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Nebraska Law Review (1983) 62: 201-224.


Copyright 1983, Nebraska Law Review. Used by permission.


The Bankruptcy Reform Act's treatment of belatedly perfected security interests in personal property is enigmatic, because it attempts to employ preference law to avoid a class of transfers, socalled "secret liens," that are not true preferences. When a security interest is granted in exchange for contemporaneous value, preference policy in bankruptcy is not offended, because the transaction does not cause a depletion of the debtor's estate for the benefit of a particular creditor. However, the effect the timing rules of section 547(e) of the New Act is to treat most security interests perfected during the preference period and more than ten days after attachment as section 547(b) preferential transfers.

The bankruptcy cases are divided concerning the application of section 547(c) (1), the substantially contemporaneous exchange exception, to the delayed perfection problem. One line of cases applies the exception narrowly and refuses to extend it to security interests that are not perfected within the ten-day grace period established by section 547(e). However, a second line of cases applies the exception broadly to protect security interests that are (1) created in exchange for contemporaneous new value, and (2) perfected within a commercially reasonable time thereafter.

This article concludes that the cases broadly applying the substantially contemporaneous exchange exception should be followed, because the flexible approach adopted in those cases allows the courts to protect the legitimate contractual expectations of secured creditors who act to perfect their security interests within a reasonable period of time, without sacrificing the interests of unsecured creditors who might have been misled by unreasonable delays in perfection.

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