Castle Law Office Blog | Missouri & Illinois Bankruptcy Legal Blog

Your Bank's Mistake May Be Your Gain

Every so often, a case comes up at our firm where a bank forgot to complete the paperwork to put a lien on a car’s title when they grant the loan. And while I’d love to say, “Wahoo! Free Car!” I know that isn’t the case. The difference is that your obligation and the bank’s obligation to the car are separate agreements. Your part of the paperwork, called a “security agreement,” assures the bank that you understand your obligation to pay and, should you stop, the bank has the right to take the car back from you.

The part of the loan process that is sometimes forgotten is called, “perfecting the lien.” It acts as a big sign to all other parties who may be interested in your collateral (people looking to buy or creditors looking to repossess) that the bank gets to take action first. If it is indeed forgotten, the creditors or buyers haven’t had proper notice that they are not the only interested parties and may be able to go after it.

This process gets a little hairy during bankruptcy but a Chapter 13 might end up helping you. If the bank forgets to perfect the lien prior to a Chapter 13, you could keep it by merely paying the market value to your car lender. If they didn’t forget to perfect the lien, in most cases you will owe the full contract amount plus interest. What does all this mean? If your bank makes a mistake, a Chapter 13 bankruptcy may help you keep the car for much less than you bargained for.