05.20.09
Repo and Bankruptcy
So, you’ve repossessed that Trans-Am (with the spread eagle on the hood) for nonpayment and lapse of insurance, with no bloodshed and the debtor’s stash of weed still in the glove box. You have it sitting at the repo company’s pen, you’ve obtained repo title, and you sent a notice that the debtor has ten days to redeem it. Everything is good, right?
Maybe not. If the debtor files for bankruptcy before expiration of the redemption period, you have to give the car back . . . if your debtor resides in Michigan.
There’s a “split in the circuits” on this issue, which means some federal circuits say one thing, others say another. Michigan is in the Sixth Circuit, and the Sixth Circuit says, “Creditor, give it back, no exceptions. If you don’t, you’ll be in violation of the automatic stay.” Other circuits (including the Seventh, I believe, which is where Indiana is located) say the creditor can keep the vehicle without violating the automatic stay if the creditor isn’t adequately protected. So if the debtor has let the insurance lapse or the value of the car is less than the debt, you can keep the vehicle pending receipt of adequate protection or issuance a court order directing you to give it back.
So, bank clients south of the border that is 600 yards from my house have it better than bank clients north of that border. I’m not saying it makes sense, but until the Supreme Court rules on the issue or Congress passes an amendment to the Bankruptcy Act that clarifies the situation, that’s what we’re stuck with.
