Nebraska Court Avoids Perfection of the Security Interest on the Debtor’s Undivided Half-Interest as a Preference
January 30, 2021, District of Nebraska - Debtor Pedro Paulo Garcia Wilson and a co-signer, Cordonero contracted with Hidalogo Motors, LLC, (the "Defendant" or "Hidalogo")) for the purchase of a 2013 Jeep Patriot. Hidaogo perfected its security interests in the vehicle by noting a lien on its certificate of title on January 9, 2020.
Two and half months later, the Debtor filed for bankruptcy on March 23, 2020. The Debtor and Cordonero were both listed on the vehicle title as owners. Cordonero made every installment payment for the motor vehicle by personally delivering a check or cash to the Defendant.
Since Hidalgo perfected the lien 90 days before Debtor filed for Chapter 7 bankruptcy protection, the trustee filed a lawsuit against Hidalgo to avoid the lien as a preferential transfer.
Hidalgo asserts that the Debtor cannot avoid the lien because it has legal remedies against Cordonero and it may recover the full amount of its claim from Cordonero even if the lien is avoided. The court rejected the argument, stating that under Sec. 547(b)(5), the Court does not consider the potential recovery from third parties. It considers a hypothetical recovery from a debtor’s bankruptcy estate.
Hidalgo next asserts it was inequitable to avoid the lien, because, Cordonero has an interest in the vehicle and had made the monthly payments. If the lien is avoided, Cordonero will lose the vehicle, and the Defendant will continue to collect the vehicle debt from Cordonero. The Court declined to accept this equitable defense and held that the equitable powers of the bankruptcy court are not unlimited and equitable defenses to preference actions are not generally recognized.
The Court concluded that Debtor and Cordonero jointly own the motor vehicle because both of them are listed on the certificate of title as owners. Further, the purchase and sale documents support that each owns an undivided one-half interest. Thus, the Court concluded that the Debtor granted Hidalgo a security interest on his undivided half interest and the perfection of the security interest as to the Debtor's half interest is avoidable under 11 U.S.C. § 547.
In re Wilson, Nos. 20-40420-BSK, 20-04018-BSK, 2021 Bankr. LEXIS 213 (Bankr. D. Neb. Jan. 29, 2021)