In Re Sharon
- Reporters:
- , ,
- Before:
- Waldron
DECISION CONFIRMING PLAN, DETERMINING RELIEF FROM STAY, VALUATION, AND ADEQUATE PROTECTION ISSUES, FINDING STAY VIOLATION AND FIXING DAMAGE AWARD
THOMAS F. WALDRON, Bankruptcy Judge.
This proceeding, which arises under
INTRODUCTION OF ISSUES PRESENTED
The issues presented by this proceeding have generated an abundance of case law with varied analyses and results. This court has determined that it is appropriate to publish its determination of the issues presented,
STATEMENT OF THE FACTS
The debtor’s uncontroverted testimony, which the court finds credible, and the documents introduced without objection, establish the following facts. Rosemary Sharon dba Sharon’s Janitorial (the “Debtor”) filed a voluntary petition for relief under
On the same day the Debtor filed her chapter 13 petition, counsel for the Debtor advised TranSouth representative Davey Havenor (“Havenor”) by telephone of the Debtor’s filing and requested the return of the Vehicle. Counsel for the Debtor also telephoned Ed Rogers, a TranSouth customer service representative on March 11, 1996, relayed the same information regarding the Debtor’s filing of a bankruptcy petition, and requested the return of the Vehicle. In a second telephone conversation between counsel for the Debtor and Havenor on the same date, Havenor requested a copy of the Debt- or’s schedules and verification of insurance. The Debtor complied with the request by
Although the Debtor provided TranSouth with the ease number, copies of the filed schedules, and proof of insurance, the Vehicle was not returned. The Debtor filed a Motion for Contempt and Sanctions for Violation of the Automatic Stay (Doe. 5-1) (“Debtor’s Motion”) on March 15, 1996 together with a Motion for an Expedited Hearing (Doc. 6-1).
A hearing was scheduled (Doc. 7-1) for March 21, 1996 on the Debtor’s Motion. On the day of the scheduled hearing, TranSouth filed a Motion for Relief from Automatic Stay Imposed Under Section 362 or in the Alternative for Adequate Protection and Brief in Opposition to Motion for Contempt and Sanctions for Violation of Automatic Stay (“Tran-South’s Motion for Relief from Stay or Adequate Protection”) (Doc. 8-1). 3 As the basis for its Motion for Relief from Stay or Adequate Protection, TranSouth alleged that the Vehicle was not necessary for an effective reorganization, and that its interest in the Vehicle was not adequately protected. Noting the “state of decline in the value” of the Vehicle, TranSouth’s Motion for Relief from Stay or Adequate Protection requested that the Debtor be required to provide TranSouth with adequate-protection payments and proof of insurance in the event that the court should require TranSouth to return the Vehicle to the Debtor. TranSouth additionally contended that the Vehicle was a luxury ear “beyond contemplation of the protection of the bankruptcy code” and that the Debtor could “easily afford an alternative, far less expensive, form of transportation than a Mitsubishi 3000 GT” to travel to and from her job.
After the March 21, 1996 hearing, this court entered an Order Requiring Return of Vehicle (Doc. 10-1), which provided that issues related to damages of the Debtor would be heard at the same time as the hearing on TranSouth’s Motion for Relief from Stay or Adequate .Protection. The Vehicle was returned to the Debtor on March 22, 1996.
On March 26, 1996, this court entered a subsequent Order Setting Hearing and Requiring Filings (Doe. 13-1) which scheduled a hearing on TranSouth’s Motion for Relief from Stay or Adequate Protection for April 18, 1996. At the request of the Debtor, the hearing was rescheduled to April 22, 1996. The March 26, 1996 order also required counsel for the Debtor to file with the court a specific listing of actual damages claimed on behalf of the Debtor, as well as á specific listing of attorney fees and costs claimed.
Pursuant to this court’s March 26, 1996 order, Debtor’s List of Damages Sought for Stay Violation and Other Relief (Doc. 18-1) (“Debtor’s List of Damages”) was filed on April 2, 1996. Attached to the Debtor’s List of Damages was a log of time spent and attorney fees claimed by the counsel for the Debtor as a result of TranSouth’s refusal to return the Vehicle
4
. Also enumerated in the Debtor’s List of Damages were claims for storage and towing fees amounting to $154
The Debtor’s chapter 13 plan, filed contemporaneously with her petition, listed the Vehicle as having a value of $23,500. On April 10, 1996, TranSouth filed an Objection to Proposed Valuation of Motor Vehicle (Doc. 21-1) (“TranSouth’s Objection to Valuation”) claiming that the Vehicle should be valued at $25,050 because the Vehicle was purchased new and was equipped with leather interior, custom wheels, and a sunroof. TranSouth additionally contended that the Agreement contained an extended mechanical service contract (the “Service Contract”), valued at $1,200, which was an executory contract that the Debtor’s plan failed to either assume or reject pursuant to § 365. TranSouth also filed an Objection to Confirmation of Chapter 13 Plan (Doe. 22-1) (“TranSouth’s Objection to Confirmation”) which argued that: 1) the Debtor understated the fair market value of the Vehicle; 2) TranSouth would not receive sufficient funds from the Debtor to pay the present value of the Vehicle over the life of the plan; 3) the Debtor failed to assume or reject the Service Contract pursuant to § 365; and 4) the Debtor’s plan was not proposed in good faith.
