United States Bankruptcy Court Eastern
District of Michigan Southern Division In re: Zaneta
J. Sanders, Case No. 02-66843-R Debtor. Chapter
13 In re: Gordon C. Vaughn, Case No.
02-65220-R Debtor. Chapter 13
Opinion In each of these cases, a creditor filed
a motion for relief from the automatic stay to sell
a vehicle that it had repossessed before the debtor
filed a chapter 13 bankruptcy petition. In the first
case, Zaneta Sanders, the debtor, filed a motion for
return of the vehicle and a motion for contempt,
sanctions and attorneys fees. The Court conducted a
hearing on December 12, 2002. At the hearing, the
Court took the matter under advisement, but ordered
DaimlerChrysler to return the vehicle to Sanders
pending resolution of the matter. In the second
case, Gordon Vaughn, the debtor, filed an answer to
the motion for relief from the stay, asserting that
his ownership interest in the vehicle was not
terminated by the repossession, but did not file a
motion for sanctions. The Court concludes that
despite a creditor’s repossession of a vehicle, a
debtor maintains an ownership interest in the
vehicle. Accordingly, the vehicles are property of
their respective bankruptcy estates. 3 4 I. In the
first case, DaimlerChrysler repossessed Sanders’
1997 Chrysler Cirrus on November 8, 2002. On
November 12, 2002, Sanders filed a chapter 13
bankruptcy petition. On that day, Sanders notified
DaimlerChrysler of the petition and demanded return
of the vehicle. DaimlerChrysler refused and instead,
on December 2, 2002, filed a motion for relief from
the automatic stay in order to sell the vehicle. In
the second case, Tidewater Finance Company
repossessed the vehicle, a 1998 Chrysler Concorde on
October 23, 2002. On October 25, 2002, Vaughn filed
a chapter 13 bankruptcy petition. Tidewater asserts
that since the date of filing, it has maintained the
status quo as to the vehicle. II. DaimlerChrysler
and Tidewater argue that pursuant to Michigan law, a
secured creditor becomes the owner of a vehicle when
it repossesses the vehicle, and that accordingly,
the vehicle is not property of the estate when the
debtor files bankruptcy. The creditors cite Bell-Tel
Fed. Credit Union v. Kalter (In re Kalter), 292 F.3d
1350 (11th Cir. 2002), for the proposition that a
chapter 13 debtor’s statutory right to redeem a
motor vehicle that a secured creditor repossessed
prepetition is not a sufficient basis to make the
vehicle itself “property of the estate.” Id. at
1355. The creditors argue that Michigan law
mirrors Florida law and that a debtor’s right to
redeem is likewise not sufficient to create a
property interest in the vehicle. On the other hand,
the debtors cite TranSouth Fin. Corp. v. Sharon (In
re Sharon), 234 B.R. 676 (B.A.P. 6th Cir. 1999) and
National City Bank v. Elliott (In re Elliott), 214
B.R. 148 (B.A.P. 6th Cir. 1997), for the proposition
that a debtor’s equitable right of redemption is a
sufficient ownership interest 5 to make a vehicle
property of the bankruptcy estate. The debtors argue
that Michigan’s right of redemption mirrors that of
Ohio, which was addressed in Sharon and Elliott.
Accordingly, the debtors urge the Court to follow
Sharon and Elliott and hold that the vehicles are
property of the bankruptcy estates. III. The filing
of a bankruptcy petition creates an estate that
includes “all legal and equitable interests of the
debtor in property as of the commencement of the
case wherever located and by whomever held.” 11
U.S.C. § 541(a)(1). “Whether a debtor’s interest
constitutes ‘property of the estate’ is a
federal question. Nonetheless, ‘the nature and
existence of the [debtor’s] right to property is
determined by looking at state law.” Kalter, 292
F.3d at 1353 (citing Lewis v. Charles R. Hall
Motors, Inc. (In re Lewis), 137 F.3d 1280, 1283
(11th Cir. 1998)). See also Corzin v. Fordu (In re
Fordu), 201 F.3d 693, 700 (6th Cir. 1999); In re
Terwilliger’s Catering Plus, Inc., 911 F.2d 1168,
1172 (6th Cir. 1990) (“While the nature and extent
of the debtor’s interest are determined by state law
‘once that determination is made, federal bankruptcy
law dictates to what extent that interest is
property of the estate.’”) (citations omitted).
