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Repossessed car belongs to couple’s estate

As reported in WestlawNext, Repossessed car belongs to couple’s estate, must be returned, judge says (Bkrtcy.S.D.Ga.)
(August 26, 2015) – A dealership that repossessed a couple’s car after they filed their second Chapter 13 petition violated the automatic stay because the vehicle, bought under a valid contract between bankruptcy cases, belonged to their estate, a Georgia bankruptcy judge has ruled.
U.S. Bankruptcy Judge John S. Dalis of the Southern District of Georgia also refused to lift the stay, saying the debtors rebutted any presumption that they did not file their case in good faith with evidence about their financial circumstances.
Loan documents
George and Nancy Crosby’s original Chapter 13 case was dismissed July 20 after they fell behind on their mortgage and plan payments because of health and employment issues, according to the Bankruptcy Court opinion.
The Crosbys bought a 2013 Honda Fit from Southern Motors of Savannah Inc. the next day, the opinion said. They testified they needed a second vehicle so that George could attend his frequent medical appointments while Nancy was at work.
The Crosbys and Southern Motors executed a retail installment contract that stated the dealership “assigns its interest in this contract to Santander Consumer USA Inc.,” the opinion said.
They also executed a delivery receipt that included a provision that if the parties executed a retail installment contract, they intended the seller to assign the loan to another party, and that if it were not assigned within a certain period, the contract would be void.
On Aug. 3, two weeks after their first case was dismissed, the Crosbys filed a second Chapter 13 case.
The next day Santander notified Southern Motors that it would not purchase the loan because of the filing, the opinion said.
Southern Motors repossessed the vehicle several days later despite having knowledge of the Crosbys’ bankruptcy.
Southern Motors moved for stay relief Aug. 7, and the Crosbys countered with an adversary proceeding seeking turnover of the vehicle.
Estate property
A bankruptcy estate consists of a debtor’s interests in property as of the date the case begins. Therefore, the Fit belongs to the Crosbys’ estate to the extent they had a legal or equitable interest in it on their petition date, Judge Dalis explained.
He rejected Southern Motors’ argument that Santander’s refusal to accept the loan assignment rendered the retail installment contract void, meaning, according to the dealership, the Crosbys never acquired an interest in the Fit.
The delivery receipt’s requirement that the interest in the contract be assigned for it to be valid was in fact satisfied, the judge said, citing the retail installment contract’s language stating that the company “assigns its interest in this contract to Santander.”
“It is irrelevant whether or not the assignment was actually completed or was reassigned back to Southern Motors, because as between the Crosbys and Southern Motors, the assignment was stated as complete,” he wrote.
Rebutted presumption
Because the Crosbys filed their petition within a year of the dismissal of their previous Chapter 13 case, there was a statutory presumption that they did not file it in good faith, Judge Dalis said.
The debtors, however, presented clear and convincing evidence rebutting that presumption because, by its terms, the proposed Chapter 13 plan would honor the terms of the retail installment contract, he said.
In addition, the Crosbys’ provided a “substantial excuse” for their prior case’s failure through testimony that Nancy had lost her job, the couple’s only source of income, following an illness, the judge said.
Finally, he said, the Crosbys’ new proposed plan appears feasible because Nancy has recently obtained new employment and both debtors will soon be eligible for Social Security benefits.
Judge Dalis therefore refused to grant stay relief and ordered Southern Motors to return the vehicle immediately.
The issue of damages in connection with the stay violation remains pending.
By Lisa Uhlman