If you’ve ever faced the stress of a vehicle repossession, you know just how urgent the situation can become. Chapter 13 bankruptcy can offer a way to regain possession of your vehicle, but time is of the essence. Acting swiftly is crucial before your lender auctions off the vehicle, as once it’s sold, retrieval becomes impossible.
Following the City of Chicago v. Fulton decision, reclaiming your repossessed vehicle after filing chapter 13 may now pose additional challenges. In the past, a common resolution involved your attorney issuing a warning letter under 11 USC § 362(k), warning of potential sanctions, damages, or punitive measures for violating the automatic stay. This typically prompted the lender to return the vehicle.
However, after this ruling, lenders may feel empowered to adhere to the Fulton decision, which could lead them to hold onto repossessed vehicles indefinitely. Now they are permitted to maintain the status quo, meaning your vehicle remains in the repo man’s lot, but they’re unable to auction off the vehicle without filing a motion for relief from the automatic stay. This legal mechanism serves as a safeguard, preventing lenders from disposing of the repossessed vehicle without proper authorization from the bankruptcy court.
After filing for Chapter 13 bankruptcy, I’ve realized the critical importance of submitting a written request to the lender for the return of the vehicle. Even if they refuse, this action puts them on notice of your intentions. If the lender keeps possession of the vehicle, your attorney will need to look for other options to secure its retrieval.
What is a Motion to Compel Turnover?
A motion to compel turnover is a written motion filed by a debtor in bankruptcy court to request the return of property that belongs to the bankruptcy estate. In the context of reclaiming a repossessed vehicle in Chapter 13 bankruptcy, this motion serves as a powerful tool for debtors seeking to regain possession of their vehicles.
When a debtor files for Chapter 13 bankruptcy, certain assets become part of the bankruptcy estate, including any repossessed vehicles. Under bankruptcy law, creditors are obligated to deliver these assets to the trustee overseeing the bankruptcy case. This section specifically states:
“an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.”
11 U.S.C. § 542(a)
Additionally, in situations where lenders refuse to return repossessed vehicles despite the filing of Chapter 13, debtors have the option to file a motion to compel turnover. This legal recourse arises from the debtor’s right to retain possession of property belonging to the bankruptcy estate under specific circumstances. Pursuing a motion for turnover represents one such circumstance where debtors can assert their entitlement to the return of their assets. This is clearly spelled out in the bankruptcy statute:
“Subject to any limitations on a trustee under this chapter, the debtor shall have, exclusive of the trustee, the rights and powers of a trustee under sections 363(b), 363(d), 363(e), 363(f), and 363(l), of this title.”
11 U.S.C. § 1303
As previously stated, the trustee can recover a repossessed vehicle under section 363 of the Bankruptcy Code. Even more importantly, debtors also have the same rights under 1303 as those held by the trustee. Thus, debtors have the ability to initiate the recovery of their vehicle on their own behalf.
Lastly, the statute explicitly states:
“Except as provided in a confirmed plan or order confirming a plan, the debtor shall remain in possession of all property of the estate.”
11 U.S.C. § 1306
Also, Justice Sotomayor explicitly restricted the scope of the Fulton decision to specific criteria:
“Section 542(a) imposes a duty of turnover that is mandatory when the statute’s conditions … are met.”
City of Chicago, Illinois v. Fulton, 1418. Ct. 585, 593 (2021) (Sotomayor, J., concurring) (citing Brief for Petitioner 37)
The conditions required include that the vehicle is considered property of the bankruptcy estate, that the debtor can claim exemption for such property, that the property holds value for the estate, and that the debtor has ensured adequate protection for the creditor.
Before filing a motion to compel turnover, it’s essential for the bankruptcy schedules to accurately reflect these criteria. Failure to do so may result in objections from the creditor. Even if a vehicle lacks equity, it can still be considered to have “value” due to its role as the means for a debtor to commute to work and generate income for a repayment plan.
Understanding Your Court’s Procedure: Adversary or Motion?
In the wake of the Fulton decision, many courts now mandate that legal actions to compel turnover must take the form of an actual adversary case. An adversary case is essentially a separate lawsuit within your bankruptcy case, governed by its own set of rules and deadlines. Unfortunately, the lengthy process typically associated with an adversary case often creates significant obstacles, ultimately leading to the vehicle being unrecoverable in many cases.
