In re Will

• Decision Date: 20 November 2003
• Docket Number: Adversary No. 03 A 00646.,Bankruptcy No. 02 B 36426.
• Citation: 303 B.R. 357
• Parties: In re Mary WILL, Debtor. Mary Will, Plaintiff, v. Ford Motor Credit Company, Defendant.
• Court: U.S. District Court — Northern District of Illinois

303 B.R. 357

In re Mary WILL, Debtor Mary Will, Plaintiff, v. Ford Motor Credit Company, Defendant.

Bankruptcy No. 02 B 36426.

Adversary No. 03 A 00646.

United States District Court, N.D. Illinois, Eastern Division.

November 20, 2003.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David T. Lin, for Plaintiff.

Michael Sherman, Chicago, IL, for Defendant.

MEMORANDUM OPINION

JACQUELINE P. COX, Bankruptcy Judge.

Before this Court is chapter 13 debtor Mary Will's complaint for compensatory and punitive damages and turnover of her 1998 Chevrolet Cavalier (the "Cavalier") against Ford Motor Credit Company ("FMCC"). The complaint alleges a willful violation of the stay pursuant to 11 U.S.C § 362(h) and a right to obtain an order requiring FMCC to return the Cavalier to the control of her bankruptcy estate pursuant to 11 U.S.C. § 542(a). The Court has jurisdiction over this matter, a core proceeding, pursuant to 28 U.S.C. § 157(b)(1)-(2) and § 1334. See In re Hooker Investments, 116 B.R. 375, 382 (Bankr.S.D.N.Y.1990). FMCC repossessed the car in November 2002; it later returned it to her in April 2003 after this complaint was filed.

Related matters also pending are FMCC's motion to annul the automatic stay in this Chapter 13 case and its objection to the confirmation of Will's chapter 13 plan.

Findings of Fact and Background

Will filed her current chapter 13 case on September 19, 2002 (the "Present Chapter 13"). Several disputes in the Present Chapter 13 can only be explained with reference to events in Will's prior chapter 13 case ("Prior Converted Chapter 13"), which she filed on December 16, 1998, and converted to a chapter 7 case on March 25, 2002. The chapter 7 case culminated in a discharge of her unsecured debt on August 30, 2002, and an order closing that original case on September 3, 2002 — less than one month before Will filed the Present Chapter 13 case. The Prior Chapter 13, after being confirmed on March 9, 1999, dealt with secured claims in the following manner:

Property of the estate shall revert in the Debtor upon confirmation of the Plan. Upon completion of payment of the secured portion of any claim, the property securing said claim shall vest in the debtor free and clear of any lien, claim or interest of a secured creditor. If the security is property for which a release of title is necessary, upon satisfaction of said secured claim, the secured creditor shall furnish a release of said title to the debtor.

FMCC did not object to the confirmation of the plan in the Prior Converted Chapter 13 case, even though it contained the title-release language.

In the Prior Converted Chapter 13, Will listed FMCC as a creditor holding a secured claim in the amount of $14,166.78 for her Cavalier. Between March 31, 1999, and January 31, 2002, the chapter 13 standing trustee distributed the debtor's funds to FMCC on behalf of the secured claim, paying the allowed secured claim in full. The "Trustee's Final Report and Account" of the chapter 7 trustee in the converted case indicated the same in addition to making a finding of "no assets." The same "Trustee's Final Report and Account" also indicated that FMCC did not file an unsecured claim asserting that the value of the Cavalier was insufficient to support its total claim amount. In spite of the fact that FMCC had been paid its allowed secured claim in full by January 31, 2002, it failed to release the lien on the certificate of title at any time during or after the Prior Converted Chapter 13, instead claiming that a lien securing the full amount of the debt survived the former case due to the fact that Will had not completely paid off all of her obligations under her chapter 13 plan.

Believing that her debt to FMCC and the related lien were extinguished by the Prior Chapter 13, Will and her attorney did not schedule FMCC as a creditor in her Present Chapter 13. Consequently, FMCC had no formal or actual notice of the bankruptcy case currently before this Court when, on or around November 8, 2002, it repossessed Will's Cavalier, claiming that Will still owed a fully secured balance of $4,034.23 plus interest. Will's attorney soon informed FMCC of the pendency of the Present Chapter 13 and demanded that the vehicle be returned; however, FMCC refused to do so at that time.

