Under state law, consumer can reclaim repossessed vehicle from creditor after filing bankruptcy proceedings

Law Reporter, Jun 2004

Moffett v. Tidewater Fin. Co., 356 F.3d 518 (4th Cir. 2004).

The Fourth Circuit Court of Appeals held that a Virginia consumer's right to redeem a repossessed vehicle is automatically included in the bankruptcy estate created upon the filing of bankruptcy proceedings. Therefore, a vehicle repossessed before me proceeding, but not yet disposed of, can be reclaimed, as long as the creditor's interests arc protected.

Here, a finance company repossessed Moffett's car after she failed to make payments. She filed for bankruptcy the same day and demanded return of the vehicle pursuant to bankruptcy laws, which provide an automatic stay and turnover right. The creditor filed a motion for relief with the bankruptcy court, which was denied. A trial court affirmed, holding the consumer retained a statutory right of redemption.

Affirming, the Fourth Circuit held that all legal or equitable property interests of a debtor are included in a bankruptcy "estate" as soon as the debtor files for bankruptcy. Federal bankruptcy laws create an automatic stay on any act by a party to control property or enforce a pre-petition lien, the court noted. Acknowledging that creditors have a right to dispose of repossessed property under certain conditions, the court said creditor here failed to sell the vehicle before debtor tried to reclaim it. Virginia's codification of the Uniform Commercial Code, Va. Code § 8.9A623(c)(2), provides that a debtor's right to redeem property is in efiect until the creditor properly disposes of it.

Creditor's argument that it is not subject to the stay is without merit, the court determined. Debtor's bankruptcy reorganization plan is structured so that she can reclaim the vehicle by making regular payments to creditor, which she has already begun to do. Thus, creditor's interests are adequately protected, subjecting it to the stay. The purpose of the stay is to assist a bankrupt person in successful financial rehabilitation, the court reasoned, which will be undermined here if debtor is not permitted to exercise her right to redeem her vehicle.

Debtor's Counsel

Robert Ross Weed, Alexandria, Va.