In re Spears, Bankruptcy No. 98 B 02371
| Decision Date | 06 August 1998 |
| Docket Number | Bankruptcy No. 98 B 02371,Adversary No. 98 A 00902. |
| Citation | 223 BR 159 |
| Parties | In re Debra E. SPEARS, Debtor. Debra E. SPEARS, Plaintiff, v. FORD MOTOR CREDIT CO., Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Erik A. Martin, Chicago, IL, for Plaintiff.
Sherman & Sherman, Chicago, IL, for Defendant.
Craig Phelps, Chicago, IL, Trustee.
Plaintiff-debtor, Debra E. Spears ("plaintiff"), has brought this adversary proceeding to recover a 1997 Ford Escort that she purchased under a retail installment sales contract financed by defendant, Ford Motor Credit Company ("FMCC"). In addition, she moves that FMCC be sanctioned for willfully violating the automatic stay in her case under Chapter 13 of the Bankruptcy Code ("Code"),1 11 U.S.C. §§ 1301 et seq.
Because it repossessed the vehicle before plaintiff filed her Chapter 13 petition, FMCC takes the position that the vehicle is not subject to turnover as property of plaintiff's bankruptcy estate. Responding to plaintiff's request for sanctions, FMCC further contends that it did not violate the stay by refusing to voluntarily turn over the vehicle at the outset of this case. For the reasons set forth below, plaintiff's motion for turnover under § 542(a) is granted, but her request for sanctions under § 362(h) is denied.
When plaintiff filed her Chapter 13 petition on January 26, 1998, she proposed to retain the vehicle, with payments on a secured claim of $15,000 to be paid FMCC over the course of a 36-month plan. Plaintiff alleges that on January 28, 1998, her counsel notified FMCC of the filing, and requested voluntary return of the vehicle. Complaint, ¶ 7 and Ex. A. FMCC did not return the vehicle, and it filed a motion to modify the automatic stay on February 17, 1998. That motion first came before the court on February 24, 1998.
This court denied FMCC's motion to lift the stay on March 19, 1998, after an evidentiary hearing. At that time, the court made findings that although plaintiff lacked equity in the vehicle, it was reasonably necessary for an effective reorganization under § 362(d)(2)(B). Also, FMCC's security interest was adequately protected, as the vehicle was fully insured and monthly payments under plaintiff's Chapter 13 plan were considerably greater than the rate at which the vehicle was depreciating each month.
Much of the evidence at the hearing had addressed the question whether plaintiff's second Chapter 13 case had been filed in good faith. Based on the testimony and documents in evidence, the court found that while plaintiff's second plan was in most respects the same as her first plan, the debtor's inability to fulfill the first plan was related to a partial loss of income. The second plan was not materially in default and plaintiff had agreed to payroll deduction, which had been established. While observing that FMCC's doubts regarding plaintiff's good faith were not unreasonable, the court found that plaintiff had filed her Chapter 13 petition in good faith. Ultimately, the court determined that if plaintiff would enter into a two-month default order, FMCC could be further assured that plaintiff was in good faith, and that its interest in the property was adequately protected. Finally, the court directed that upon entry of such default order, FMCC would be obligated to return the vehicle to plaintiff.
On March 24, 1998, FMCC moved that the court alter or amend the March 19 order, arguing that the evidentiary hearing had been a preliminary hearing, and that there should be a final hearing on the motion to lift the stay. Among other arguments made, FMCC contended that plaintiff had presented no evidence of insurance at the hearing, and that FMCC was not in possession of any information or knowledge regarding any insurance on the vehicle. Addressing the question whether it should turn the vehicle over to plaintiff, FMCC argued that unless plaintiff commenced an adversary proceeding for turnover, the court lacked jurisdiction to order return of the vehicle. The court ruled that an adversary proceeding was required, and plaintiff filed an adversary complaint for sanctions and turnover of property on May 5, 1998. The case was then tried to the court on June 11, 1998.