Will's attorney originally filed the instant adversary proceeding as a § 362(h) motion to recover damages for the willful violation of the automatic stay in the Present Chapter 13, including reimbursement for $300 of expenses for visiting the doctor. A subsequent "Amended Motion for Damages Pursuant to Section 362(h)" additionally alleged a violation of the chapter 7 discharge injunction from her Prior Converted Chapter 13 and requested the Court to order the immediate return of her Cavalier or to award actual damages in the amount of $14,166.78 in lieu of the vehicle. FMCC objected to the motion because it demanded the recovery of money or property but was not presented in the form of an adversary proceeding as required by Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7001(1). See also In re Perkins, 902 F.2d 1254, 1258 (7th Cir.1990); Brown v. Addison (In re Brown), 210 B.R. 878, 884-85 (Bankr.S.D.Ga.1997). The Court sustained FMCC's objection due to the added turnover request, see 11 U.S.C. § 542, and Will refiled the motion as a complaint initiating the adversary proceeding at bar on March 3, 2003.¹ FMCC eventually returned the car during the middle of April 2003, making the turnover action moot, but the adversary proceeding proceeded to trial on September 30, 2003 to resolve the issue of money damages and attorneys' fees.

Conclusions of Law and Analysis

A. Admissibility of FMCC's Answer to First Set of Interrogatories

FMCC objected to the admissibility of Will's trial exhibit number two, which consisted of FMCC's "Answer to [the Debtor's] First Set of Interrogatories," on hearsay grounds, and the Court took the objection under advisement. The gist of the objection was that FMCC's attorney's out-of court written answers to interrogatories are not admissible as evidence against FMCC. The objection is overruled because Federal Rule of Evidence 801(d) provides that "[a] statement is not hearsay if — [t]he statement is offered against a party and is ... (C) a statement by a person authorized by the party to make a statement concerning the subject, or (D) a statement by the party's agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship."

B. Violation of the Discharge Injunction in Case 98B40443

Will contends that FMCC has violated the discharge injunction she received in the chapter 7 portion of her Prior Converted Chapter 13. How the repossession of Will's car violates the earlier case's discharge injunction, without more, is unclear. That is, the discharge injunction, unlike the automatic stay, operates as an injunction against conduct to collect a debt as the personal liability of a debtor, not as an injunction prohibiting the enforcement of in rem claims that remain unavoided by the Bankruptcy Code.² 11 U.S.C. §§ 362(a), 524(a); Cox v. Zale Delaware, 239 F.3d 910, 912 (7th Cir.2001); 4 Lawrence P. King et al., Collier On Bankruptcy ¶ 524.02[2][d] (15th ed. rev.2003). The adjudication of a civil-contempt proceeding for violation of the discharge injunction in a former bankruptcy case would also require the debtor to reopen that case. See 11 U.S.C. § 350(b); Cox v. Zale Delaware, 239 F.3d 910, 915-17 (7th Cir.2001); 4 Lawrence P. King et al., Collier On Bankruptcy ¶ 524.02[2][c] (15th ed. rev.2003).

C. Violation of the Automatic Stay in Case 02B36426

Assuming arguendo that FMCC is correct in asserting that it still had a security interest that survived the Prior Converted Chapter 13, Will's interest in the Cavalier was still an asset of the bankruptcy estate in the Present Chapter 13 according to § 541(a)(1), regardless of whether FMCC had a remaining security interest in it. See In re Robinson, 285 B.R. 732, 737-39 (Bankr.W.D.Okla.2002) (redemption and surplus-proceeds rights were interests entitling repossessed vehicle to protection as estate property and thus were a sufficient basis for granting turnover motion); Matter of Brown, 210 B.R. 878, 881 (Bankr.S.D.Ga.1997) (citing United States v. Whiting Pools, 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983)). "The filing of the bankruptcy petition triggers the automatic stay of section 362(a), notwithstanding the lack of actual notice of commencement of the proceedings." In re Sumpter, 171 B.R. 835, 841-42 (Bankr.N.D.Ill.1994). The automatic stay is broad enough to protect the Cavalier regardless of whether it was subject to a lien, because § 362(a)(4) "operates as a stay ... of ... any act to create, perfect, or enforce any lien against property of the estate," while § 362(a)(3) "operates as a stay ... of ... any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. § 362(a); TranSouth Fin. Corp. v. Sharon (In re Sharon), 234 B.R. 676, 681-82 (6th Cir. BAP 1999). FMCC violated the § 362(a) stay in Case 02B36426 when it repossessed Will's Cavalier in November 2002. The dispute about what amount, if any, the debtor still owes for the 1998 Chevrolet Cavalier is irrelevant as long as the vehicle was property of the debtor's second Chapter 13 bankruptcy estate and the creditor nevertheless enforced a lien against property of the estate or exercised control over property of the estate. 11 U.S.C. §§ 362(a), (h); 541(a) (defining property of the estate).

To determine whether this violation was willful under § 362(h), the legal basis for Will's complaint, the Court must inquire whether FMCC (1) had actual knowledge of Will's Present Chapter 13 case and (2) committed a deliberate act when its agents repossessed the Cavalier. See In re Sharon, 234...