In re Corder
| Decision Date | 15 September 2021 |
| Docket Number | 21 B 10189 |
| Parties | In re: KAHNIYAH CORDER, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Appearance of Counsel: Attorney for Debtor: Michael A Miller, The Semrad Law Firm, LLC
Attorney for Future Finance: Joseph G. Ryan, Gordon & Centracchio, LLC
Chapter 13 Trustee: Marilyn O. Marshall
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR CONTEMPT UNDER § 105(A) FOR FAILURE TO COMPLY WITH STATUTORY OBLIGATIONS UNDER § 543 OR § 542 IN THE ALTERNATIVE AND TO DETERMINE ADEQUATE PROTECTION UNDER § 361 AND § 363(E) (EOD 24) AND DENYING MOTION TO MODIFY THE STAY (EOD 25)
This matter comes before the court on the motion of Debtor Kahniyah Corder ("Debtor" or "Corder") for Contempt Under § 105(a) For Failure to Comply with Statutory Obligations Under § 543 or § 542 in the Alternative and to Determine Adequate Protection Under § 361 and § 363(e) (the "Turnover Motion") and the motion of creditor Future Finance Company, Inc. ("Future Finance") to Modify the Stay (the "RFS Motion"). Both motions were heard in court on September 8. The parties each filed a response to the other's motion before returning to court for a continued hearing and oral argument on September 13, 2021. For the reasons stated below, the Turnover Motion will be granted in part and denied in part, and the RFS Motion will be denied.
Although the parties submitted no evidence, they generally agree on the factual background. Corder purchased a 2016 Nissan Altima in March 2021, for which Future Finance provided the financing. The Altima was damaged in an accident, although it is still operable, and Corder's insurance declined coverage for the damage. The parties disagree on the cost of repairs.
The financing terms required Corder to maintain full coverage insurance. At some point prepetition she changed her policy to liability-only insurance because she could not afford full coverage.
On August 25, 2021, after Corder missed three of the five loan payments that had come due, Future Finance repossessed the Altima. Corder filed for relief under chapter 13 about a week later, on August 31, 2021. Her attorneys demanded by phone, on September 1 and September 2, that Future Finance return the Altima, and followed up with a letter on September 3, 2021. Corder obtained full coverage insurance effective September 4, 2021. When Future Finance did not turn over the Altima, she filed the Turnover Motion on an emergency basis. The same day, Future Finance filed the RFS Motion.
The Schedule J that Corder filed with her petition did not include a line item for car insurance; she filed an amended Schedule J on September 9, allowing $325 for that expense. Corder amended her chapter 13 plan the next day, providing a $200 monthly payment to Future Finance on a claim of $10,069 at 5.5%. The plan provides for pre-confirmation adequate protection payments in the same amount, an increase of about $150 from her original plan.
A. The Turnover Motion 1. Future Finance consented to this matter being heard as a contested motion
The Federal Rules of Bankruptcy Procedure require the filing of an adversary proceeding when a party seeks "to recover money or property," except in certain situations not relevant here. Fed.R.Bankr.P. 7001(1). See Matter of Perkins, 902 F.2d 1254, 1258 (7th Cir. 1990). Future Finance waived the argument that it must be served with a summons and complaint and consented to proceeding by contested motion. See Response to the Debtor's Motion for Contempt or in the Alternative to Determine Adequate Protection, p. 1.
2. Debtor's request for turnover is granted
11 U.S.C. § 542(a) requires an entity in possession of property that the trustee (or in this case, the chapter 13 debtor) may use under section 363 to deliver the property to the debtor unless it is of inconsequential value or benefit to the estate. According to a letter attached to the Turnover Motion, Debtor cited § 542(a) and demanded on September 1, 2 and 3 that Future Finance deliver the Altima to her.
The Supreme Court has acknowledged that the question of "how bankruptcy courts should go about enforcing creditors' separate obligation to 'deliver' estate property to the trustee or debtor under § 542(a)" is not settled. City of Chicago v. Fulton, 141 S.Ct. 585, 592 (2021) (Sotomayor, J., concurring). In this case, Debtor chose to request that the court impose sanctions under section 105 of the Code and order turnover of the Altima and payment of monetary sanctions.