In accordance with the evidence and arguments presented, and the agreement of counsel for the parties at the April 22, 1996 hearing, the court entered an order on April 23, 1996 (Doc. 29-1) which scheduled a hearing for June 14, 1996 to determine automatic stay/adequate protection issues, confirmation issues, valuation issues, issues related to the Service Contract, and any damages to be awarded against TranSouth for violation of the stay. After the June 14, 1996 hearing, the court entered an order dated June 17, 1996 (Doc. 38-1) setting July 15, 1996 as the final date for the parties to file memoranda for consideration in connection with the resolution of the issue of good faith pursuant to
Based on the evidence presented at the June 14, 1996 hearing, the filings of the parties, and for the reasons set forth below, the court confirms the Debtor’s proposed plan and makes the following determinations: 1) TranSouth violated the automatic stay when it refused to return the Vehicle upon the Debtor’s request, particularly when presented with proof of insurance; 2) TranSouth is not entitled to relief from stay pursuant to § 362(d)(1) or (d)(2) since there is no cause to grant relief from stay, the Vehicle is necessary for an effective reorganization, and the confirmed plan’s payments and maintenance of insurance provide adequate protection; 3) the appropriate standard for resolving disputed valuation of a vehicle is governed by the local rule which provides that the general standard for resolving disputed valuation of motor vehicles shall be the average of the trade-in value and retail value, including options, contained in the Central Edition of the N.A.D.A. Official Used Car Guide for the month the debtor’s petition was filed, or the most recent National Edition of the Appraisal Guides for Older Cars, for Older R.V.s., and Older Motorcycles, subject to the opportunity for the presentation of specific evidence concerning the particular vehicle; 4) the standards governing confirmation of a proposed plan where a chapter 13 petition is filed a short time after the debtor has purchased and taken possession of a vehicle pursuant to an installment sales contract, but the plan does not propose to pay the claim in full or in accordance with the interest rate specified in the installment sales contract,
DISCUSSION
A. THE AUTOMATIC STAY
The filing of a petition commencing a bankruptcy case creates an estate composed of all legal or equitable interests of the debtor in property wherever located and by whomever held as of the commencement of the case.
A creditor who has lawfully seized a vehicle prepetition, but refuses to turn over the vehicle upon a chapter 13 debtor’s postpetition demand, violates the automatic stay. This determination is compelled by the plain meaning of the Bankruptcy Code and Rules, supported by Supreme Court authority, and consistent with the conclusion reached by a majority of the courts which have considered the issue. The court holds that the language of §§ 361, 362, 363, 542 and Rule 4001(d), together with the overall structure of the Code, compel the conclusion that TranSouth violated provisions of the automatic stay in the circumstances of this ease.
In United States v. Ron Pair Enterp., Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), the Supreme Court held that where the statutory scheme is coherent and consistent, there is no need for a court to inquire beyond the plain language. See also Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 1149, 117 L.Ed.2d 391 (1992) where the Supreme Court stated, “[w]e have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there.”
The critical language under scrutiny for purposes of the present analysis is found in §. 362(a)(3). Once a bankruptcy petition has been filed, § 362(a)(3) prohibits a creditor from taking “any act to obtain possession of property of the estate or of property from the estate or
to exercise control over property of the estate”.
This court holds that the phrase “exercise control” encompasses acts of a creditor in denying a chapter 13 debtor possession and use of a debtor’s vehicle when the return of the property has been requested. As the phrase implies, actual possession consists of
Central to the resolution of the issues presented in this matter is the statutory scheme of
As previously noted in Matter of Brock, 58 B.R. 797, 804 (Bankr.S.D.Ohio 1986):
While these provisions provide an opportunity for relief from the stay, and do so in an expedited and in some cases in an immediate fashion, they do not authorize a party to ignore the provisions of the automatic stay and to proceed, without a determination by the bankruptcy court, against the debtor, any property of the estate, or any other property of the debtor until such property has been determined not to be property of the estate. These determinations belong exclusively to the bankruptcy court and in the absence of an order of relief entered by the bankruptcy court a creditor and creditor’s counsel proceed at their peril.
