Here, the Ohio Court of Appeals ruled in favor of the Credit Union and held that a debtor’s attempt to avoid a security interest in bankruptcy actually survives the bankruptcy discharge.

Here, the debtors borrowed money from the Credit Union and granted to the Credit Union a non-purchase money security interest in the debtors’ Ford van. The Credit Union properly perfected its security interest and the loan went into default.

The debtors then filed a Chapter 7 bankruptcy and listed the Ford van as exempt under State law to the extent that it was not worth more than $1,000.00. The debtors did not reaffirm the debt with the Credit Union and did not seek to avoid the Credit Union’s interest in the Bankruptcy Court. The debtors were discharged in bankruptcy.

Norwalk Area Federal Credit Union then executed on the vehicle and sought possession of the same.

The debtors claimed that since they had exempted the debt in the Bankruptcy Court, the Credit Union had lost its interest in the vehicle.

The Ohio Court of Appeals held, however, that the Credit Union’s lien in the collateral survived bankruptcy and the Credit Union was permitted to reclaim its security. Judgment was granted for the Credit Union.  Norwalk Area Federal Credit Union v. Arthur Thompson, Sr., (Ohio Court of Appeals, Case No. H-90-51).

Author: Charles R. Harroun, Attorney at Law