In Re Warrington
Opinion
Before the Court is the Debtor’s Motion for Turnover of Vehicle and For Counsel Fees for Violating the Automatic Stay. The Motion is directed at Citadel Federal Credit Union who opposes it. A hearing on the Motion was held on January 6, 2010, after which the Court granted limited relief and took the remaining issues under advisement. For the reasons which follow, the Debtor’s Motion will be granted in part and denied in part. 1 Background
There is no dispute as to the operative facts. They are: that in August 2006 the Debtor and another person purchased a 2001 Nissan Maxima; that Citadel provided the financing for that purchase; that Citadel is the present holder of the financing contract; that on or about September 30, 2009, the Debtor defaulted under the contract when he failed to make a monthly payment; that on December 8, 2009 Citadel repossessed the car; that on December 9 Citadel sent the Debtor a notice of repossession in accordance with Pennsylvania law; that the Debtor filed this bankruptcy case on December 22; and that on December 29, the Debtor filed the instant motion for turnover of the car and for attorneys fees. See Debtor’s Motion, ¶¶ 2-5
At the hearing on January 6, the parties discussed the Debtor’s legal rights in the vehicle after repossession and after a bankruptcy filing. It is the Debtor’s position that because he has provided adequate protection of Citadel’s interest in the car, it must be returned to him. Debtor’s Motion, ¶ 8. Citadel contends that the Debtor is entitled to the return of the vehicle upon payment of the redemption amount as provided by applicable state law. That question would be taken under advisement but the Court afforded the parties interim relief: the parties submitted a stipulated order which provided (1) that Citadel would return the vehicle in exchange for one monthly payment and proof of insurance and (2) that the Debtor would continue to make monthly contract payments as adequate protection until confirmation. See Order of January 14, 2010.
The Issues
That left four questions for the Court to decide: first, must the Debtor’s automobile which was repossessed prepetition be returned to him? Second, if it must, then what measure of adequate protection is Citadel entitled to? Third, does state law or federal bankruptcy law control as to how the Debtor may treat the secured lender in his Chapter 13 Plan? Fourth, is the Debtor entitled to recover attorneys fees on account of Citadel’s conduct?
Is the Repossessed Vehicle Property of the Estate?
Any discussion of property rights in a bankruptcy case must begin with § 541 of the Bankruptcy Code:
The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
11 U.S.C. § 541(a)(1) The Third Circuit has “emphasized Congress’ intent to delineate in broad terms what constitutes property of the estate.”
See In re O’Dowd,
While federal law defines the limits of what is property of the estate, it is state law which determines a debtor’s interest in particular property.
See Butner v. United States,
The Debtor sees Citadel’s reliance on
Butner
as misplaced. The controlling authority on the question of whether a repossessed the car must returned, Debtor counters, is the Supreme Court’s decision in
Whiting Pools, supra.
Debtor’s Supplemental Brief, 1-2. This Court agrees and finds
Whiting Pools
to be instructive. That case involved a prepetition tax levy upon personal property. There, the IRS had seized property and remained in possession of it on the petition date. Like the state statute in the instant case, the tax code similarly provided a right of redemption to the taxpayer. Thus, the Supreme Court found that the IRS had no more than a lien on the seized property putting it in the same position as a private secured creditor.
Whiting Pools,
As does all bankruptcy law, § 542(a) modifies the procedural rights available to creditors to protect and satisfy theirliens... In effect § 542(a) grants to the estate a possessory interest in certain property of the debtor that was not held by the debtor at the commencement of reorganization proceedings.
Id.
Sale of motor vehicle after repossession
A. When the repossessed motor vehicle under an installment sale contract is not redeemed by the buyer either by termination or reinstatement of the contract within the fifteen (15) day notice of redemption period, the buyer shall forfeit all claim to such motor vehicle and collateral security.
69 P.S. § 626A (emphasis added). Likewise, the contract provides that Citadel may sell the vehicle only after expiration of the redemption period:
15. SOME THINGS YOU SHOULD KNOW IF WE REPOSSESS THE VEHICLE: If we repossess without using a government official (by replevin):
b. REDEMPTION: You have the right to buy back (redeem) the Vehicle within 15 days of the mailing of the Notice and at any later time before we sell the Vehicle. If you redeem the Vehicle, we will deliver the Vehicle to you at a place as provided by law, as soon as is reasonably possible, but in not more than ten (10) business days of our receipt of the funds required. If you do not redeem, you give up all claim to the Vehicle.
c. SALE: If you don’t redeem we will sell the Vehicle. The money received at sale will be used to pay costs and expenses you owe, and then to pay the amount you owe on the Contract.
Motor Vehicle Installment Contract, ¶ 15b, c (emphasis added). 'Because the 15 day redemption period was pending at the time of the bankruptcy, Citadel had not sold the vehicle. From this the Court must conclude that title to the vehicle remains with the Debtor. What necessarily follows is that the vehicle must be returned to his estate.
See In re Attinello,
Return of Vehicle; Adequate Protection
Turnover of repossessed property, however is not unconditional. The
Whiting Pools
Court would add that “the Bankruptcy Code provides secured creditors various rights, including the right to adequate protection, and these rights replace the protection afforded by possession.”
