Sovereign Bank v Hepner (In re Roser)

In Sovereign Bank v Hepner (In re Roser), 613 F.3d 1240 (10th Cir. 2010), before filing petition for chapter 7 bankruptcy, the debtor borrowed money from Sovereign Bank to buy a car. Seven days after the petition filing, and within 20 days of the purchase, the lender filed its lien against the car. The trustee sought to avoid the bank's lien, using powers under section 544 of the Bankruptcy Code, and arguing the bank violated the automatic stay. The bank argued that the UCC gave it lien rights because the lien was perfected within the 20-day period under Colorado's UCC 9-317. The Bankruptcy Court decided for the trustee, and the District Court affirmed. The Circuit Court overturned the lower courts, deciding the state UCC provision granted senior priority to the bank against that of any claimants, including a bankruptcy trustee, whose interest arose during the 20-day period. Section 544 gives the trustee rights of a hypothetical person who gets a judicial lien on the debtor's property at the time of a bankruptcy filing. The trustee can avoid a lien that is unperfected at the time of the petition filing. Under section 546(b), the trustee's avoidance rights are "subject to any generally applicable law that … permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection." Generally applicable law includes state UCC provisions. Bankruptcy Code section 362(b)(3) excepts from the automatic stay "any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee's rights and powers are subject to such perfection under section 546(b) of this title." UCC 9-317 fell within this exception, since it gave perfection of a purchase-money security interest to be effective against interests acquired before the date of perfection. Perfection of the bank's interest after the date of the bankruptcy filing did not violate the automatic stay. Rinne Legal helps people with bankruptcies, estate planning, and loan modifications in Contra Costa County, Sacramento County and Solano County. Rinne Legal, with staff fluent in Russian, has offices in Walnut Creek, Fairfield, Sacramento and Elk Grove. Contact Rinne Legal for a free consultation. These blog posts are for informational purposes only and not intended nor should be construed as legal advice. These blog posts may be considered attorney advertising in some states. Prior results described on blog posts do not guarantee similar outcomes in future cases. There is no intent to create an attorney-client privilege or relationship with anyone accessing information on this blog. Authors posting on this blog are not obligated to reply to any emails seeking legal advice. The information contained on this blog is not intended to be a solicitation.

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