehicle would be collateral for the loan? The only reason the bank is not listed as lienholder is due to a mistake in the title paperwork. You would think that would make a difference, but someone told me that since the bank lien is not listed on the title it is an unperfected lien and would not stand up in bankruptcy court.

Any advice or direction you can give would be helpful.


Asked on 11/13/01, 5:36 pm

1 Answer from Attorneys
Alvin Lundgren Alvin R. Lundgren, L.C.

Re: Unperfected Lien

Your friend is correct. Because the bank failed to perfect its security interest in the vehicle, the bankruptcy trustee has the power to intervene and claim the vehicle. I have seen this happen before in similar circumstances. Note that the trustee's job is to attempt to assemble as many assets as possible for the unsecured creditors. The secured creditors had their chance, and if they make a mistake they bear the consequences.

To cure this problem file a voluntary dismissal of your bankruptcy. Then have the bank file the proper paper work. You can then refile your bankruptcy.

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Answered on 11/14/01, 10:01 am


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