“Property interests are created and defined by state
law. Unless some federal interest requires a
different result, there is no reason why such
interests should be analyzed differently simply
because an interested party is involved in a
bankruptcy proceeding.” Butner v. United States, 440
U.S. 48, 55, 99 S.Ct. 914, 918 (1979). Accordingly,
the Court must first look to Michigan law to
determine whether a debtor maintains any interest in
a vehicle after repossession. The creditors argue
that pursuant to M.C.L.A. § 257.236(a)(1) a debtor’s
ownership interest in a vehicle is terminated upon
repossession. M.C.L.A. §
257.236(a)(1) 6 provides: (1) If the interest of the
owner in a vehicle is terminated by the enforcement
of a security agreement, the transferee of the
owner’s interest shall promptly mail or deliver to
the secretary of state the last certificate of title
if the transferee has possession of the certificate;
the application for a new certificate in the form
prescribed by the secretary of state; and
a certification made by or on behalf of the holder
of the security interest so enforced that the
vehicle was repossessed, that the interest of the
owner was lawfully terminated by enforcement of the
security agreement, and whether the owner has
delivered the last certificate of title to the
transferee of the owner’s interest, naming the
transferee, or if not, the reason for not naming the
transferee, and the location of the certificate of
title as known to the owner. If the holder of the
security interest succeeds to the interest of the
owner and holds the vehicle for resale, the holder
need not secure a new certificate of title but, upon
transfer to another person, shall promptly mail or
deliver to the transferee or to the secretary of
state the certificate, if in the holder’s
possession, a certification, and other documents
required to be sent to the secretary of state by the
transferee. M.C.L.A. § 257.236a(1). M.C.L.A. §
257.236a(1) provides a mechanism for a creditor who
has lawfully repossessed a vehicle to become the
owner of the vehicle. However, the statute does not
state that the repossession alone divests a debtor
of all ownership interests. This statute simply does
not support the creditors’ position that they became
the owners of the vehicles upon repossession. The
creditors concede that the debtors maintain an
equitable right of redemption. They also concede
that they had not yet utilized M.C.L.A. §
257.236a(1) to obtain title to the vehicles, and had
not yet disposed of the vehicles. Accordingly,
the Court holds that nothing in this statute
provides that a creditor obtains an ownership
interest in a repossessed vehicle. Indeed, a
debtor’s continuing ownership interest in a
repossessed vehicle is evidenced in several 7 other
provisions of Michigan law: M.C.L.A. § 440.9623
provides a debtor with a right of redemption “any
time before a secured party has . . . disposed of
collateral[.]” If the creditor owned the repossessed
vehicle, it would be unnecessary and inappropriate
to give the debtor the right of redemption. M.C.L.A.
§§ 440.9611(2) and 440.9614 obligates a creditor to
give the debtor notice of any proposed disposition
of repossessed collateral. Similarly, if the
creditor owned the repossessed vehicle, it would be
unnecessary and inappropriate to give the debtor the
right of notice. M.C.L.A. § 440.9610(1) provides
that “the secured party may sell, lease, license,
or otherwise dispose of any or all of the
collateral.” If the creditor were the owner, the law
would simply permit the creditor to retain the
collateral. M.C.L.A. § 440.9615(4)(a) provides that
the creditor must pay any surplus to the debtor. If
the creditor owned the repossessed vehicle, it would
be unnecessary and inappropriate to give the debtor
the right to receive any surplus. M.C.L.A. §
440.9610(3) provides that the creditor may, in
certain circumstances “purchase the collateral.” If
the creditor were already the owner, this provision
would be unnecessary. M.C.L.A. § 440.9617 states
that the secured creditor’s disposition of the
collateral “[t]ransfers to a transferee for value
all of the debtor’s rights in the collateral.”
(Emphasis added.) This again suggests that until the
disposition, the debtor, not the creditor, is the
owner of the property. M.C.L.A. §§ 440.9620(1)
provides that “a secured party may accept collateral
in full or partial satisfaction of the obligation it
secures,” but only if several requirements are met,
including consent by the debtor. See also M.C.L.A.
§§ 440.9621 and 440.9622. Again, if the
creditor were the owner upon repossession, it would
be inappropriate and unnecessary to condition
that ownership upon the consent of the debtor. M.C.L.A.
§ 440.9202 states, “[T]he provisions of this article
with regard to rights and obligations apply whether
title to collateral is in the secured party or the
debtor.” This suggests that even if the vehicle were
initially titled in the creditor’s name, the debtor
would still have rights in the collateral upon
repossession 8 M.C.L.A. § 440.9625 provides that if
the creditor does not proceed “in accordance
with [Article 9],” the creditor is liable to the
debtor for damages. The right of action is afforded
to enforce the debtor’s rights, and would be
inappropriate if the creditor owned the collateral
upon repossession. All of this suggests that the
repossession is merely a device to collect on the
creditor’s claim, and that therefore repossession
does not transfer ownership to the creditor. See In
re Robinson, 285 B.R. 732, 737 (Bankr. W.D. Okla.