The obligation to turn over property under § 542 is mandatory, unless the property is "of inconsequential value or benefit to the estate."[1] Future Finance argues that this exception applies, because the Altima was damaged in an accident prior to the bankruptcy filing, and that the damage is not covered by insurance. It asserts that $5,704.93 in damages to a $10,889.67 vehicle results in little remaining value for the estate, thereby leaving a significant financial burden for the estate and its creditors to bear.
Debtor pointed out at oral argument that the car is not inoperable. She alleges that she needs the vehicle to travel 35 miles each way to work and that she must transport her two young children, asserting that public transit is not a realistic method for accomplishing either of these. Although the insurance policy is relatively expensive, requiring Corder to pay more than the amount of her monthly plan payment, without it she could not propose a plan at all.
The Altima provides a means for Corder to earn a living, transport her children and fund a chapter 13 plan, so Future Finance did not establish that it is of inconsequential value and benefit to the estate.
As a result, section 542 requires turnover of the Altima. Having determined that turnover is required under § 542, the court will not address the alternative request for turnover based on the Debtor's alleged failure to comply with § 543.
3. Debtor's request for monetary sanctions is denied.
Having reviewed the circumstances of this case, the court finds that an award of monetary sanctions for Future Finance's failure to "deliver" the Altima is not appropriate at this time. Debtor sent a letter demanding turnover on September 3, 2021. The full coverage insurance policy naming Future Finance as the lienholder did not go effect until Saturday, September 4, 2021. Monday, September 6 was a holiday, and Corder filed the Turnover Motion the very next day. Future Finance filed the RFS Motion also on September 7, 2021. Corder did not amend Schedule J to show that she could afford the premiums for the upgraded full coverage insurance policy for another two days.
Future Finance challenges the Debtor's entitlement to turnover on several bases, including an assertion that the Altima is of inconsequential value to the estate. Future Finance also seeks relief from the automatic stay on several grounds, including the allegation that the Altima is not necessary for an effective reorganization. The parties quickly brought their disputes to the court, including Future Finance's dispute over the Debtor's entitlement to turnover.
With these facts in mind, the court will deny the request for monetary sanctions for failure to turn over the Altima prior to this ruling. This denial does not prejudice a future motion to compel compliance or request for sanctions should Future Finance refuse to turn over the Altima in accordance with this order.
4. Corder has provided Future Finance with adequate protection
As a chapter 13 debtor, Corder has some of the rights of a trustee. 11 U.S.C. § 1303. This includes the powers of a trustee under § 363(e) to provide adequate protection to protect an entity that has an interest in property the debtor may use. 11 U.S.C. § 361 explains that when adequate protection is required under § 363, it may be provided by cash payments, replacement liens, or "such other relief . . . as will result in the realization by such entity of the indubitable equivalent of such entity's interest in such property."
In re Coleman, 229 B.R. 428, 432 (Bankr. N.D.Ill. 1999) (quotation omitted). See In re Welch, No. 08-74139, 2009 WL 691189 (Bankr. N.D.Ill. March 13, 2009).
To provide adequate protection to Future Finance, Debtor proposes to pay $200 per month before plan confirmation, and $200 per month once her plan is confirmed. Debtor listed Future Finance on Schedule D with a claim in the amount of $10,069, but no proof of claim is yet on file. The claims bar date is nearly two months away; neither party has firmly established the amount of Future Finance's claim. In this situation, Debtor has shown that $200 per month provides adequate protection to Future Finance under either of two methods used to satisfy the requirements of § 1326(a)(1)(C), the Code section that requires payments to creditors for diminution of value in collateral securing the obligation, when that collateral is personal property and the claim is attributable to the purchase of the property. See In re Robson, 369 B.R. 377, 383 (Bankr. N.D.Ill. 2007) (); In re Beaver, 337 B.R. 281, 285 (Bankr. E.D. N.C. 2006) (adequate protection acceptable to the court...
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