Matter of Hughes-Bechtol, Inc., 117 B.R. 890, 906 (Bankr.S.D.Ohio 1990) recognized that “while the automatic stay may impact on the substantive rights of creditors, the purpose of the automatic stay is not substantive, but procedural” and, in reorganization cases, is intended to enable the debtor to prepare and present a proposed plan free from unauthorized creditor pressure. The court stated that “the purpose of the automatic stay is not to ultimately determine the substantive rights of any party, nor to ultimately prevent the exercise of the available rights of any party” and noted that “[a] great number of the actions prohibited by the automatic stay (seizures, foreclosures, statutory notices and demands) may be permitted when the automatic stay no longer applies.” 117 B.R. at 906. The court further noted that:
Congress placed the court at the vortex of the bankruptcy proceedings and the provisions of the automatic stay are designed as the initial channels that regulate the flow of economic consequences, which, if left unchecked or diverted by extra judicial determinations, would drown a debtor’s opportunity for a fresh start and would destroy a creditor’s opportunity to receive its hierarchically ordered claim to a pro rata share of the bankruptcy estate. Unless a particular proceeding is specifically designated an exception to the automatic stay (§ 362(b) ), a creditor is obligated to obtain relief from stay prior to taking any actioninvolving property of the estate. To the extent creditors fail to do so, they act at their own peril.
Hughes-Bechtol, 117 B.R. at 906 (emphasis in original).
The interface of the procedural provisions of
Additional support is offered by § 363(c)(1) 6 which allows the debtor to use property of the estate in the ordinary course of the debtor’s business without notice or a hearing. Except in one specified circumstance, the Code requires no preliminary action by the debtor to use property of the estate. To demonstrate how Congress could have provided a specific requirement compelling a debtor, rather than a creditor, to take affirmative action and file the first pleading, see § 363(c)(2) 7 which governs the use of cash collateral and requires the debtor, rather than the creditor, to initiate a proceeding to obtain an order from the bankruptcy court.
Pursuant to § 363(e), an entity with an interest in the property used by the trustee or the debtor may request the court to prohibit or condition such use as is necessary to provide adequate protection of such interest. But in the absence of such a request, the debtor is free to use property of the estate (except cash collateral) without obtaining a court order and, certainly, without obtaining a creditor’s permission. In enacting the Code, Congress chose to place the burden on the entity with an interest in the property to take affirmative action to restrict a debtor’s use of property of the estate. This placement of an affirmative duty on the creditor, rather than the debtor, is consistent with the interpretation of
Like § 363, § 542(a)
8
titled “Turnover of property to the estate” requires no preliminary action on the part of the debtor. The statute contains no provision requiring adequate protection as a prerequisite to turnover. Under § 542(a), an entity in possession, custody or control of property that the debtor or the trustee may use, sell or lease under § 363 “shall” deliver such property to the trustee unless such property is of inconsequential value or benefit to the estate.
Even in those circumstances where a debt- or and creditor have reached an agreement relating to relief from the automatic stay, prohibiting or conditioning the use of property, or providing adequate protection, Bankruptcy Rule 4001(d) requires that a motion,
The court finds that the statutory scheme of the Code contained in
This court recognizes that the prohibition in
At a minimum, it appears that bankruptcy courts approved of differing practices concerning adequate protection when Whiting Pools was decided. Reported bankruptcy decisions did require the turnover of a debtor’s vehicle without providing adequate protection. In re Purbeck & Assoc., Ltd., a 1981 decision concerning a chapter 7 trustee’s turnover action, concludes “[t]he plaintiff is entitled to an order requiring the defendant to immediately deliver the jeep to the plaintiff without the necessity of the providing the defendant with adequate protection.” Purbeck, 12 B.R. at 410. The reported decision immediately preceding Purbeck in the Bankruptcy Reporter, Matter of Endres, 12 B.R. 404 (Bankr.E.D.Wis.1981), provides another example of the adequate protection procedures employed by bankruptcy courts prior to the decision in Whiting Pools. In Matter of Endres, a case commenced under chapter 13, the court concluded:
This court agrees that repossession pri- or to actual knowledge of the filing of the bankruptcy petition is not contemptible. However, this court finds that refusal to return the property upon learning of the proceeding is a willful violation of the stay provisions and may be contemptible. In re Miller, 10 B.R. 778 (Bkrtcy.D.Md.1981).
