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The Bankruptcy StrategistLJN NewslettersNewsSections

Trade-in Value and Auto Loans After Bankruptcy Reform

By John D. McMickle

In 2005, when Congress enacted PL 109-8, significant changes were in store for the automobile finance industry. Under the prior law, automobile financiers faced the prospect of cram-down or lien stripping, whereby a portion of the amount due on an automobile sales contract could be bifurcated and then treated as unsecured. The effect of this procedure was to substantially reduce the likelihood of the auto lender being repaid the full amount due under the sales contract. PL 109-8 was specifically drafted to prevent this from occurring if a vehicle was purchased within two and one-half years (910 days) prior to the bankruptcy filing and the debt resulted from a purchase money security interest.

Real-World Consequences

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