The 910-day Rule in Bankruptcy

One of the most weird rules to come out of the 2005 amendments to the Bankruptcy Code is what is known as the 910-day rule. This is a rule for confirmation of a Chapter 13 plan. Essentially it says that if a debtor purchased a motor vehicle and financed it by giving the bank title within 910 days of filing bankruptcy, the debtor must pay the debt in full. The usual method of paying a car loan is to look at what the car is worth on the filing date and pay that to the creditor. The balance becomes an unsecured claim that is paid with all other unsecured claims, such as credit cards, doctors' bills, etc., at a few cents on the dollar.

The 910-day rule is a response to what Congress perceived as abuse of the bankruptcy system by a few debtors. Some unscrupulous debtors would buy a new, expensive car for $30,000 or more and then, in a year or two, after the car had depreciated to maybe half of its original value, file bankruptcy and pay only the current value. This practice is known as lien stripping. How Congress came up with 910 days is anybody's guess, but that is the law.