FMCC argues that they are only protecting their interest in the automobile. This court finds such interest could have been protected by an order of this court after the filing of a proper action.
Matter of Endres, 12 B.R. at 406.
The 1983
Whiting Pools
decision obviously preceded the 1984 Amendments and there
The majority of courts have interpreted
In
Whiting Pools,
the IRS seized, prepetition, the tangible personal property of Whiting Pools, Inc. (“Whiting”) pursuant to a levy and distraint provision of the Internal Revenue Code. The day after the seizure, Whiting filed a petition for reorganization under chapter 11 and was continued as debtor in possession. The IRS filed a motion in the bankruptcy court for a declaration that
The bankruptcy court determined that the IRS was bound by
The majority line of cases, including
Knaus, Abrams
and their followers, focus on the Supreme Court’s conclusion in
Whiting
Otherwise, if persons who could make no substantial adverse claim to a debtor’s property in their possession could, without cost to themselves, compel the debtor or his trustee to bring suit as a prerequisite to returning the property, the powers of a bankruptcy court and its officers to collect the estate for the benefit of creditors would be vastly reduced. The general creditors, for whose benefit the return of the property is sought, would have needlessly to bear the cost of its return.
Knaus, 889 F.2d at 775 (citations omitted).
In the same vein, the courts which adhere to the majority position agree that the duty to cause the postpetition return of property of the estate is not on the debtor, but rather the party who exercises control over the property of the estate. Although a trustee or debtor-in-possession does have the ability to bring a motion to compel turnover under
The continued existence of the majority position was recently documented in
General Motors Acceptance Corp. v. Ryan (In re Ryan),
183 B.R. 288 (M.D.Fla.1995), a case factually similar to the case at bar. There, General Motors Acceptance Corp. (“GMAC”) repossessed an automobile when the purchaser failed to remit installment payments due under the financing contract and removed the car from the state without notifying GMAC. Pursuant to the financing contract, GMAC declared the entire balance due and payable and refused the purchaser’s offer to tender payment of the installments due. Less than a week after the repossession, the purchaser filed a chapter 13 petition and provided notice to GMAC. Although notified of the debtor’s filing, GMAC advised the attorney for the debtor that a turnover action pursuant to
A creditor’s failure to voluntarily turn over property taken lawfully prepetition, when so requested by the debtor postpetition, is a violation of the automatic stay. This means that instead of waiting for the debt- or to institute turnover proceedings, the creditor should come into court upon proper notification, and request a lifting of the automatic stay, at which time the creditor may obtain the protection to which it is entitled.
Ryan, 183 B.R. at 289.
On the other hand, a minority line of cases relies on
Whiting Pools
as authority for the
Some courts which adhere to the “adequate protection” position have attempted to distinguish the contrary authority in Knaus based on the Eighth Circuit’s failure to address the language in Whiting Pools which indicates that adequate protection of a secured creditor’s interest is a prerequisite to turnover. See In re Najafi, 154 B.R. at 194 and In re Richardson, 135 B.R. at 260. Emphasis is placed on the Supreme Court’s awareness that at the bankruptcy court level, the IRS was directed to “turn the property over to Whiting on the condition that Whiting provide the Service with specified protection for its interests” and that Whiting was to pay the Service $20,000 before the turnover occurred. Young, 193 B.R. at 622, citing Whiting Pools, 462 U.S. at 201, 103 S.Ct. at 2311 (emphasis provided).
This court suggests that the analysis of
Whiting Pools
employed by the majority line of cases is appropriate in connection with automatic stay and adequate protection issues and consistent with this court’s interpretation of
A critical fact in
Whiting Pools
is that the IRS moved for relief from stay
before
the debtor moved for turnover pursuant to
The determinative distinction between the factual scenario in Whiting Pools and the factual scenario presently before this court cannot be overemphasized. In the case before this court, the creditor (TranSouth) made its own determination that either the stay did not apply to it or that it, not the court, would determine adequate protection. The former scenario, employed by the IRS in Whiting, is contemplated by the structure of the Code. The latter scenario, employed by TranSouth, violates the provisions of the Code and its policy of preventing any creditor from becoming a self-determining arbiter of what constitutes property of the estate and what actions are permitted or prohibited by the stay. See Matter of Hughes-Bechtol, Inc., 117 B.R. 890, 905 (Bankr.S.D.Ohio 1990), citing In re Smith, 876 F.2d 524, 525-26 (6th Cir.1989) and Matter of Brock, 58 B.R. 797, 804 (Bankr.S.D.Ohio 1986). This court finds that TranSouth willfully violated the automatic stay.
