- A recent Caller was interested in bankruptcy and after collecting his documents in preparation for filing chapter 7, I noticed a lot of recent purchases at furniture stores and electronics retailers.
- The fact that purchases were within a year of the potential filing date made it likely that the items were not fully paid off yet. That immediately caught my attention.
Why?
When you buy a couch from a furniture store using a loan extended to you by the store or its financing partners, then the lender has a purchase money security interest in that count.
What is purchase money security interest?
Purchase money security interest is:
Debts associated to purchase of household goods such as furniture to electronics are in a special category known as purchase money security interest.
A security interest in goods is a purchase-money security interest:
(1) to the extent that the goods are purchase-money collateral with respect to that security interest.
Returning to the caller, I discovered that there were several pieces of furniture purchased from a large national retailer.
The retailer and/or its lender had a PMSI on each piece of furniture. Therefore, the loan had collateral attached to it unlike credit card debt incurred to finance daily living expenses.
What difference does that make?
A creditor with the PMSI requires payment or surrender of the furniture even in an active bankruptcy case.
Negotiation is Possible
In the past, the creditors with PMSIs have negotiated for a reduced payment while the debtors kept the items.
This makes sense on many levels because often the times are now used and there is no guarantee what condition they will be if returned. In addition, the cost of attempting to restock and sell use merchandise is not appealing to retailers of new items.
In a nutshell, you cannot purchase a room full of furniture and electronics and simply discharge the debt in chapter 7 while keeping the furniture and electronics.
But all is not lost. You can often negotiate a reduced payment if you choose to keep the purchases.