At the threshold of the hearing, plaintiff objected to the admission of new evidence, asserting that FMCC was collaterally estopped by the determination of fact issues on the motion to lift the stay. The court overruled the objection and received evidence on all fact issues save that of depreciation of the vehicle. Neither party has offered legal authority concerning the question of preclusion of evidence. The court will, therefore, consider all the evidence received at the hearing, in light of its earlier findings of fact, in reaching its judgment.
In August, 1997, plaintiff purchased a 1997 Ford Escort automobile under a retail installment sales contract financed by FMCC in the approximate amount of $21,000. Plaintiff made a down payment of $1,500 and agreed to pay $375 per month for 60 months.
Plaintiff made no payments on the contract before filing a chapter 13 petition, Case No. 97 B 30513 on October 3, 1997. The case was dismissed on December 2, 1997 for failure to commence making payments pursuant to § 1326(a)(1). Because plaintiff had made no payments under the contract, FMCC repossessed the vehicle during or about the second week of January, 1998. Plaintiff then commenced this case by filing a second petition under Chapter 13 on January 26, 1998. Plaintiff admits that she filed this case for the purpose of saving her automobile.
Plaintiff testified that she failed to fund the first Chapter 13 plan because of loss of employment. Although plaintiff's testimony was not entirely clear, the court infers from it that plaintiff's principal place of employment is at Market Day in Itasca, Illinois, where she has worked for about three-and-one-half years. In addition, plaintiff has worked as a part-time "casual" worker for the United States Postal Service, for successive periods of not more than 89 days, as needed. Two weeks after she filed her first bankruptcy case, plaintiff lost the casual employment for one-and-one-half weeks. (Income from the casual employment had not been included in the budget for plaintiff's first Chapter 13 plan.)
Plaintiff continues to work at Market Day since she has lost her car, but she cannot work at the Postal Service because of lack of transportation. Plaintiff also uses her car to take care of family business such as shopping, laundry, transporting her son, and so forth.
Plaintiff's plan provides for monthly payments of $440, with full payment on secured claims and payment of 10% of unsecured claims. The plan was confirmed on April 7, 1998, and, with the exception of a small default noted in this court's March 19, 1998 order, there is no evidence that payments under the plan have not been made.
Plaintiff has maintained full coverage insurance on the vehicle for an unknown period of time. On April 29, 1998, she received a notice of cancellation. She resumed payments, so that as of the date of trial, there was full coverage insurance on the vehicle. Plaintiff makes monthly payments of $87 for insurance. Although plaintiff budgeted only $50 per month for automobile insurance in her Chapter 13 plan, she may amend her plan to take into account the fact that premiums are higher than anticipated.2
Based on all the evidence received, the court adheres to its earlier findings that FMCC's security interest is adequately protected and that plaintiff did not file her petition in bankruptcy in bad faith. Looking to the latter question, plaintiff's desire to save her car from repossession is not an improper motive. The court credits plaintiff's testimony that reduction in income, even though apparently small, caused the dismissal of her first case, and because plaintiff has funded her second plan, the court finds that this debtor in good faith seeks to adjust her debts as provided by the Bankruptcy Code.
As previously noted, plaintiff's complaint raises two legal issues. First, in connection with her claim under § 542(a), FMCC argues that plaintiff does not possess a sufficient property interest in the vehicle, such that turnover may be ordered. Second, FMCC contends that sanctions under § 362(h) are not required here, as it did not violate the automatic stay in refusing to return the vehicle after receiving notice of plaintiff's Chapter 13 filing. Because a decision in FMCC's favor on the question under § 542(a) would obviate the need to address the issue under § 362(h), this opinion addresses it first.
11 U.S.C. § 542(a). Since turnover is a remedy to obtain what is acknowledged to be property of the bankruptcy estate, it follows that if the debtor does not have an interest in property at the commencement of the bankruptcy case, turnover cannot be ordered. See In re Johnson, 215 B.R. 381, 386 (Bankr. N.D.Ill.1997).
The Supreme Court has determined that turnover may be ordered in cases where, prior to the commencement of reorganization proceedings, property of a Chapter 11 debtor...
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