At this juncture, it is appropriate for the court to determine TranSouth’s Motion for Relief from Stay or Adequate Protection, which was filed subsequent to the Debtor’s Motion for Contempt and Sanctions for Violation of the Automatic Stay. In support of its request for relief, TranSouth makes two (2) arguments. TranSouth contends that it lacks adequate protection of its interest and the stay should be lifted “for cause” pursuant to
With respect to TranSouth’s request for relief under
An undersecured creditor may be entitled to adequate protection to ensure against the decline in value of its collateral,
United Savings Ass’n of Texas v. Timbers of Inwood Forest Assocs., Ltd.,
484 U.S. at 370, 108 S.Ct. at 630, but it is only required when a creditor affirmatively asserts its right to receive it.
In re Coates,
180 B.R. 110 (Bankr.D.S.C.1995);
In re Hinckley,
40 B.R. 679 (Bankr.D.Utah 1984). Consistent with
B. VALUATION
Under
By local rule, this court has adopted the third method, the average between the wholesale and retail values. This method reflects general market conditions for a vehicle, which is conceded to be subject to continual depreciation, whether it is in the possession of the debtor or the creditor. Other courts which have given consideration to the appropriate standards for resolving disputed valuation of a vehicle to be retained by a debtor under the terms of the plan have adopted the same standards. See In re Maddox, 194 B.R. 762 (Bankr.D.N.J.1996); In re Madison, 186 B.R. 182 (Bankr.E.D.Pa.1995); In re Hoskins, 183 B.R. 166 (Bankr.S.D.Ind.1995); In re Myers, 178 B.R. 518 (Bankr.W.D.Okla.1995); In re Rowland, 166 B.R. 172 (Bankr.N.D.Fla.1994); In re Stauffer, 141 B.R. 612 (Bankr.N.D.Ohio 1992).
Pursuant to the Local Rules of the United States Bankruptcy Court for the Southern District of Ohio, which authorize the court in Dayton to promulgate such rules for the governing of chapter 13 proceedings as it may deem appropriate, the Local Bankruptcy Rules Dayton — chapter 13 were adopted and became effective January 1, 1991. A copy of selected chapter 13 rules, including Rule D-3.18.3(g), is attached to the Notice of Commencement of Case Under Chapter 13 of the Bankruptcy Code, Meeting of Creditors, and Fixing of Dates, which is mailed to all creditors by the chapter 13 trustee. Rule D-3.18.3(g) provides:
Unless otherwise determined by the court, the general standard for resolving disputed valuation of motor vehicles shall be the average of the trade-in value and the retail value, including options, contained in the Central Edition of N.A.D.A. Official Used Car Guide for the month the debtor’s petition was filed, or the most recent National Edition of the Appraisal Guides for Older Cars, for Older R.V.s., and Older Motorcycles. If the parties have complied with the above procedures [D-3.18.3(c) and (d) ], any party may present otherwise admissible evidence regarding the value of the collateral.
In open court, counsel for TranSouth and counsel for the Debtor agreed, pursuant to the local rule set forth above, that the secured claim in the Vehicle would be valued at the average of NADA wholesale and NADA retail values on the petition date. Neither party exercised their option to present otherwise admissible evidence of factors necessitating a higher or lower value of the collateral. Counsel for the parties jointly calculated the average of the NADA wholesale and retail value on the petition date, plus options, to fix the amount of TranSouth’s secured claim in the Vehicle at $24,737.50. The confirmation order will provide that TranSouth be paid this amount over time through the plan administered by the chapter 13 trustee. The court notes that the chapter 13 trustee will begin distributing funds from the Debt- or’s accumulated payments the month following the entry of the confirmation order and will, thereafter, continue monthly distributions pursuant to the terms of the confirmed plan.
With respect to the Service Contract, this court concludes that it is not an executory contract which the Debtor must assume or reject pursuant to § 365. The Service Contract requires no future performance by the Debtor, except to make payments under the Agreement, which will now be paid pursuant to the confirmed plan. Since the language of the Agreement did not grant TranSouth a security interest in the Service Contract itself, the court also concludes that the value of the Service Contract should not be included in TranSouth’s allowed secured claim. See In re Mitchell, 954 F.2d 557 (9th Cir.1992); In re Loos, 189 B.R. 495 (Bankr.D.Ariz.1995); In re Dews, 191 B.R. 86 (Bankr.E.D.Va.1995).