One such obstacle is that a debtor’s attorney may require additional legal fees to handle the adversary matter. These fees can place further financial strain on already struggling debtors. Additionally, if a debtor lacks reliable transportation for commuting to and from work, their ability to fund their Chapter 13 bankruptcy plan is compromised. Such circumstances may prompt the trustee to consider dismissing the bankruptcy plan, intensifying the debtor’s financial challenges. Thus, these interconnected issues underscore the critical importance of resolving vehicle repossession disputes swiftly and efficiently within a simple motion for turnover.
The Federal Rules of Bankruptcy Procedure provides debtors with a compelling argument for why they may not need to file an adversary proceeding. Although Rule 7001(a) specifies that a proceeding to recover property must be initiated as an adversary proceeding, it’s noteworthy that the term “recover” is absent in 11 U.S.C. Section 542(a). Instead, the section uses the term “deliver.” This discrepancy suggests that, rather than initiating an adversary proceeding, opting for a simple motion to compel turnover is perfectly appropriate. Notably, this approach has been upheld in the Northern District of Illinois since the Fulton decision.
Essential Information for Filing a Motion for Turnover
To file a motion for turnover effectively, it’s crucial to gather comprehensive information to support your case. Here’s a breakdown of the essential details you’ll need to include:
- Bankruptcy Filing Details: Include specific dates and details regarding the filing of the Chapter 13 bankruptcy petition, the trustee appointed, and the current status of the bankruptcy plan.
- Repossession Incident: Describe the circumstances surrounding the repossession of the vehicle, including the date, the party involved (such as the lender), and specific details about the vehicle, including its make, model, year, and VIN (Vehicle Identification Number).
- Reasons for Bankruptcy Filing: Clearly state the reasons for filing the bankruptcy case, particularly emphasizing the importance of reclaiming the vehicle as a key motivation.
- Previous Bankruptcy History: If applicable, provide information about any prior Chapter 13 bankruptcies, including their outcomes.
- Legal Basis for Turnover Motion: Reference the pertinent sections of the Bankruptcy Code (such as 11 U.S.C. Sec. 542(a)) and relevant legal principles supporting the debtor’s right to compel turnover of the vehicle.
- Request for Expedited Notice: If necessary, make a request to shorten the notice period, providing compelling reasons such as the debtor’s reliance on the vehicle for transportation and employment stability.
- Prayer for Relief: Conclude the motion with a clear statement of the relief sought, which typically includes an order compelling turnover of the vehicle and any other relief deemed fair and proper by the court.
By ensuring that these key details are thoroughly documented and presented in your motion for turnover, you can enhance the likelihood of a favorable outcome in reclaiming your vehicle within the bankruptcy proceedings.
Enforcing Turnover with Monetary Fines
Creditors who fail to promptly turnover vehicles under § 542(a) may be subject to monetary fines imposed by the Court. However, it’s imperative that the creditor receives proper notice of the motion beforehand. This entails serving the notice of motion for turnover upon the creditor in accordance with the court rules.
Once valid service has been completed, the Court may order the creditor to pay a monetary fine for failing to turnover a vehicle in a timely manner. The statute explicitly outlines:
“A monetary penalty may not be imposed on a creditor for a violation of a stay in effect under section 362(a) (including a monetary penalty imposed under section 362(k)) or for failure to comply with section 542 or 543 unless the conduct that is the basis of such violation or of such failure occurs after such creditor receives notice effective under this section of the order for relief.”
11 U.S.C. § 342(g)(2)
Despite the Fulton decision, there is still a viable avenue to compel the return of repossessed vehicles. However, it necessitates the proper filing of a motion for turnover. Although this approach may require additional effort, the end result is essentially unchanged. You get the car back, so you can get on with your life.
For expert guidance in navigating the process, consider scheduling a consultation with Steven J. Grace. With extensive experience in bankruptcy law, Steven J. Grace can provide the necessary insights and representation to help you secure your financial stability. Contact Steven J. Grace today by visiting the Contact Us page or calling 312-493-6912. Don’t let vehicle repossession challenges overwhelm you – seek the expertise of Steven J. Grace to guide you toward a favorable resolution.
