How the Supreme Court helped affirm secured lender rights

Lending people money can be a great business model. You get to charge interest just because you had the financial resources someone else needed for a transaction. Most people do their best to repay their debts, so you can count on regular payments from most borrowers.

Of course, lenders also take substantial risks by choosing to extend credit to other people. Those individuals might refuse to pay by defaulting on the loan. Lenders who secure the funds that they offer by attaching them to physical assets like vehicles or real estate have a bit more protection when borrowers don’t pay.

They can either reclaim the property or use its role as collateral to convince someone to repay a debt. Secured lenders can still take losses sometimes, especially if a borrower files for bankruptcy. However, the Supreme Court recently upheld the rights of secured lenders even in bankruptcy proceedings.

Repossession before a filing is not a violation of someone’s rights

The Supreme Court heard a case earlier this year involving the city of Chicago and people who have lost their vehicles because of unpaid tickets and fines. There were four separate vehicles that the city seized due to unpaid amounts owed by the vehicle owners.

Each of those owners then independently filed bankruptcy and demanded that the city return their vehicles. Initially, lower courts agreed that the city had to return the vehicles. However, the Supreme Court found that those with a security interest in collateral property do not violate the automatic stay in bankruptcy by repossessing the vehicle before someone files.

Understanding how bankruptcy law and court precedents may affect your rights as a lender can help you advocate for yourself when a borrower files for bankruptcy.