In re Riding
| Decision Date | 05 December 1984 |
| Docket Number | Bankruptcy No. 84A-01327. |
| Citation | 44 BR 846 |
| Parties | In re Bill F. RIDING, Korine Clements Riding, Debtors. |
| Court | U.S. Bankruptcy Court — District of Utah |
Steven T. Waterman, Watkiss & Campbell, Salt Lake City, Utah, for The State Bank.
Richard Calder, Salt Lake City, Utah, for debtors.
This matter concerns the procedural aspects of litigating turnover of property of the debtor's estate under 11 U.S.C. § 542.1 The Court is called upon to decide whether a Chapter 13 debtor may commence a turnover proceeding by motion. This opinion is written to encourage and facilitate a uniform practice under the Bankruptcy Rules. The Court holds that a proceeding for turnover of property must be instituted by complaint in accordance with Part VII of the Bankruptcy Rules.
On May 15, 1984, the debtors filed a joint petition for relief under Chapter 13 of the Bankruptcy Code. On July 17, 1984, the debtors filed a motion to compel The State Bank, creditor with a secured claim, to turn over a 1978 Chevrolet pickup truck, which had been repossessed following default and prior to the filing of the Chapter 13 petition. A copy of the motion, together with a notice of the hearing thereon, set for July 26, 1984, was mailed to the Chapter 13 trustee and the bank on July 17, 1984. At the hearing, neither the trustee nor the bank appeared, and the Court entered an order granting the debtors the relief sought.2 Later that day, The State Bank filed a motion for relief from the order, asking that it be vacated upon the grounds that (1) a turnover proceeding must be commenced by the filing of a complaint and not by motion; (2) notice was inadequate, since the bank, an out-of-state resident, received less than 7 days notice by mail; and (3) notice was inadequate because it did not describe with particularity the nature of the hearing. The Court heard oral argument on the bank's motion and the matter was taken under advisement.
A joint case under Chapter 13 is commenced by the filing of a petition by an individual and such individual's spouse. 11 U.S.C. § 302(a). The filing of a Chapter 13 petition creates an estate which includes all legal or equitable interests of the debtor in property as of the commencement of the case, as well as property and earnings acquired after the commencement of the case but before the case is closed, converted, or dismissed. 11 U.S.C. §§ 541, 1306. Property of the estate, as defined by Section 541, encompasses more than just property in the debtor's possession at the time of filing the bankruptcy petition. United States v. Whiting Pools, 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 67-68 (1977), 1978 U.S.Code Cong. & Admin. News, pp. 5787, 6323-24; S.Rep. No. 95-989, 95th Cong., 2d Sess. 82-3 (1978), 1978 U.S.Code Cong. & Admin.News, pp. 5868-69. See In re Independent Clearing House Company, 41 B.R. 985, 998, 12 B.C.D. 44, 11 C.B.C.2d 196 (Bkrtcy.D.Utah 1984). Section 541(a)(1) defines property of the estate as all legal and equitable interests held by a debtor. In re Southern Equipment Sales, Co., Inc., 24 B.R. 788, 792 (Bkrtcy.D.N.J.1982).
The debtors' interest in the 1978 Chevrolet pickup truck after its repossession and prior to its sale is that of a right of redemption under Section 9-506 of the Uniform Commercial Code. Utah Code Ann. § 70A-9-506 (Repl.1980). See In re Anderson, 29 B.R. 563, 564 (Bkrtcy.E.D. Va.1983). Under Section 9-506, the debtors have the right to redeem collateral that has been repossessed, provided (1) the creditor has not disposed of the collateral or contracted for its disposition under Section 9-504; (2) the creditor's right to retain the collateral has not become fixed under Section 9-505(2); (3) the parties have not otherwise agreed in writing after the default; and (4) the debtors tender fulfillment of the secured obligation, plus the expenses incurred in repossessing the collateral. Utah Code Ann. § 70A-9-506, supra. A debtor's right to redeem is property of the estate. In re King, 14 B.R. 316, 317-18, 7 B.C.D. 530 (Bkrtcy.M.D.Tenn.1981); In re Brickel, 11 B.R. 353, 355, 7 B.C.D. 957 (Bkrtcy.D.Me.1981); In re Gunder, 8 B.R. 390, 393 (Bkrtcy.S.D.Ohio 1980); In re Williams, 6 B.R. 789, 6 B.C.D. 1219 (Bkrtcy.E. D.Mich.1980). Furthermore, Section 1322(b)(3) permits a Chapter 13 debtor to cure any default, and thereby negates the effect of acceleration clauses. In re Taddeo, 685 F.2d 24 (2d Cir.1982). See In re Anderson, supra, 29 B.R. at 565; In re Kokkinis, 22 B.R. 353, 355 (Bkrtcy.N.D.Ill., 1982).
