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Thompson v. General Motors Acceptance Corporation

May 27, 2009

THEODORE A. THOMPSON, DEBTOR-APPELLANT,
v.
GENERAL MOTORS ACCEPTANCE CORPORATION, LLC, CREDITOR-APPELLEE.



Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 08 B 2560-A. Benjamin Goldgar, Judge.

The opinion of the court was delivered by: Williams, Circuit Judge.

ARGUED FEBRUARY 10, 2009

Before CUDAHY, WILLIAMS, and TINDER, Circuit Judges.

This case involves an all too common occurrence that bankruptcy courts must deal with: a buyer defaults on his car payments, a secured creditor seizes the asset, the buyer files for Chapter 13 bankruptcy, and the big question that ensues is whether the creditor must return the car to the bankruptcy estate. In this case, we are asked to consider a procedural conflict between many bankruptcy courts within this circuit, and those in the sixth, eighth, ninth, and tenth circuits.

We must decide whether an asset that a secured creditor lawfully seizes pre-petition must be returned to the buyer's estate after he files for Chapter 13 bankruptcy, and, if so, whether the creditor must immediately return the asset even in the absence of a showing that the debtor can adequately protect the creditor's interest in the asset. In the United States Bankruptcy Court for the Northern District of Illinois, it has been an accepted standard procedure for a creditor to retain possession of a seized asset until the creditor subjectively determines that the debtor has shown the creditor that it can provide adequate protection of the creditor's interests. If a dispute ensues, it is the debtor's obligation to litigate the adequate protection issue in turnover proceedings before the bankruptcy court. In the sixth, eighth, ninth, and tenth circuits, the procedure is just the opposite. Upon the debtor filing for Chapter 13, the creditor must immediately return the asset to the bankruptcy estate, and, if the debtor and creditor cannot achieve accord on the issue of adequate protection, it is the creditor's obligation to file a motion before the bankruptcy court.

Here, a creditor refused to relinquish possession of an asset because it felt that the debtor could not adequately protect its interests. The debtor claimed that this refusal violated the Bankruptcy Code's stay provisions and moved for sanctions against the creditor. The bankruptcy court denied this motion. Because we find that a plain reading of the Bankruptcy Code's provisions, the Supreme Court's decision in United States v. Whiting Pools, Inc., 462 U.S. 198, 211 (1983), and various practical considerations require that a creditor immediately return a seized asset in which a debtor has an equity interest to the debtor's estate upon his filing of Chapter 13 bankruptcy, we reverse.

I. BACKGROUND

On April 5, 2003, Debtor-Appellant Theodore Thompson entered into an installment contract with Creditor-Appellee General Motors Acceptance Corporation ("GMAC") for the purchase of a 2003 Chevy Impala. Thompson defaulted on his installment payments, and, on January 24, 2008, GMAC repossessed the vehicle.

On February 5, 2008, Thompson filed for Chapter 13 bankruptcy in the United States Bankruptcy Court for the Northern District of Illinois. Needing his car to commute to work, on February 6, 2008, Thompson requested that GMAC return the vehicle to his bankruptcy estate. When GMAC refused to return the vehicle to the estate absent what it deemed "adequate protection" of its interests, Thompson moved for sanctions pursuant to 11 U.S.C. § 362(k), claiming that GMAC willfully violated the automatic stay provision in 11 U.S.C. § 362(a)(3).

The bankruptcy court denied the motion for sanctions because it found the In re Nash, 228 B.R. 669 (Bankr. N.D. Ill. 1999) and In re Spears, 223 B.R. 159 (Bankr. N.D. Ill. 1998) decisions, which held that a creditor need not return seized property to a debtor's estate absent adequate protection of its interests, dispositive on the issue. Thompson sought direct appeal.

The bankruptcy court certified this case as one appropriate for direct appeal under 28 U.S.C. § 158(d)(2)(B)(i). On June 2, 2008, we found that it met the statutory requirements and accepted the appeal. As a result, we have jurisdiction under 28 U.S.C. § 158(d)(2)(A).*fn1

II. ANALYSIS

A. Introduction

We review a bankruptcy court's underlying factual findings for clear error and its conclusions of law de novo. Union Planters Bank, NA v. Connors, 283 F.3d 896, 899 (7th Cir. 2002). A debtor is entitled to actual damages and attorneys' fees if he is "injured by any willful violation of a stay provided by this section" committed by a creditor. 11 U.S.C. § 362(k)(1). Under the Bankruptcy Code's stay provision, no creditor may commit "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" after a debtor has filed for bankruptcy. 11 U.S.C. § 362(a)(3) (emphasis added). In order to determine whether GMAC violated section 362(a)(3), we must resolve two questions. First, we must determine whether GMAC "exercised control" over property belonging to Thompson's bankruptcy estate simply because it refused to return it to the estate after Thompson filed for ...


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