'Rash' and Ride-Through Redux: The Terms for Holding on to Cars, Homes and Other Collateral under the 2005 Bankruptcy Act

Abstract:     
The 2005 bankruptcy legislation makes a number of changes in the treatment of collateral in individuals' bankruptcies in chapters 7 and 13. In a case study of what can go wrong when an interest group (here the credit industry) blocks an expert drafting process, this article takes a close look at the actual statutory language in two areas and in both finds some good remaining arguments for debtors, despite certain creditors' best-laid plans. Specifically, when it comes to valuation of collateral, the 2005 Act leaves room for the argument that chapter 13 cramdown to wholesale value is appropriate for recently acquired cars and other collateral. On the question of ride-through of collateral in chapter 7 (meaning the debtor continues to pay the debt, without redeeming or reaffirming), the 2005 legislation strengthens the case for ride-through of cars and other personal property by creditor acquiescence and, as to homes, arguably adopts the majority approach of the circuits in favor of court-protected ride-through. In both of the areas examined, as on other matters, the 2005 Act increases the complexity and lack of clarity of bankruptcy law. When Congress again gets around to reforming bankruptcy law, the lesson of the 2005 Act should be that simplification is key to achieving policy goals predictably.

Keywords: bankruptcy, collateral

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