The Transformation Rule Under Section 522 of the Bankruptcy Code of 1978

This Note rejects the statutory arguments that have been advanced in favor of the transformation rule, and argues that the rule is inconsistent with both the policies motivating section 522 of the Bankruptcy Code and the overall purposes of the U.C.C. priority system. Part I examines the treatment of purchase money security in the U.C.C. scheme. It also describes the exemption provisions of the 1978 Bankruptcy Code and the legislative concerns that shaped those provisions. Part II summarizes the judicial adoption of the transformation rule and the statutory basis relied upon by courts in applying it. Part III argues that neither the statutory language nor the policies underlying the U.C.C. and the Bankruptcy Code justify the transformation rule. Part III concludes further that application of the rule will have unfavorable consequences for consumer financing transactions. The Note therefore suggests that courts would better serve the interests of both debtors and creditors by holding that purchase money security interests in household goods retain their purchase money character following refinancing.