In re Yates, BAP No. WY-05-015.
| Decision Date | 29 September 2005 |
| Docket Number | Bankruptcy No. 04-20069.,BAP No. WY-05-015. |
| Parties | In re Jennifer Nicol YATES, Debtor. Unified People's Federal Credit Union, Appellant, v. Jennifer Nicol Yates and Michael Dale Yates, Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit |
Donald A. Miller of Graves, Miller & Kingston, P.C., Cheyenne, Wyoming, for Appellant.
Before NUGENT, THURMAN, and ROMERO1, Bankruptcy Judges.
Unified People's Federal Credit Union (the "Credit Union") appeals a Judgment of the United States Bankruptcy Court for the District of Wyoming imposing sanctions on the Credit Union for violation of the automatic stay under 11 U.S.C. § 362(a).2 For the reasons stated below, the bankruptcy court's Judgment is AFFIRMED.
The facts underlying this appeal are not in dispute. On January 12, 2001, the Credit Union entered a loan agreement with Michael and Jennifer Yates (Debtors). Under the loan agreement, Debtors borrowed $7,614.35 and opened an overdraft account with the Credit Union, while the Credit Union took a security interest in Debtors' 1987 GMC pickup (the "GMC"). On April 1, 2001, the Credit Union loaned Debtors $43,212.80 as purchase money for a 1990 Four Winns boat and trailer, a 1986 Pace Arrow motor home, and a 2000 Jeep Grand Cherokee. The April 1 loan was secured by a security interest in the boat and trailer, the motor home, the Jeep Cherokee, and the Debtors' GMC. On August 13, 2001, the Credit Union granted Debtors another overdraft protection account of $500.00, and on December 13 2001, the Credit Union loaned Debtors $2,500.00. Both of these loans were secured by the above listed collateral.
By January 9, 2004, Debtors were delinquent on their obligations owing to the Credit Union by $10,000.00. On January 9, 2004, the Credit Union lawfully repossessed the boat and trailer, the motor home, and the GMC. The Credit Union makes much of the fact that the GMC was without a working engine when repossessed. Only the GMC is at issue in this appeal.
Debtors filed for bankruptcy under Chapter 13 on January 16, 2004. Also on January 16, 2004, Debtors sent the Credit Union notice of the automatic stay and a letter demanding return of the GMC. Debtors sent the Credit Union a second demand letter on January 29, 2001. On February 10, 2004, the Credit Union refused to turn over the GMC, stating that the GMC needed an engine and the Credit Union could not understand why Debtors needed the vehicle.
On March 2, 2004, the Credit Union filed a Motion for Relief from Automatic Stay. On March 16, 2004, the Bankruptcy Court entered an Order Regarding Debtor's Motion for Compliance with the Provisions of the Automatic Stay and for Sanctions on Contempt. The Bankruptcy Court found the Credit Union's refusal to turn over the GMC was a violation of the automatic stay, and awarded attorneys fees and court costs to Debtors. The Credit Union appealed the order to this Court. This Court remanded the case to the Bankruptcy Court to make findings of fact and conclusions of law and to enter a judgment accordingly. On remand, the Bankruptcy Court entered a Judgment against the Credit Union. The Bankruptcy Court found that the Credit Union had violated the automatic stay by exercising control over the GMC, in that the Credit Union retained possession of the GMC after the Debtors demanded its turnover. The Bankruptcy Court further held that § 362(h) required the Court to award actual damages to the Debtors for the Credit Union's violation of the automatic stay. Accordingly, the Bankruptcy Court awarded the Debtors attorneys' fees.
On December 20, 2004, Debtors converted their Chapter 13 case to Chapter 7. Michael Yates was ineligible for Chapter 7 relief and was subsequently dismissed. This appeal involves only Jennifer Yates.
A Bankruptcy Appellate Panel, with the consent of the parties, has jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy judges within the circuit.3 A bankruptcy court's order to turn over property of the estate and imposing sanctions is a final order.4 Neither party filed an election seeking review by the United States District Court for the District of Wyoming pursuant to 28 U.S.C. § 158(c)(1) and Bankruptcy Rule 8001(e). Thus, the parties have consented to our review.
Conclusions of law are reviewed de novo. Whether the Bankruptcy Court properly applied §§ 362(a) and 362(h) to the undisputed facts of this case is an issue of law, and subject to de novo review.5
Section 362(a) states:
Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of —
. . .
(3) 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[.]6
At issue in this case is whether the Credit Union's retention of the GMC after the Debtor's bankruptcy filing constituted an exercise of control in violation of the automatic stay. This Court holds that the Credit Union violated the automatic stay by refusing to turn over the GMC after Debtor filed her bankruptcy petition.
