If your car has been repossessed, filing chapter 13 can make the creditor give it back.
In a ruling that agrees with most other courts, the U.S. Court of Appeals for the Second Circuit held in May that a creditor who repossesses a car or truck must return it if the owner files chapter 13 before it is sold. Weber v. SEFCU (In re Weber), _F.3d _(2d Cir. 2013).
The facts and holding in Weber
The case arose after SEFCU, a credit union in upstate New York, financed a pickup truck for Christopher Weber. When Weber defaulted on the payments, the credit union repossessed the truck. Four days later, Weber filed chapter 13, and his attorney demanded return of the vehicle. SEFCU declined, contending it did not have to release the vehicle unless ordered by the bankruptcy court.
Weber sued the credit union under Section 362 of the Bankruptcy Code, known as the automatic stay provision. Among other protections, this provision prohibits anyone from exercising control over property of the estate during a bankruptcy case. All the debtor’s property becomes property of the estate when a bankruptcy case is filed. In addition, Section 542 requires anyone in possession of estate property to deliver it to the trustee. In chapter 13, however, the debtor takes the place of the trustee in this respect and is entitled to possession of estate property, in part because the property may be necessary for the debtor to make plan payments and reorganize effectively. Taken together, Weber argued, these rules meant SEFCU was required to turn over the truck on his demand after he filed.
The court found that Weber still had an ownership interest in the truck when he filed because, under New York law, he could redeem it up until it was sold. This meant the truck was property of the estate, and the credit union should have returned it on request. Because it did not, SEFCU willfully violated the automatic stay and was liable to Weber for actual damages and attorney’s fees.
The view from Ohio and South Carolina
Because state law determines the rights of an auto owner after repossession, owners in some parts of the country may not have the right to demand turnover. But in Ohio, as in South Carolina, where I practice, the courts agree with Weber. So an owner can reclaim a repossessed car and pay for it – or sometimes pay its value, if less – through a chapter 13 plan.
What this all means to you
Chapter 13 can be an expensive and cumbersome process. An attempt get back a repossessed car, without more, will rarely justify filing bankruptcy. But if an auto owner has other reasons to consider bankruptcy – if he is behind on a mortgage or has a substantial amount of unsecured debt – the advantage of saving the car may make chapter 13 appealing.
Lex Rogerson, Columbia-Lexington Bankruptcy Lawyer