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Idaho Court Avoids Imperfect Security Interest as Preference

Hopkins v. Dig. Fed. Credit Union (In re Parker), Nos. 14-40133-JDP, 16-8004-JDP, 2016 Bankr. LEXIS 3982 (U.S. Bankr. D. Idaho Nov. 15, 2016)

Debtor Jace Reed Parker purchased a 2010 vehicle, which was financed by a loan extended to him by Defendant Digital Federal Credit Union. Under the loan agreement, the vehicle was to serve as security for the loan. To perfect its security interest, the Credit Union prepared an application for issuance of a certificate of title to the vehicle noting its lien. However, imprudently, it gave the title application to the Debtor to file with the Idaho Transportation Department, which the Debtor never did. As a result, no certificate of title reflecting the Credit Union as a lienholder was ever issued for the vehicle. The Debtor made several monthly loan payments to the Credit Union, including three during the ninety days preference period. After the Debtor had filed for bankruptcy, the Trustee commenced the adversary proceeding to avoid the lien and the prepetition payments made by the Debtor to the Credit Union within 90 days of the bankruptcy.
The Court concluded that the Trustee was entitled to avoid and recover the payments made to the Credit Union on a vehicle loan of $354.56 per month, totaling $1,063.68, within the 90 days preceding the bankruptcy petition filing. The Court reasoned that it was uncontested that Credit Union’s security interest in the vehicle was not properly perfected under Idaho law as of the date of the Debtor’s bankruptcy filing because its lien was never noted on the vehicle’s certificate of title.