As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, as they may be a harbinger of things to come in districts in which I practice and can be used to help Debtors get the financial relief they need.
The bankruptcy court here allowed a storage lien for pre-petition repossession costs but held that post-petition storage costs violated the automatic stay, as the storage lot, Collateral Bankruptcy Services, had violated the automatic stay by retaining possession of the vehicle and not turning it over to the Trustee.
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
In re: Case No. 8:16-bk-10041-MGW
ORDER AND MEMORANDUM OPINION ON STAY RELIEF MOTION
Before filing for bankruptcy, the Debtor surrendered his car to Collateral Bankruptcy Services, a towing and storage company. Collateral Bankruptcy Services, which has continued to maintain possession of the Debtor’s car, now seeks stay relief to foreclose a statutory lien for unpaid storage charges. Because Collateral Bankruptcy Services’ postpetition storage charges were incurred in violation of the automatic stay, the Court will grant Collateral Bankruptcy Services limited stay relief to foreclose its statutory lien for unpaid prepetition storage charges.
Under the Bankruptcy Code, debtors are prohibited from retaining personal property that secures a debt unless they redeem the collateral or reaffirm the debt. But debtors who want to surrender collateral—instead of redeeming it or reaffirming the debt—complain that they sometimes have difficulty doing so. Some debtors complain that they are told to deliver the collateral to the secured creditor at a specified time and place, only to find that the secured creditor is not there. Other debtors have been told the secured creditor will pick up the collateral only to be left holding the collateral even after they have received a discharged and their case has been closed. Apparently, there is a burgeoning new industry of companies willing to take possession of collateral from debtors and store it for their benefit.
One of those companies is Collateral Bankruptcy Services. Collateral Bankruptcy Services, which is owned by a chapter 7 panel trustee, offers to safely retrieve and secure surrendered collateral at no cost to the debtor, the debtor’s lawyer, or the debtor’s estate. Collateral Bankruptcy Services says its calling card is its excellent customer service: its agents, the company says, show up on time (wearing clean uniforms) at the debtor’s preferred location. In Collateral Bankruptcy Services’ view, there is a market for a debtor friendly (and trustee friendly) alternative to repossession agents.
As the Court understands the business model, debtors contact Collateral Bankruptcy Services to pick up secured collateral—e.g., a car—and tow it to Collateral Bankruptcy Services’ storage facility.
If Collateral Bankruptcy Services is required to pick up the collateral, it charges a towing fee (around $3 per mile) for transporting the collateral to its storage facility. Naturally, it charges a storage fee as well (usually $55 per day). According to Collateral Bankruptcy Services, its towing and storage charges are “middle of the road” for those services.
Collateral Bankruptcy Services, however, has been struggling to make its business practices comport with the Bankruptcy Code. Early on, in In re Ervin, Collateral Bankruptcy Services took possession of the debtor’s car, imposed a storage lien for unpaid storage charges, foreclosed its storage lien, took title to the car at the foreclosure, and resold it to a third party—all without relief from the automatic stay.
In another case, In re Galvez, Collateral Services imposed a storage lien on a car before seeking stay relief.
Collateral Bankruptcy Services’ conduct in Ervin and Galvez was, to say the least, problematic. By taking possession of the debtors’ cars after the petition date in those cases, Collateral Bankruptcy Services took possession of property of the estate in violation of the automatic stay.
In Ervin, this Court ordered Collateral Bankruptcy Services to pay the secured creditor the value of its collateral as a sanction for the stay violation. In Galvez, Collateral Bankruptcy Services agreed to withdraw its belated stay relief motion and consented to the Court granting the secured creditor’s stay relief motion.
It is worth noting that the Court would not have necessarily granted a timely stay relief motion in Ervin or Galvez because, by taking possession of the debtor’s car postpetition, Collateral Bankruptcy Services was interfering with the debtor’s duty under § 521 to first surrender the car to the Trustee and, if the Trustee abandoned it, to then surrender the car to the secured creditor.