There is some disagreement among bankruptcy courts as to whether a creditor's retention of property of the estate after a debtor files for bankruptcy constitutes an "exercise of control" in violation of the automatic stay. Persuaded by the interplay between § 362(a) and § 542(a), we hold that it does.
First, § 362(a)(3) imposes a stay on the "exercise [of] control over property of the estate."7 According to Black's Law Dictionary "control" is "[t]o exercise power or influence over" something.8 On a more practical level, common understanding dictates that if the exercise of control means anything, it means the ability to keep others from access to or use of an object.
Second, § 542(a) states that a creditor with possession of property of the estate at the time of filing "shall" turn over the property to the trustee.9 The language of this turnover provision is mandatory. This mandatory language squares with the language and impact of the automatic stay. By requiring a creditor to turn over property of the estate upon the filing of a bankruptcy petition, § 542(a) prevents the continued exercise of control over property of estate — a violation of the automatic stay. Thus, § 542(a) works to avoid what § 362(a) forbids — the retention of property of the estate after filing.
The Credit Union urges this Court to adopt the holding of In re Young, in which the Court held that the automatic stay merely requires a creditor with possession of property of the estate to "maintain the status quo."10 Stating that the phrase "to exercise control" is ambiguous, the Young court held that the Code only expressly limits obtaining possession of property of the estate, not retaining possession of it. Young also lays heavy stress on pre-Code practice, heeding the Supreme Court's aphorism that "`[w]hen Congress amends the bankruptcy laws, it does not write on a clean slate.'"11 The court based much of its reasoning on the requirement that a debtor provide a creditor with adequate protection during the life of a bankruptcy case.12 Only one Circuit follows this view.13
We are not persuaded by this approach. We also believe our holding in this case may lead to a more uniform application of §§ 362(a)(3) and 542(a).14 As a practical matter, there is little difference between a creditor who obtains property of the estate before bankruptcy is filed, or after bankruptcy is Med.15 The ultimate result is the same — the estate will be deprived of possession of that property. This is precisely the result § 362 seeks to avoid.16
The Young court's approach also threatens to undermine the burden allocation for a creditor seeking relief from the automatic stay. Section 362(d) states:
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay —
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest;
(2) with respect to a stay of an act against property under subsection
(a) of this section, if —
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization[.]17
Section 542(a) states that a creditor "shall deliver to the trustee, and account for, [property of the estate] unless such property is of inconsequential value or benefit to the estate."18
Section 362(d) works in tandem with § 542(a) to provide creditors with what amounts to an affirmative defense to the automatic stay. Section 362(d) allows a creditor to obtain relief from the stay "after notice and a hearing." Section 362(d) relief is for creditors to invoke.19 The onus is on the creditor to seek relief from the stay.20 In addition, § 542(a) requires that a creditor turn over possession of "property that the trustee may use, sell, or lease under § 363."21 The only exception to § 542(a)'s compulsory turnover provision is if "such property is of inconsequential value or benefit to the estate."22 It cannot be coincidence that §§ 362(d)(2) and 542(a) both allow relief to a creditor where the estate has little or no equity interest in the property. Under both provisions, the burden is on the creditor to demonstrate the estate's lack of equity.23
Because the initial burden to demonstrate a lack of equity is on the creditor, the Bankruptcy Code must also contemplate that the creditor will have an incentive to meet this burden. If a creditor were permitted to retain possession of property of the...
To continue reading
Request your trial
-
In re Hall
...case involved a postpetition seizure of property. See Fitch, 217 B.R. at 290–91. 3.See, e.g., Unified People's Fed. Credit Union v. Yates (In re Yates), 332 B.R. 1, 4 (B.A.P. 10th Cir.2005); TranSouth Fin. Corp. v. Sharon (In re Sharon), 234 B.R. 676 (B.A.P. 6th Cir.1999). 4.See also, e.g.,......
-
In re Jefferson Cnty.
...(holding that a creditor who continued to hold collateral repossessed prepetition violated the automatic stay); accord In re Yates, 332 B.R. 1, 5 (10th Cir. BAP 2005) (“As a practical matter, there is little difference between a creditor who obtains property of the estate before bankruptcy ......
-
In re Jefferson Cnty.
...(holding that a creditor who continued to hold collateral repossessed prepetition violated the automatic stay); accord In re Yates, 332 B.R. 1, 5 (10th Cir. BAP 2005) (“As a practical matter, there is little difference between a creditor who obtains property of the estate before bankruptcy ......
-
Rushton v. Bank of Utah (In re C.W. Mining Co.)
...no sanction for violation of the stay. In re Martinez, 281 B.R. 883, 886 (Bankr. W.D. Tex. 2002). 69. 11 U.S.C. § 542(a). 70. In re Yates, 332 B.R. 1, 5 (10th Cir. BAP 2005) (quoting § 542(a)). 71. Id. at 6. 72. The bankruptcy court assumed there had been a willful violation of the automati......