2002); Turner v. DeKalb Bank (In re Turner), 209 B.R.
558, 566 (Bankr. N.D. Ala. 1997). Until the creditor
disposes of the property, the debtor remains the
legal and equitable owner, subject only to the
creditor’s debt collection remedies, which are
suspended by 11 U.S.C. § 362(a) when a bankruptcy
petition is filed. Finally, the effect of M.C.L.A. §
257.236a(1) and the impact of a repossession on the
debtor’s rights are addressed directly in the
official comment to M.C.L.A. § 440.9619: Under
subsection (c), a transfer of record or legal title
(under subsection (b) or under other law) to a
secured party prior to the exercise of
those remedies merely puts the secured party in a
position to pass legal or record title to a
transferee at foreclosure. A secured party who
has obtained record or legal title retains its
duties with respect to enforcement of its security
interest, and the debtor retains its rights as
well. Official comment (2) to M.C.L.A. § 440.9619
(emphasis added). IV. Some courts have concluded
that in these circumstances, the issue is whether a
right of redemption in repossessed property is
sufficient to bring that property into the
bankruptcy estate. See In re Kalter, 292 F.3d 1350
(11th Cir. 2002); Lewis v. Charles R Hall Motors,
Inc. (In re Lewis), 137 F.3d 1280, 9 1283 (11th Cir.
1998); Warren v. SouthTrust Bank, N.A. (In re
Warren), 221 B.R. 843 (Bankr. N.D. Ala. 1998).
Having thus framed the issue, these courts then
conclude that only the right of redemption, and not
the vehicle itself, is property of the estate. Other
courts disagree and conclude that the right of
redemption is sufficient to bring the repossessed
property into the estate. For example, in In re
Elliott, 214 B.R. 148 (B.A.P. 6th Cir. 1997), the
creditor had not only repossessed the vehicle, but
also obtained a “repossession title” in its
name. Nevertheless, the panel held that neither
possession nor the repossession title were intended
to give the creditor ownership of the vehicle, but
only to facilitate its eventual sale to pay the
debt. “Neither possession nor title are alone
determinative of whether an interest constitutes
property of the estate under § 541[.]” Elliott, 214
B.R. at 151. The panel relied on United States v.
Whiting Pools, Inc., 462 U.S. 198, 205, 103 S. Ct.
2309, 2313-14 (1993), in which “the Supreme Court
held that § 541(a)(1) includes any property that may
be made available to the estate by other provisions
of the bankruptcy code. This can include ‘property
of the debtor repossessed by a secured creditor . .
. and [the property] therefore may be drawn into the
estate.’” Id. The panel finally concluded, “It is
only after the disposition that the debtor loses all
interest in the property and full ownership vests in
a third party.” Id. at 152. Accordingly, the panel
held that the vehicle was property of the estate and
subject to turn-over. In addition, the
panel specifically rejected the argument, made by
both creditors here, that the right of redemption
was a mere “statutory privilege” not affecting the
creditor’s ownership interest. See also In re
Sharon, 234 B.R. 676, 680 (B.A.P. 6th Cir. 1999)
(“Possession of the Debtor’s car was property of the
Chapter 13 estate from the moment of the
petition.”); and Tidewater Fin. Co. v. Moffett (In
re Moffett), 288 B.R. 721 (Bankr. E.D. Va. 2002).
Indeed, “the vast majority of courts have concurred
that where repossession of a vehicle 10 has occurred
prepetition, but the vehicle has not yet been sold,
a Chapter 13 debtor retains a sufficient interest in
the vehicle so that turnover may be appropriate.”
Spears v. Ford Motor Credit Co. (In re Spears), 223
B.R. 159, 162 (Bankr. N.D. Ill. 1998) (collecting
cases). The Court concludes that the results in
Elliott, Sharon and Moffet are compelled by the
Supreme Court’s decision in Whiting Pool.
Accordingly, the Court will follow those decisions
and conclude that the vehicles are property of their
respective bankruptcy estates. The creditors’
motions for relief from the stay are thus denied.
Sanders’ motions for return of the vehicle will be
granted and her motion for contempt, sanctions and
attorneys fees will be set for
hearing. ______________________ Steven W.
Rhodes Chief U.S. Bankruptcy Judge Entered:
March 18, 2003 cc: Darryl Chimko Noel Aaron Cimmino John
Steinberger Walter Metzen Arthur Miller For
Publication
