A History of the Automobile Lender Provision of Bapcpa

Abstract

This paper begins with a comparision of the status of auto lenders under BAPCPA (i.e., the new consumer bankruptcy law) and under pre-BAPCPA bankruptcy law. It concludes that the situation of the auto lenders has been considerably improved, probably more so than for any other large identifiable creditor group. The biggest gain for auto lenders is a prohibition of lien stripping under chapter 13 plans if the motor vehicle was acquired within 2.5 years of filing for personal purposes (or within one year of filing if acquired for other reasons).

The paper then provides a historical and political account for how BAPCPA came to take this form. The National Bankruptcy Review Commission made recommendations that would have considerably compromised the position of auto lenders in bankruptcy. The original bills introduced in the House of Representatives at the behest of a broad creditor coalition did not embrace these recommendations and did contain provisions favored by auto lender interests, but those bills did not embrace a broad prohibition of lien stripping in chapter 13. The lien stripping prohibition was added by amendment, on behalf of auto lender interests, made in a markup session of the Senate Judiciary Committee in 1998. Other creditor interests then acquiesced in this amendment, even though it was manifestly contrary to their interests. The paper, which is based in part on interviews with a number of lawyer/lobbyists involved in the process, speculates about the reasons for this acquiesence.

Keywords: consumer, bankruptcy, auto finance, BAPCPA

JEL Classification: K19, K2