U.S. Bankruptcy Court outlines steps required for debtors to obtain

Daily Record (Rochester, NY), May 20, 2005 by Kevin M. Momot

Where the debtors filed a contempt motion in response to repossession of their vehicle before a Chapter 13 bankruptcy petition was filed, the court outlined the steps required for debtors to obtain possession of a vehicle repossessed before a Chapter 13 bankruptcy petition is filed.

In, In re: Phillip S. Powers (Owner of MyHome Services, Inc.) and Ana A. Powers, U.S. Bankruptcy Court, Western District of New York Chief Judge John C. Ninfo, II, denied the debtors' motion for contempt.

Background

On March 15, Phillip and Ana Powers (debtors) filed a petition initiating a Chapter 13 case. On the same day, before the debtors filed the petition, the National Bank of Geneva repossessed the debtors' vehicle through the use of its agent, Auto Tech Repossessions, Inc. The bank held a valid security interest and lien on the vehicle.

At the time of the repossession, Auto Tech was advised by the debtors that they intended to file a bankruptcy petition later that day.

On April 1, the debtors filed a contempt motion pursuant to Bankruptcy Code Section 362(h).

On April 21, Auto Tech responded to the contempt motion, asserting: (1) the vehicle was lawfully repossessed prior to the filing of the debtors' petition; (2) Auto Tech had a possessory garagemen's lien on the vehicle; (3) the agent was entitled to retain possession until fees related to the repossession were paid, along with attorney's fees associated with the contempt motion; and (4) the vehicle would be disposed of by Notice of Lien and Sale (Lien Law Section Section 184, 2001) in 10 days unless the vehicle was redeemed or a turnover adversary proceeding was filed with the court.

Discussion

In the decision for the court, Judge Ninfo outlined the steps required for Chapter 13 debtors to obtain possession of a vehicle repossessed before a bankruptcy petition is filed.

First, the court noted, the secured creditor (or its agent) that repossessed the vehicle has an unavoidable possessory garagemen's lien on the vehicle for a reasonable repossession fee and related expenses, including reasonable storage charges (repossession costs).

Next, in order to obtain a release of the vehicle, the debtor must pay those reasonable repossession costs in full, or otherwise provide for payment on terms acceptable to the creditor or repossessing agent. This can include payment as a secured claim in the debtor's plan, independent of the allowed secured replacement value claim of the creditor, if that arrangement is acceptable to the creditor or the repossessing agent.

In addition to paying or providing for the repossession costs, Judge Ninfo also noted the debtor must demonstrate to the creditor and the Chapter 13 trustee that the debtor's bankruptcy filing was in good faith.

Specifically, the debtor must show: (1) he or she is able to fund a plan that will meet the requirements of Bankruptcy Code Section 1325; and (2) that the sole purpose of the Chapter 13 was not merely to obtain possession of the repossessed vehicle to be followed by a voluntary dismissal once possession has been obtained.

Finally, to the extent the debtor is unable to pay the repossession costs immediately, and the parties are unable to agree on: (a) acceptable terms for the payment of those costs; (b) whether the debtor's filing was in good faith; or (c) whether the repossession fees and expenses are reasonable, Judge Ninfo stated the parties should immediately contact the bankruptcy court to set up an emergency conference by telephone to determine the issues.

Conclusion

The debtors' motion for contempt was denied.