C. CONFIRMATION
In the Sixth Circuit, the analysis required for a determination of a debtor’s “good faith” when filing for relief under
To avoid a rigid interpretation of the Memphis Bank decision which would automatically require 100% repayment of a debt any time “questionable” (not purely dishonest) pre-plan conduct is found, the Sixth Circuit subsequently clarified its position in In re Okoreeh-Baah, 836 F.2d 1030 (6th Cir.1988). The Okoreeh-Baah court stated that the circuit “did not mean to adopt a rule requiring 100% payment any time ‘questionable pre-plan conduct’ exists, without analyzing any of the debtor’s other circumstances.” Okoreeh-Baah, 836 F.2d at 1032 (emphasis in original). Concluding that Memphis Bank did not establish a per se rule, but was merely offering a possible avenue of recourse for courts dealing with debtors who have engaged in “questionable pre-plan conduct”, the Okoreeh-Baah court adopted a “totality of the circumstances” standard which employs a fact-specific analysis and requires the use of discretion by the bankruptcy judge. Critical to the “good faith” determination is whether there is “a sincerely-intended repayment of pre-petition debt consistent with the debtor’s available resources”. Okoreeh-Baah, 836 F.2d at 1033. Okoreeh-Baah indicates that there are at least twelve pre- and post- petition factors which a bankruptcy judge should weigh in making a good faith determination. Okoreeh-Baah, 836 F.2d at 1032 fn. 3 (citing Matter of Kull, 12 B.R. 654 (S.D.Ga.1981), aff‘d sub nom. In re Kitchens, 702 F.2d 885 (11th Cir.1983)). See also In re Doersam, 849 F.2d 237, 239 (6th Cir.1988) (listing eleven factors). This court recognizes that the factors identified by the Eleventh Circuit in Kitchens do not constitute an exhaustive list, but merely serve as guidelines for a “good faith” determination. As acknowledged by the bankruptcy court in In re Mitchell, 191 B.R. 957, 960-61 (Bankr.M.D.Ga.1995), close proximity in time between a debtor’s purchase of collateral and the filing of a chapter 13 petition may evidence lack of good faith; however, the Mitchell court noted that an unanticipated change in circumstances can mitigate an apparent lack of good faith.
Examining the factors listed in
Okoreehr-Baah
and applying the standards adopted by the Sixth Circuit to the facts of this case, this court finds that the Debtor’s plan meets the good faith requirement of
Although the Debtor and her former spouse filed a chapter 7 case in 1992, the changes in the Debtor’s circumstances, including her divorce, her self-employment in a janitorial business, and the unanticipated repossession of her only vehicle, justify her present filing. The court finds that the prior filing is not indicative of bad faith in the Debtor’s present filing. Counsel for the chapter 13 trustee indicated that the Debtor is current in her plan payments and is not proposing a plan which would place an administrative burden upon the trustee.
In addition to the statutorily mandated policy that bankruptcy provisions be construed liberally in favor of the Debtor, the criteria which remain for consideration are the circumstances under which the debt was incurred, the Debtor’s sincerity in seeking chapter 13 relief, and the amount of payment offered by the Debtor as indicative of the Debtor’s sincerity to repay the debt. The overlap between these criteria is readily apparent, allowing the court to discuss them in unison.
In assessing the circumstances under which the debt was incurred, it is important to recall that a substantial down payment ($3,450) was made by the Debtor in connection with the purchase of the Vehicle. The Debtor has enjoyed continuous employment and has no reason to anticipate a change in employment status or a decrease in income. Although the Debtor defaulted under the terms of the Agreement when the cheek for the February 1996 payment was not honored, the default is mitigated by the fact that it was occasioned by the Debtor’s change of financial institutions. The Debtor took immediate steps to rectify the situation by explaining what transpired to a TranSouth representative and offering to cure the default. To avoid repossession of the Vehicle, the Debtor was informed that it would be necessary to simultaneously remit payment for the months of February and March 1996. Although the Debtor complied with Tran-South’s demand and tendered a cheek for two (2) payments, TranSouth repossessed the Vehicle. The Debtor suddenly faced the loss of the Vehicle, which was necessary to her continued employment, the loss of her prior payments, the possibility, of a deficiency judgment, and actions by TranSouth which were the opposite of the creditor’s representations.
The Debtor’s uncontradicted, credible testimony was that she had no knowledge of chapter 13 proceedings and had not contacted an attorney prior to purchasing the Vehicle. In fact, the Debtor did not contemplate bankruptcy until she contacted an attorney for advice on how to secure the return of the Vehicle. The court finds credible the Debt- or’s testimony that she would not have considered filing chapter 13 had TranSouth not repossessed the Vehicle after she tendered the $2,000 payment TranSouth demanded. Having examined the totality of the circumstances, this court concludes that the Debtor filed this case and proposed her chapter 13 plan in good faith. The Debtor was not guilty of questionable prepetition misconduct in purchasing the Vehicle, attempting to make her payments as requested by Tran-South, seeking legal advice, or exercising a eongressionally permissible choice concerning the filing of a chapter 13 case. The Court concludes the Debtor sincerely intends repayment of her prepetition debt consistent with her available resources.
