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What does a Proof of Claim regarding an automobile have to show to allow for treatment as a secured claim?

In a recent case before Judge Daniel S. Opperman, Chapter 13 Trustee, Thomas W. McDonald, Jr., objected to the Proof of Claim filed by the Wanigas Credit Union on a “secured” auto loan.

Wanigas claimed that its lien was perfected despite the absence of a title stamp. Wanigas argued that because the Debtor had failed to give Wanigas the Certificate of Title, Wanigas was not able to send in the necessary application to the Secretary of State’s office for recording.

Debtor purchased an auto which was later refinanced by Wanigas. Despite not processing the RD-108, Wanigas advanced the monies to pay off her purchase money lender.

Judge Opperman sustained the Trustee’s objection because Wanigas had failed to have  its lien properly listed on Debtor’s Certificate  of Title. The Trustee relied on

Frank v. Second National Bank of Saginaw (In re: Gilbert) 82 B.R. 456 (Bankr. E. D. Mich. 1988) which held that a creditor, in order to perfect its security interest in a motor vehicle, must have its interest either noted  on the Certificate of Title; or,  prove that the secured party delivered  the  necessary  paperwork to the Secretary of State’s office.

Wanigas failed to comply with either method of perfecting its interest. Wanigas argued that since the Trustee did not object to the confirmation of Debtor’s Chapter 13 Plan which treated Wanigas as a secured creditor, the Trustee was estopped and barred from arguing otherwise. However, Judge Opperman noted that Debtor’s Chapter 13 Plan could have been  confirmed   as  early   as  August

11, 2016, approximately 1 ½ months before the Proof of Claim deadline of September 28, 2016.  However, confirmation was adjourned to September 22, 2016, and the Order confirming Debtor’s Plan  was  signed by the Court on September 23, 2016. All of these dates were prior to the September 28, 2016 Proof of Claim deadline. Therefore, the Court determined that it was physically impossible for the Trustee to know the  exact nature of Wanigas’ Proof of Claim; and, it was not until September 28, 2016, when Wanigas filed its Proof of Claim that the Trustee had a definite idea that Wanigas’ Proof of Claim was deficient.

Judge Opperman ruled that Wanigas had failed to take the necessary and required steps to deliver the paperwork that would have protected its interest to the Michigan Secretary of State’s office. As a result, the Wanigas was treated as a Class 9 General Unsecured Claim.