A turnover proceeding "is essentially a proceeding for restitution." Maggio v. Zeitz, 333 U.S. 56, 63, 68 S.Ct. 401, 405, 92 L.Ed. 476 (1948). The Bankruptcy Court can order the turnover of property in which the debtor holds only a contingent possessory right, such as a right of redemption or the right to cure a default, as long as adequate protection can be afforded to the secured party. United States v. Whiting Pools, Inc., 674 F.2d 144, 155-56 (2d Cir. 1982), aff'd 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515, supra; Georgia Pacific Corp. v. Sigma Service Corp., 712 F.2d 962, 966-67 (5th Cir.1983); In re Sunrise Equipment and Development Corp., 24 B.R. 26, 27 (Bkrtcy.D.Ariz.1982); In re Alpa Corp., 11 B.R. 281, 289-90, 7 B.C.D. 791 (Bkrtcy. D.Utah 1981); Matter of Day Resource & Development Co., 21 B.R. 176, 177-78, 9 B.C.D. 569 (Bkrtcy.D.Idaho 1982); In re King, supra, 14 B.R. at 317-18; Matter of Troy Industrial Catering Service, 2 B.R. 521, 5 B.C.D. 1243 (Bkrtcy.E.D.Mich.1980). See In re Purbeck & Associates, Ltd., 12 B.R. 406, 408 (Bkrtcy.D.Conn.1981).
Property for which turnover may be compelled under Section 542 is simply the kind of property which the debtor may "use, sell or lease" under Section 363.3 Once the property is found to be of a type which the debtor could "use, sell or lease," turnover is appropriate under Section 542 subject only to the conditions imposed by Section 363. Matter of Cudaback, 22 B.R. 914, 917, 9 B.C.D. 695, 7 C.B.C.2d 204 (Bkrtcy.D.Neb.1982).4 For example, if a request is made for adequate protection by a secured creditor with an interest in the property and the debtor is unable to provide adequate protection, the requirement of Section 363(e) cannot be met and turnover will not be ordered. Id.
Alternate means are available to adequately protect the secured creditor's interest during the pendency of the case, thereby insuring that the creditor "receives in value essentially what he bargained for." H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 339 (1977), 1978 U.S.Cong. & Admin.News, p. 6295. See In re Sweetwater, 40 B.R. 733, 735, 11 B.C.D. 1220 (Bkrtcy.D.Utah 1984); In re South Village, Inc., 25 B.R. 987, 990-94, 9 B.C.D. 1332, 8 C.B.C.2d 42 (Bkrtcy.D.Utah 1982); In re Alyucan Interstate Corp., 12 B.R. 803, 806-08, 7 B.C.D. 1123, 4 C.B.C.2d 1066 (Bkrtcy.D. Utah 1981). The first means suggested by Section 361 is periodic cash payments to the creditor to the extent that there will be a decrease in its interest in the collateral. 11 U.S.C. § 361(1). The second method is to provide an additional or replacement lien to the extent that the automatic stay or use of the collateral results in a decrease in the value of the secured creditor's interest. 11 U.S.C. § 361(2). The third alternative is "such other relief" as the Court may fashion that will provide the secured creditor with adequate protection. 11 U.S.C. § 361(3).
One commentator referred to the relationship between Sections 363 and 542 as follows:
The inclusion of section 363 in section 542 assures that a turnover order may not issue in total disregard of the creditor\'s interest. Rather, sections 542 and 363 should be read together to form the general rule: "If there is any value or benefit to the estate in receiving property, turnover must be made if the interest of the creditor in the property to be turned over is adequately protected."
D. Nowak, "Turnover Following Prepetition Levy of Distraint Under Bankruptcy Code § 542," 55 Am.Bankr.L.J. 313, 335-36 (1981). See also Weisman, "The Legal Standard for A § 542(a) Turnover," 1983 Ann.Surv.Bankr.L. 265, 281-84.
It is in the light of these substantive principles of turnover that the Court now turns to the procedural requirements.
For many years, the bankruptcy bar in this district was a rather small group of lawyers. The same attorneys would appear before the Court in varying capacities in most substantial cases. There is a marked difference, however, in the practice of bankruptcy law since enactment of the Code. The pervasive jurisdiction of the Bankruptcy Court, even as modified by the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. 98-353, 98 Stat. 333 (July 10, 1984), has required that a wider variety of matters be litigated before bankruptcy judges. The inevitable result is that the practice of bankruptcy law has been diffused and will continue to be diffused among many more members of the bar. This is to be encouraged. Cf. H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 95 (1977), 1978 U.S.Code Cong. & Admin. News p. 6056 (1978). But before such attorneys can competently represent parties in this Court, they must understand the framework of statutes and rules within which the nation's bankruptcy system operates. This is an educational task of no small proportion.5 Summary Turnover and Contempt Procedure Under the 1898 Bankruptcy Act.
Under the 1898 Bankruptcy Act, and prior to promulgation of the 1973 Rules of Bankruptcy Procedure, there were two procedural methods to determine whether property of the debtor's estate was wrongfully in the possession of a third party. A petition for "turnover" was one, and a plenary suit was the other. See In re Tech. Consolidated, Inc., ...
To continue reading
Request your trial