PA 09-189—HB 5099

Banks Committee

Judiciary Committee


SUMMARY: By law, when a buyer defaults on a retail installment contract or installment loan contract, the contract holder can repossess the goods if the contract expressly allows him or her to do so. The act prohibits a retail buyer's Chapter 7 or 11 bankruptcy petition filing or bankruptcy debtor status from being considered a default under the contract or grounds for repossession of the vehicle.

EFFECTIVE DATE: October 1, 2009


Possible Contracts Clause Violation

As the act does not exclude contracts executed before the act's effective date, it is possible that it could be challenged as a violation of the Contracts Clause of the U. S. Constitution (Article I, Section 10) for those contracts making bankruptcy a default or grounds for repossession.

The Contracts Clause bars states from passing any law that impairs the obligation of contracts. However, the U. S. Supreme Court has held that claims of a contract clause violation must undergo a three-step analysis. Courts must determine whether (1) there is a contractual relationship, (2) a change in a law has impaired that relationship, and (3) the impairment is substantial (General Motors Corp. v. Romein, 503 U. S. 181 (1992)). If the court determines that the contract has been substantially impaired, it must then determine whether the law at issue has a legitimate and important public purpose and whether the adjustment of the rights of the parties to the contractual relationship was reasonable and appropriate in light of that purpose. A challenged law will not be held to impair the contract clause if the impairment, although substantial, is reasonable and necessary to fulfill an important public purpose (Energy Reserves Group v. Kansas Power & Light, 459 U. S. 400, 411-412 (1983)).

OLR Tracking: SC: RP: PF: DF