Debtor’s Willful Refusal to Turnover Car After the Stay is Lift Not Sufficient Grounds to Object to Discharge

In the case below, a car lender obtained a lift stay allowing it to repossess debtor’s vehicle. The debtor, however, was not about to let that happen and allegedly kept the vehicle behind a locked area. The lender could not repossess. In response, the lender filed an objection to discharge based on this conduct, The court held that the debtor’s refusal to hand over the vehicle did not create grounds to object to a discharge in the case. Furthermore, the lender having obtained a lift stay had the right to pursue state law remedies.

 

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
LAWRENCE T. WHITE,
Debtor.
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)
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)
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Case No. 10-01117
(Chapter 7)
Not for publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION RE MOTION TO DISMISS
Wilson Powell Lincoln Mercury, which has a security
interest in the debtor’s car, seeks dismissal of this case.
Wilson Powell has obtained relief from the automatic stay
“permitting the Movant to exercise any and all legal rights which
Movant has as a secured creditor.” Wilson Powell seeks dismissal
because the debtor has interfered with Wilson Powell’s
repossession efforts by keeping the car behind a locked fence,
has not brought current payments on the note secured by the
debtor’s car, and has not produced evidence of insurance.
I
Wilson Powell’s rights and remedies regarding enforcing its
security interest, arising from the debtor’s failure to make
payments, to facilitate repossession, and to keep the car
U.S. Bankruptcy Judge
S. Martin Teel, Jr.
_____________________
The document below is hereby signed.
Dated: September 17, 2011.insured, are the same if the case is dismissed or is not
dismissed.
That the debtor has not kept the car insured, and that his
failure to permit access to the car may put Wilson Powell to
added expenses of insuring the car to protect its collateral, and
of obtaining a court order to gain access to the car, but that
will arise whether the case is in or out of bankruptcy. The
debtor’s forthcoming discharge (to which no creditor has timely
objected) may result in the debtor having no obligation to
reimburse Wilson Powell for those added expenses of protecting
and enforcing its security interest, but that is the nature of
bankruptcy. The consequence of a bankruptcy discharge is that
generally a debtor’s liability to a creditor is discharged, the
creditor’s claim is converted to only a non-recourse claim to the
extent collateral secures the claim, and the creditor can only
look to such collateral to collect its claim. Wilson Powell
already has relief from the automatic stay to enforce its
security interest against the car, and the pendency of the
bankruptcy case has no effect on that right of enforcement.
The debtor has opposed Wilson Powell’s motion, arguing that
he is struggling to bring the account current now that he has
employment. Wilson Powell asserts in its reply to the debtor’s
opposition that the debtor is guilty of bad faith: knowing that
the automatic stay has terminated, he willfully and intentionally
2withholds the car in derogation of Wilson Powell’s rights.
Accordingly, argues Wilson Powell, the Debtor has not earned his
right to a discharge and this case should be dismissed. I reject
that argument for the following reasons.
The Bankruptcy Code sets forth the circumstances in which a
discharge can be denied or revoked, and if the debtor’s conduct
fits within one of those circumstances, a creditor’s remedy is to
pursue an adversary proceeding to deny or revoke the discharge.
Although bad faith may be invoked as a basis for dismissal of a
case, Wilson Powell has not alleged conduct rising to the level
of bad faith warranting dismissal of the case. As is made
evident by the prior discussion, Wilson Powell’s lien enforcement
rights under nonbankruptcy law remain unaltered precisely because
the automatic stay has been lifted to permit it to exercise those
rights. The Bankruptcy Code does not enhance those nonbankruptcy
law rights by imposing on the debtor an obligation, beyond what
obligation exists under nonbankruptcy law, to facilitate Wilson
3Powell’s repossession rights.1 To the extent that a debtor’s
postpetition conduct in preventing repossession rises to the
level of the tort of conversion, or gives rise to some other
cause of action for imposing liability against the debtor that is
unaffected by the debtor’s discharge, the creditor’s rights in
that regard are the same whether the cause of action arises
before or after the debtor receives a discharge.
II
In its reply to the debtor’s opposition to its motion,
apparently in light of the debtor not having been coerced by the
threat of dismissal into facilitating repossession, Wilson Powell
requests a turnover order as an alternative to dismissal. But
that request is not properly before the court. In its motion to
dismiss, Wilson Powell did not request such relief, and, in any
event, pursuant to Fed. R. Bankr. P. 7001(1), such a request
would require an adversary proceeding.
Moreover, even if the request were properly before the
1 Wilson Powell has not invoked 11 U.S.C. § 521(a)(6).
When § 521(a)(6) applies to effect a termination of the automatic
stay, and despite the provision’s indication that the debtor “not
retain possession of [the collateral],” the creditor’s
nonbankruptcy law rights are not enhanced, and the creditor is
limited to proceeding in accordance with its nonbankruptcy law
rights regarding obtaining possession of the collateral. See In
re Rowe, 342 B.R. 341, 349-50, 351 (Bankr. D. Kan. 2006). See
also In re Jones, 397 B.R. 775, 790 (S.D.W. Va. 2008); In re
Ruona, 353 B.R. 688, 692 (Bankr. D.N.M. 2006); In re Steinhaus,
349 B.R. 694, 707-708 (Bankr. D. Idaho 2006); In re Anderson, 348
B.R. 652, 659-60 (Bankr. D. Del. 2006); In re Donald, 343 B.R.
524, 539 (Bankr. E.D.N.C. 2006).
4court, I would have serious doubts that this court would have
subject matter jurisdiction to compel turnover. The trustee has
filed a report of no distribution, thus signaling that he has no
interest in administering the car. In that circumstance,
turnover of the car will have no apparent impact on the
administration of the estate, and thus Wilson Powell’s request
for turnover likely would not come within the court’s “related
to” jurisdiction under 28 U.S.C. § 1334(b). See Turner v.
Ermiger (In re Turner), 713 F.2d 338 (2d Cir. 1983); Ostroff v.
Am. Home Mortg. (In re Ostroff), 433 B.R. 442, 449-50 (Bankr.
D.D.C. 2010) (no jurisdiction to adjudicate debtor’s state law
claim of lien invalidity on exempt property). Nor has Wilson
Powell pointed to a provision of the Bankruptcy Code creating a
right to an order of turnover so that its request “arises under”
the Bankruptcy Code within the meaning of § 1334(b).2 Although
the request “arises in” the bankruptcy case in the sense of
occurring while the debtor’s bankruptcy case is still pending,
the court’s “arising in” jurisdiction under § 1334(b) does not
apply if the proceeding has nothing to do with the administration
of the case or the estate, and does not concern a matter that
2 As noted previously, Wilson Powell has not invoked 11
U.S.C. § 521(a)(6). When § 521(a)(6) applies to effect a
termination of the automatic stay, the courts have uniformly held
that its indication that the debtor “not retain possession of
[the collateral]” does not create a right in the creditor to a
turnover order. See In re Rowe, 342 B.R. at 349-50, 351, and
other decisions cited in n.1, supra.
5could arise only in bankruptcy. See In re Ostroff, 433 B.R. at
449. A court action to compel a debtor, who is interfering with
repossession, to turn over her car can arise outside of
bankruptcy, and, indeed, Wilson Powell has obtained relief from
the automatic stay that would permit it to pursue such an action
elsewhere.
III
For all of these reasons, an order follows denying the
motion to dismiss.
[Signed and dated above.]
Copies to: Recipients of e-notification.
R:CommonTeelSMJudge Temp DocsWhite (Lawrence) Decsn re MTD.wpd
6

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