This court recognizes that at least one other bankruptcy court has reached a different conclusion on facts similar to those presently under consideration. See Brief of TranSouth Financial Corporation in Support of Opinion Rendered in
In re Barnes
(Doc. 39-1). In
In re Barnes,
191 B.R. 963 (Bankr.M.D.Ga.1996) a debtor proposed to retain a 1989 Pontiac purchased one hundred five (105) days before the chapter 13 petition was filed. In connection with the purchase of the vehicle in
Barnes,
the debtor signed an in
This court notes several distinctions between this case and the Barnes case. The court in this case has concluded the Debtor established cause for her plan to extend for the maximum length allowed by the Code (60 months), while the debtor in Barnes proposed a plan for only 36 months. 13 The anticipated distribution to allowed unsecured creditors in this case is twenty-four percent (24%) (which could increase pursuant to the pot plan provisions) compared to the proposed distribution in Barnes of zero percent (0%). Relatively prompt distributions to creditors are proposed in this case, as opposed to a concern about “delay” which inclined the Barnes court “to grant relief to this creditor on terms that might be more favorable than other creditors could expect in similar cases.” Barnes, 191 B.R. at 966, footnote 1. These distinctions may or may not satisfactorily explain the different results reached in eases which share a similar fact pattern. 14
This court suggests that an appropriate analysis is aided by examining the provisions of chapter 13 which govern the treatment of an allowed claim secured by a vehicle.
15
Specifically applicable to this issue is
This court recognizes the significant body of case law concerning good faith pursuant to
D. BURDEN OF PROOF
As the party moving for damages for violation of the automatic stay pursuant to
Contempt proceedings are distinguishable from actions for damages brought pursuant to
Civil contempt is the remedy which was ordinarily invoked by parties aggrieved by a violation of the automatic stay prior to the enactment of
TranSouth relies upon In re Bennett, 135 B.R. 72 (Bankr.S.D.Ohio 1992) for the proposition that the Debtor must prove a violation of the stay by clear and convincing evidence, but this reliance is misplaced. Although In re Bennett does state that “[t]he moving party bears the burden of proof in an action for violation of the stay and must prove his case by clear and convincing evidence”, the cases cited by the Bennett court as support for the quoted statement were civil contempt proceedings. Specifically, the Bennett court relied upon Brockington v. Citizens and Southern Nat’l Bank of South Carolina (In re Brockington), 129 B.R. 68, 70 (Bankr.D.S.C.1991), In re Zunich, 88 B.R. 721 (Bankr.W.D.Pa.1988), and In re Wagner, 74 B.R. 898 (Bankr.E.D.Pa.1987), each of which involved civil contempt proceedings. The Bennett court would have correctly applied the clear and convincing burden of proof standard in a civil contempt proceeding, but the applicable burden of proof in a stay violation damage proceedings is a preponderance of the evidence.
E. DAMAGES
An individual injured by a willful violation of the automatic stay is entitled to recover actual damages, including costs and attorney fees, and, in appropriate circumstances, punitive damages.
A specific purpose of the automatic stay is to allow a debtor in the initial period of a reorganization case to focus on plan preparation, filing, and execution, free from the burden of responding to any creditor activity not authorized by the Code. The specific language of
The amount of the award is subject to several factors. The issue of attorney fee awards pursuant to
In this case the court finds that the attorney for the Debtor initiated contact with TranSouth’s representatives and counsel and provided them with the Debtor’s bankruptcy ease number, copies of the Debtor’s schedules, and proof of insurance coverage. Tran-South’s representatives and counsel were contacted on multiple occasions, during normal business hours, when TranSouth could have simply authorized the release of the Vehicle to the Debtor. Counsel for the Debt- or attempted to “educate the creditor of the bankruptcy filing and its effects”, McLaughlin, 96 B.R. at 560, and attempted to “encourage the offending creditor to desist”. McLaughlin, 96 B.R. at 561. All to no avail. Despite TranSouth’s apparent awareness of In re Sutton, 87 B.R. 46 (Bankr.S.D.Ohio 1988) requiring the return of the Vehicle (see footnote 3), TranSouth caused the Debtor to resort to this court to remedy the stay violation. TranSouth’s violation of the stay significantly jeopardized both the Debtor’s personal transportation, and her income from her self employment as the operator of a cleaning service.