§ 1326 Payments
(a)(1) Unless the court orders otherwise, the debtor shall commence making payments not later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier, in the amount-
(C) that provides adequate protection directly to a creditor holding an allowed claim secured by personal property to the extent the claim is attributable to the purchase of such property by the debtor for that portion of the obligation that becomes due after the order for relief, reducing the payments under sub-paragraph (A) by the amount so paid and providing the trustee with evidence of such payment, including the amount and date of payment.
11 U.S.C. § 1326(a)(1)(C). As understood in this context, “adequate protection” must be determined for “that portion of the obligation that becomes due after the order for relief.”
In re Singer, supra,
Debtor has offered evidence in the form of Blue Book appraisals 6 of his vehicle. In January 2010, the same make and model of vehicle with comparable mileage was worth $6,565; depreciation is occurring at a rate of approximately $53 per month. See Debtor’s Supplemental Certification, ¶¶ 5-9. Accordingly, this Court conditioned turnover of the vehicle on payment of one monthly contract payment and the Debtor’s agreement to make monthly pre-confirmation payments in the same contract amount. See Order of January 14, 2010. That provides sufficient protection of Citadel’s interest in the vehicle pending a determination of how the Debtor may treat Citadel’s claim in his Chapter 13 plan.
Chapter 13 Debtor’s Rights in Repossessed Property
On the question of how Debtor’s plan may deal with its claim, Citadel maintains that it is the state motor vehicle law which dictates what Debtor may do with it. Relying, once again, on Butner, supra, Citadel insists that the only right that the Debtor had upon filing the petition was the right to redeem the vehicle by payment in full of all amounts due. See Citadel Brief, 6. This would entail a one-time, lump sum payment. Id. 3. Reinstatement, it goes on, is within the discretion of the holder of the contract — not the borrower — as expressly set forth under state law. 7 Id. 2.
Debtor points out that the
Butner
Court recognized the limits of applying non-bankruptcy law when determining a debtor’s interest in property. While
But-ner
stands for the general proposition that a debtor’s property interests are determined by state law, “some federal interest [might] require a different result.”
The Court is constrained to agree with the Debtor. The limits which the MVSFA places upon the borrower of a repossessed vehicle simply cannot be reconciled with the rehabilitative purpose of Chapter 13. Section 1322 of the Bankruptcy Code allows for more than one way for a plan to treat a secured claim such as Citadel’s: the plan may modify the rights of holders of secured claims,
8
leave unaffected the
Having determined that the Code affords the Debtor considerable flexibility in how it proposes to treat Citadel’s claim, the Court turns to the question of whether what is proposed is in accordance with applicable provisions of the Bankruptcy Code. According to the plan, the Debtor is proposing to modify the loan: Citadel is to receive $200 per month for 60 months for a total of $12,000. 9 The Code allows the modification of a secured claim which pays the secured creditor the present value of its claim. See 11 U.S.C. § 1325(a)(5)(B). If Citadel believes that the amount proposed to be paid is less than the present value of its claim, then it may object to confirmation of this plan. Confirmation, however, is not before the Court at this time. All that Citadel is entitled to until confirmation is adequate protection of its claim.
Debtor’s Demand For Counsel Fees
In his motion, the Debtor requests an award of attorney’s fees on account of what it considers a violation of the automatic stay on the part of Citadel. While there is no dispute that Citadel retained the car after receiving notice of the Debt- or’s bankruptcy filing, its actions were predicated upon a decision of this Court which clearly allowed such conduct. Under such circumstances, any imposition of sanctions would be most inappropriate.
Summary
The Debtor’s Motion for Turnover is supported by the record. While he is entitled to the return of the vehicle, the Debt- or was rightly required to furnish adequate protection of Citadel’s interest in it pending confirmation. His proposed treatment of Citadel’s claim will not be limited by non-bankruptcy law. Finally, Citadel’s conduct does not justify an award of attorneys fees.
An appropriate Order follows.
Notes
. This matter is within the Court’s "core” jurisdiction. See 28 U.S.C. § 157(b)(2)(E) (designating among “core” proceedings "orders to turn over property of the estate.”)
. 69 P.S. § 601 et seq.
. 69 P.S. § 625
. Although the High Court in
Whiting Pools
limited its ruling to Chapter 11 cases, numerous decisions have applied its rationale to Chapter 13 cases.
See e.g., Associates Commercial Corp. v. Attinello (In re Attinello),
. In the Eleventh Circuit, cases have reached different outcomes depending on the state law involved.
Compare In re Lewis,
.F.R.E. 803(17) recognizes the exception to hearsay rule regarding market reports. It is made applicable by B.R. 9017;
See In re Mama’s Original Foods, Inc.,
. 69 P.S. § 624
. This loan is subject neither to the anti-modification provision of § 1322(b)(2) (mortgage loans on a debtor’s principal residence) nor the preclusion of auto loan bifurcation as provided in § 1325(a)(9), hanging paragraph. The latter provision applies to certain car loans made 2'/> years prior to bankruptcy. This car loan was made in August 2006 which is more than 3 years prior to the filing of this bankruptcy case.
. The Debtor's supplemental brief characterizes the treatment as "cure and reinstatement” but this inconsistent with what that term connotes. “Cure” of a delinquent contract suggests making the lender whole by paying arrearages and other costs and fees provided for under the instrument. "Reinstatement” refers to the resumption of the regular payments in the contract amount.
See In re Ryker,