08.25.09
Sticking It to the Man
So, you’ve repossessed your dead-beat debtor’s car and getting ready to follow the Uniform Commercial Code requirements with respect to the proper disposition of collateral. And then you get hit with notice that the debtor has filed bankruptcy.
Do you have to give it back? In all likelihood, yes. The Bankruptcy Courts have held that, until a debtor is completely divested of all ownership in the car, the car is still part of the debtor’s bankruptcy estate and therefore subject to the automatic stay. Under Michigan’s UCC, ownership continues until the bank has exercised its post-default remedies to the point that the debtor no longer has the right to redeem. In re Gordon, 2006 U.S. Dist. LEXIS 421 and In re Sanders, 291 B.R. 92 (2008).
It’s worth noting, however, that more and more courts are ruling that a creditor does not have an affirmative duty to return the seized property, unless the debtor first provides the creditor with adequate protection. See In re Brown, 237 BR 316 (1999). If the collateral is valuable, a creditor should probably explore the issue a bit more before it abjectly surrenders its collateral.
