A Chapter 13 Creditor In Possession Of Property Of The Bankruptcy Estate Must First Return The Property And The Move To Protect Its Interest
THOMPSON v. GENERAL MOTORS ACCEPTANCE CORP. (May 27, 2009)
Theodore Thompson financed his purchase of a 2003 Chevy with General Motors Acceptance Corp. ("GMAC"). After he defaulted, GMAC repossessed the Chevy. A few weeks later, Thompson filed for bankruptcy. GMAC refused his request to return the vehicle to the bankruptcy estate. Thompson claimed that GMAC willfully violated the automatic stay and moved for sanctions. The bankruptcy court denied the motion, holding that a creditor need not return property absent adequate security. Thompson appeals.
In their opinion, Judges Cudahy, Williams and Tinder reversed and remanded. The Court first addressed whether GMAC "exercised control" over the property of the bankruptcy estate. GMAC argued that something more than the passive act of possession was required to meet the "exercise control" prohibition of the Bankruptcy Code. The Court, relying principally on the plain meaning of the Code, concluded that GMAC exercised control over the Chevy when it refused to return it. The Court next addressed whether GMAC's entitlement to adequate protection of its interests allowed it to retain the property until such protection was afforded. The Court identified a split of authority on this issue, a question of first impression in the Seventh Circuit. Most district courts in Illinois follow the same precedent relied on by the bankruptcy court below -- that a creditor need not return property to the bankruptcy estate absent adequate protection. Several other circuits have held that a creditor must return the property to the estate and move to protect its interests. The Court relied on a plain reading of the Bankruptcy Code, the Supreme Court’s holding in Whiting Pools in the corporate reorganization context, and policy considerations in concluding that a Chapter 13 creditor must first return property in which the bankruptcy estate has an interest and then seek protection of its interests in the bankruptcy court. The Court remanded for a determination of whether GMAC willfully violated the automatic stay and was thus subject to sanctions.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select