In re Warren
| Decision Date | 08 May 1998 |
| Docket Number | Adversary No. 98-00042.,Bankruptcy No. 98-00737-BGC-13 |
| Citation | 221 BR 843 |
| Parties | In re Karita WARREN, Debtor. Karita WARREN, Plaintiff, v. SouthTRUST BANK, NA, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
Chris Shepherd, Birmingham, AL, for Plaintiff.
Alan Levine, Birmingham, AL, for Defendant.
The matter before the Court is the debtor's Complaint to Recover Auto filed on February 9, 1998. After notice, a scheduling conference was held on April 13, 1998. Mr. Chris Shepherd, the attorney for the debtor, and Mr. Alan Levine, the attorney for the defendant, SouthTrust Bank, NA, appeared. At the conference, counsel indicated that an evidentiary hearing would not be necessary and that they wished to submit the matter on a written stipulation of facts and on briefs. The Court agreed and suggested that the matter would be taken under advisement after receipt of those documents.
While the parties did not submit the stipulation or the briefs, the Court has taken the matter under advisement and has made its decisions based on the uncontested facts contained in the debtor's complaint.1
SouthTrust Bank financed the debtor's purchase of a 1995 Mitsubishi automobile and holds a perfected security interest in that automobile. On January 31, 1998, after the debtor failed to make all payments required under the parties' contract but before the debtor filed bankruptcy, SouthTrust repossessed the automobile.
The debtor filed her Chapter 13 bankruptcy on February 3, 1998. And on February 9, 1998, the debtor filed the pending 11 U.S.C. § 542(a) complaint in which she seeks the return of the automobile.
Section 542(a) provides that anyone:
in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
11 U.S.C. § 542(a)(emphasis added). And according to 11 U.S.C. § 363(b)(1), the trustee in bankruptcy may only "use, sell or lease . . . property of the bankruptcy estate." Id. (emphasis added). Consequently, this debtor may recover her automobile from SouthTrust pursuant to section 542(a) of the Bankruptcy Code only if the automobile is property of her bankruptcy estate. In this case, that may occur only if the automobile is property of the estate by virtue of the bankruptcy filing or because the debtor has exercised a post-repossession, state law, right of redemption. As is discussed below, this Court finds that neither has occurred. Consequently, the debtor is not entitled to return of the automobile.
In Charles R. Hall Motors, Inc. v. Lewis (In re Lewis), 137 F.3d 1280 (11th Cir.1998), the Court of Appeals for the Eleventh Circuit held that under Alabama law, a secured party, upon repossession of an automobile, acquires both title to and the right to possession of the automobile and the automobile's purchaser retains only a statutory right of redemption under Code of Ala.1975, § 7-9-506. In Lewis, the court concluded that while such a right to redeem the automobile would become property of a bankruptcy estate, the automobile itself does not. And because the automobile does not, following repossession prior to bankruptcy (without subsequent redemption), the automobile is not subject to turnover under section 542(a). Writing for the court, Chief Judge Joseph W. Hatchett explained:
We are not convinced, however, that the mere existence of the estate\'s ability to redeem the automobile renders the automobile itself "property of the estate," at least to the extent that it should be turned over pursuant to 11 U.S.C. § 542(a). In accordance with state law, one must take certain affirmative steps to change the otherwise dormant right to redeem repossessed collateral into a meaningful ownership interest. As relevant to this case, the trustee had to "tender fulfillment of all secured obligations" plus expenses to exercise the estate\'s right of redemption. Ala.Code § 7-9-506; cf. Commercial Federal, 85 F.3d at 1557, 1558, 1561 (). But cf. National City Bank v. Elliott (In re Elliott), 214 B.R. 148, 150, 152-53 (6th Cir. BAP 1997) (). At the time of their adversary proceeding, the Lewises\' proposed Chapter 13 plan merely tendered to Hall Motors sixty-two cents on the dollar in return for Elgin Lewis\'s continued use of the automobile. Such proposal offered no indication to Hall Motors that the estate had chosen to exercise its right of redemption, that is, to "fulfill" Elgin Lewis\'s secured obligation plus expenses in accordance with Alabama law. See Ala. Code § 7—9-506. Nor could the Lewises plausibly convince us that the proposal adequately protected Hall Motors\'s ownership and possessory interests in the automobile. See 11 U.S.C.A. § 363(e); Capital Factors, 1 F.3d at 1160. Accordingly, we hold that the Lewises\' bankruptcy estate\'s only interest in the repossessed automobile—a bare right of redemption—failed to render the automobile "property of the estate" under 11 U.S.C. § 541(a)(1) and subject to turn-over under 11 U.S.C. § 542(a).
Based on the above, this Court concludes that this debtor's automobile did not become property of her bankruptcy estate at the time of the bankruptcy filing and thus section 542(a), by its terms, does not, as yet, mandate the return of the automobile.
As noted above, while the circuit court in Lewis held that a debtor's automobile does not become property of the estate, that court did hold that a debtor's statutory right to redeem the automobile in accordance with Code of Ala.1975, § 7-9-506, does. Lewis at 1284. Therefore if this debtor exercises that right in accordance with Alabama's redemption statute, she would be entitled to bring her automobile into her bankruptcy estate as estate property.
The requirements for redemption in Alabama are contained in Code of Ala.1975, § 7-9-506. That section provides:
At any time before the secured party has disposed of collateral or entered into a contract for its disposition under Section 7-9-504 or before the obligation has been discharged under Section 7-9-505(2) the debtor or any other secured party may unless otherwise agreed in writing after default redeem the collateral by tendering fulfillment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party in retaking, holding and preparing the collateral for disposition, in arranging for the sale, and to the extent provided in the agreement and not prohibited by law, his reasonable attorneys\' fees and legal expenses.
Code of Ala.1975, § 7-9-506 (emphasis added).
Obviously, the operative phrase in section 7-9-506 is "tendering fulfillment" and the meaning of that phrase is the key to the resolution of the matter before this Court. Fortunately, that meaning is easily ascertainable.
The meaning of the phrase "tendering fulfillment" is explained in the "Official Comment" to section 7-9-506 as, "`Tendering fulfillment' obviously means more than a new promise to perform the existing promise; it requires payment in full of all monetary obligations then due and performance of all other obligations then matured." Code of Ala. 1975, § 7-9-506 cmt.2 The comment, along with the statute, explains further that an unconditional, immediate, present payment in cash of the entire debt secured by the repossessed collateral, plus the expenses of retaking, holding and preparing the collateral for sale, in arranging for the sale, and, if provided for in the security agreement, reasonable attorneys' fees and legal expenses, is necessary to satisfy the "tendering fulfillment" requirement of section 7-9-506.
Many jurisdictions accorded the phrase this same interpretation.3 And this Court adopts it for purposes of the pending matter. Consequently, the only remaining issue here, as it was in Lewis, is whether the debtor's Chapter 13 proposal is an exercise of her redemption right, thus entitling her to relief under the Bankruptcy Code's turnover provisions.
In Lewis, the court held that the plan proposed by the Chapter 13 debtor, that is to pay the secured creditor 62% of its debt over time, through periodic payments in return for the debtor's continued use of the automobile, failed to satisfy the "tendering fulfillment" requirement of Code of Ala.1975, § 7-9-506.
In this debtor's Chapter 13 plan, confirmed by order of this Court on March 24, 1998, the debtor proposed to permit SouthTrust to retain its security...
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