Reviewing counsel for the Debtor’s time records listed on attached Exhibit A pursuant to the lodestar principles of
In re Boddy,
950 F.2d 334 (6th Cir.1991) and
The court determines that all of the other time entries listed on attached Exhibit A were sufficiently detailed, caused by Tran-South’s failure to comply with the Code’s requirements, and directly related to remedying the stay violation. Accordingly, the time entries are allowed as filed. By the court’s calculation, counsel for the Debtor expended 14.15 hours.
The remaining factor is the reasonableness of the hourly rate charged by counsel for the Debtor. For the reasons previously noted, including the absence of any objection to the claimed rate in this stay litigation, the court determines the requested rate of $150.00 per hour is reasonable. Accordingly, the calculation of 14.15 hours at $150 per hour results in an award of $2,122.50, for which judgment will be entered in favor of the Debtor against TranSouth with interest to run pursuant to
The court further determines that the facts of this case do not present the appropriate circumstances to award punitive damages.
Orders in accordance with this decision are contemporaneously entered.
SO ORDERED.
EXHIBIT A
ROSEMARY SHARON CHAPTER 18 BANKRUPTCY CASE NO. 96-31035 TIME LOG-RE STAY VIOLATION ONLY
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Notes
. Unless otherwise indicated, all section and rule references are to the current Bankruptcy Code,
. See In re Witkowski, 16 F.3d 739, 747-48 (7th Cir.1994) discussing the significance of pot plans in chapter 13 cases.
. At the March 21, 1996 hearing, counsel for TranSouth relied upon In re Sutton, 87 B.R. 46 (Bankr.S.D.Ohio 1988), an opinion published by Chief Judge Clark of this court. In Sutton, the court held that a creditor who repossessed a debtor‘s automobile prepetition was under no obligation to return the automobile postpetition, so long as the debtor remained uninsured. The factual situation is this case is exactly the opposite: here the Vehicle was insured and proof of insurance was supplied at the same time the Debtor requested the return of the Vehicle. As the first sentence of the Sutton opinion states, “[t]he controlling facts in the disposition of this case are that plaintiff‘s automobile was uninsured at the time she filed her petition in bankruptcy and that the vehicle was made available to her upon proof of insurance.” Sutton, 87 B.R. at 46 (emphasis supplied). Sutton supports the Debtor’s position, not TranSouth’s position.
. A copy of counsel for the Debtor’s time log is attached as exhibit A to this opinion.
.
Property of the estate includes, in addition to the property specified insection 541 of this title—
(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first; and
(2) earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first.
.
If the business of the debtor is authorized to be operated under section 721, 1108, 1203, 1204, or 1304 of this title and unless the court orders otherwise, the trustee may enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing.
.
The trustee may not use, sell, or lease cash collateral under paragraph (1) of this subsection unless—
(A) each entity that has an interest in such cash collateral consents; or
(B) the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of this section.
.
Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease undersection 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
. The court notes that TranSouth’s action also violated
. The Supreme Court’s recent decision in Citizens Bank of Maryland v. Strumpf, - U.S. -, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995) is consistent with “Whiting Pools in that the creditor made no attempt to exercise control over property of the estate without filing a motion for relief from the stay.
.
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest;
12) with respect to a stay of an act against property under subsection (a) of this section,- if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization;
.
“(a) The court shall confirm a plan if—
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(3) the plan has been proposed in good faith and not by any means forbidden by law ...”
.
The plan may not provide for payments over a period that is longer than three years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than five years.
. The court notes that although TranSouth, understandably, cited
In re Barnes,
191 B.R. 963, decided by the Middle District of Georgia, Macon Division, on January 31, 1996, there is no citation to
In re Mitchell,
191 B.R. 957, decided by the Middle District of Georgia, Columbus Division, on November 14, 1995.
Mitchell’s
facts involve chapter 13 debtors who purchased a vehicle 134 days prior to filing and made only two (2) payments pursuant to the contract. The debtors proposed a plan which reduced the purchase price and contract interest rate in accordance with the provisions of
.
(a) Except as provided in subsection (b), the court shall confirm a plan if—
(5) with respect to each allowed secured claim provided for by the plan—
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that the holder of such claim retain the lien securing such claim; and
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; or
(C) the debtor surrenders the property securing such claim to such holder;
.
(C) ... consumer debts owed to a single creditor and aggregating more than $1,000 for “luxury goods or services” incurred by an individual debtor on or within 60 days before the order for relief under this title, or cash advances aggregating more than $1,000 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 60 days before the order for relief under this title, are presumed to be nondischargeable ...