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Abstract

Prior to the passage of the Truth-in-Lending Act (TILA) in 1968, consumers were vulnerable to many deceptive practices employed by creditors when participating in loan transactions. Following the passage of TILA, it was the hope of Congress that consumers would now have the tools necessary to fend off predatory or deceptive credit terms buried within the fine print of a loan agreement. One of the options afforded to consumers facing a suspect loan agreement is the right to rescission. When lenders, creditors, and other parties in the credit transaction “fail to provide the consumer with proper disclosures about the loan or their rights,” consumers may seek rescission as a possible remedy under TILA. Often, a consumer attempts to exercise their rescission rights in the face of an impending foreclosure due to a default on their loan. Moreover, a natural consequence of the impending foreclosure will often be the filing of Chapter 13 bankruptcy by the consumer. It is in the Chapter 13 setting that loan rescission produces diverging views among the various courts. Surprisingly, the “First Circuit has not spoken” on this issue. This Comment will first focus briefly on the historical framework of rescission and how rescission under TILA is markedly different from common law rescission. Next, this Comment will examine the splits among the circuits and explore the competing rationales to determine which circuits may serve as guideposts for the First Circuit. This Comment will then focus on the potential approaches to rescission in the bankruptcy setting. Finally, this Comment will consider several recent cases that may be illustrative of the direction in which the First Circuit is heading. In re Jaaskelainen, a case argued in the Eastern Division of Massachusetts, is particularly indicative of the trend that the First Circuit might be following and illustrates the divergent judicial interpretations throughout the circuits.

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