ADVANCED ISSUES IN AVOIDANCE

adopted in 1994, replacing the former 10-day period - to align the Code with the laws of the states, most of which allow 20 days for perfection of a purchase money security interest.

The elements of the defense set forth in the statute are largely self-explanatory; the two principal issues under Code section 547(c)(3) are related to the timing of the perfection of the security interest: Following BAPCPA, the safe harbor is further extended to 30 days.

1. State law perfection periods versus section 547(c)(3)(B). This issue involves the 30-day safe-harbor period (as expanded under BAPCPA) for perfecting the security interest in the enabling-loan/ purchase-money collateral. In some instances, the relevant state law provided for a longer safe-harbor period that the Bankruptcy Code provides. Secured creditors argued that, so long as they perfected within the time permitted by the relevant state law, their security interests should be immune from avoidance under Code section 547(c)(3). The Circuits Courts were split on this issue, until the Supreme Court decided the matter in Fidelity Financial Services, Inc. v. Fink, 522 U.S. 211, 118 S. Ct. 615, 139 L. Ed. 2d 571 (1998). The Court held that the 20-day time period set out in the Bankruptcy Code trumps any longer period under state law. Therefore, if a secured creditor has not perfected its purchase-money security interest within the 30 days specified in § 547(c)(3)(B), the interest is subject to avoidance, even if the interest was perfected within the appropriate (longer) time period under state law.
2. Relation between §§ 547(c)(3) and 547(c)(1). A secured creditors who fail to perfect their enabling-loan/purchase-money security interests within the 30-day safe harbor of Code § 547(c)(3)(B) have sometimes tried to argue that, nonetheless, the security interest represents a substantially contemporaneous transfer of the Debtor's property in exchange for new value (the loaned funds) and, therefore, should be protected from avoidance under section 547(c)(1). While a minority of courts will permit this use of section 547(c)(1), the majority view -- and the view, of all circuit courts that have considered the issue -- is that permitting such a use of section 547(c)(1) would render section 547(c)(3)