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Bankruptcy in Michigan – 6th Circuit Says Perfection Follows Secured Lien, Even After Assignment

Michigan Bankruptcy Secured Lien.

The Bankruptcy Court for the Northern District of OH said Wells Fargo Bank lacked standing to seek relief from the automatic stay in the filed Ch. 7 of Megan Rice.  WFB appealed the decision to the 6th Circuit Appellate Panel. 
Debtor Rice had previously financed a Trailblazer.  In turn, the security interest was transferred from the dealership to Wells Fargo Auto Finance, and finally to WFB. 

The security interest transfer wasn’t recorded, nor entered on the Debtor’s title. 
The Bankruptcy Court didn’t think WFB was the proper party to bring this Motion for Relief, being they couldn’t show a valid assignment (to them) on the Debtor’s Trailblazer title.  WFB argued to the Court they were entitled to file stay relief.  OH law didn’t require the assignment change be shown on the title, nor recording it in order to be valid.
The 6th Circuit Panel addressed who is a “party of interest” in pursuing relief.  Although applied frequently, the Bankruptcy Code doesn’t define the term. 

The Supreme Court suggested that for undefined terms, the intent of the Bankruptcy Act “must ultimately govern”.  The 6th Panel gave the meaning of the applicable term as…those either impacted in a significant way, having financial interest, or having a practical stake in a case’s outcome.  “The Second, Third, Fourth, Seventh, and Eighth Circuits have all agreed with these general guidelines”, for bankruptcies. 
Whether a creditor has an enforceable claim to a debtor’s property is a determination of state law.  For vehicles in the filing state, perfection of a security interest isn’t mandated to be by the filing of a financing statement.  A lien properly perfected on the title “remains perfected after assignment”, without there being an entity transfer on the title. 
A properly perfected lien gives a secured creditor standing to seek relief from the stay.