A transfer of a security interest is "perfected" under Bankruptcy Code, 11 U.S.C.S. § 547(c)(3)(B) on the date that the secured party completes the steps necessary to perfect its interest, so that a creditor may invoke the enabling loan exception only by satisfying state law perfection requirements within the 20-day period provided by the federal statute.
Diane Beasley purchased a new car and gave petitioner, Fidelity Financial Services, Inc., a promissory note for the purchase price, secured by the car. Twenty-one days later, Fidelity mailed the application necessary to perfect its security interest under Missouri law. Beasley later filed for bankruptcy, and the trustee of her bankruptcy estate, respondent Fink, moved to set aside Fidelity's security interest on the ground that the lien was a voidable preference under 11 U.S.C. 547(b). Section 547(c)(3)(B) prohibits the avoidance of a security interest for a loan used to acquire property if, among other things, the security interest is "perfected on or before 20 days after the debtor receives possession of such property.'' Fink argued that this "enabling loan'' exception was inapposite because Fidelity had not perfected its interest within the 20-day period. Fidelity responded that Missouri law treats a motor vehicle lien as having been "perfected'' on the date of its creation (in this case, within the 20-day period), if the creditor files the necessary documents within 30 days after the debtor takes possession. The Bankruptcy Court set aside the lien as a voidable preference, holding that Missouri's relation-back provision could not extend §547(c)(3)(B)'s 20-day perfection period. The District Court affirmed on substantially the same grounds, as did the Eighth Circuit, holding a transfer to be perfected when the transferee takes the last step required by state law to perfect its security interest.
Was the creditor's lien a voidable preference because a relation-back provision could not extend the 20-day perfection period imposed under 11 U.S.C.S. § 547(c)(3)(B)?
The Court affirmed the treatment of the creditor's lien as a voidable preference because the creditor, regardless of state perfection relation-back laws, could invoke the enabling loan exception only by acting to perfect its security interest within 20 days after the debtor took possession of the property. The bankruptcy court concluded that the state's perfection relation-back laws did not control the enabling provision, a judgment that was affirmed on appeal. On certiorari review, the United States Supreme Court held that the creditor's lien was voidable as a preference under the Bankruptcy Code, 11 U.S.C.S. § 547(c)(3), and the creditor could only invoke the enabling loan exception only by acting to perfect the security interest within 20 days after the debtor took possession of the property. Under 11 U.S.C.S. § 547(c)(3), the text, history, and structure of the preference provisions indicated that the federal enabling loan exception of 20 days controlled.