But this case presents a different problem: Here, unlike in Ervin and Galvez, Collateral Bankruptcy Services took possession of the Debtor’s car before the petition date. One month before the petition date, Collateral Bankruptcy Services picked up the Debtor’s 2014 Chrysler Town & Country and towed it 62 miles to its storage facility.
One week later, Collateral Bankruptcy Services served a claim of lien on JP Morgan Chase Bank, which has a lien on the Debtor’s car.10 According to the claim of lien, Collateral Bankruptcy Services has incurred $183 in towing charges (62 miles at $3/mile), $330 in storage charges (6 days at $55/day), $125 in recovery charges, and $75 in administrative fees, for a total of $713.11
When he filed this case, the Debtor did not list his 2014 Chrysler Town & Country on Schedule B. Instead, he says in his Statement of Financial Affairs that the Bank repossessed his car in October, and he lists them on Schedule F. But Collateral Bankruptcy Services says it picked the car up at the Debtor’s request.
Collateral Bankruptcy Services now asks the Court to grant it stay relief so it can foreclose its storage lien since there is no equity in the car.
Conclusions of Law
On its face, Collateral Bankruptcy Services’ stay relief motion seems straightforward. Collateral Bankruptcy Services alleges that the value of the Bank’s lien exceeds the value of the car. So there is no equity in the car. And because this is a chapter 7 case, the car is not necessary for an effective reorganization. On top of that, Collateral Bankruptcy Services has a statutory lien for unpaid storage charges under section 713.78, Florida Statutes, which primes the Bank’s, as well as any other lien on the Debtor’s car. In fact, absent this bankruptcy case, Collateral Bankruptcy Services would have been entitled to sell the Debtor’s car as early as December 12, 2016, at a public auction under section 713.78(6), Florida Statutes.13 But there is one problem with Collateral Bankruptcy Services’ motion.
Although Collateral Bankruptcy Services has sought stay relief before foreclosing its storage lien, it has nonetheless violated the automatic stay in this case. Bankruptcy Code § 362(a)(3) explicitly prohibits any act to exercise control over property of the estate. The Debtor’s car, of course, was property of the estate as of the petition date. So Collateral Bankruptcy Services violated the automatic stay by maintaining possession of the Debtor’s car. In fact, Bankruptcy Code § 542(a) requires Collateral Bankruptcy Services to turn the car over to the Trustee.
Collateral Bankruptcy Services’ stay violation is not a mere technical violation. By continuing to maintain possession of the Debtor’s car, Collateral Bankruptcy Services is increasing its storage charges at a rate of $55 per day. The increased storage charges, in turn, increase the amount of the statutory lien imposed to secure those charges, which reduces any potential recovery by the Bank.
Acts taken in violation of the automatic stay, however, are automatically void.15 So Collateral Bankruptcy Services is not entitled to any storage charges incurred since the petition date. And its storage lien is limited to the amount of its unpaid prepetition storage charges. Accordingly, it is
- The automatic stay imposed by 11 U.S.C. § 362 is hereby lifted to allow Collateral Bankruptcy Services to impose a storage lien on the Debtor’s 2014 Chrysler Town & Country (VIN# 2C4rC1BG9ER271800) for unpaid storage charges incurred before the petition date.
- The 14-day stay under Rule 4001(a)(3) shall be waived to permit Collateral Bankruptcy Services to immediately enforce its in rem relief under this Order.
- Collateral Bankruptcy Services shall be allowed to exercise its state and common law in rem remedies with respect to the Debtor’s car, including giving notice and taking all actions necessary to protect its rights. Under no circumstances, however, shall Collateral Bankruptcy Services seek to exercise any in rem relief with respect to postpetition storage charges. Nor shall Collateral Bankruptcy Services seek or obtain an in personam judgment against the Debtor.
About the blogger:
Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.
He is also the author of books on finance and bankruptcy available on Kindle through Amazon!
Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!
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