Bankruptcy Law and Repossessions

Timing is everything with repossessions and filing bankruptcy. Usually, the secured creditor of the car can exercise the self-help repossession of the vehicle if there is a default in payment causing a breach of contract. The person filing the bankruptcy (aka Debtor) has a limited time to reclaim a repossessed car before the car is sold. If the Debtor files a Chapter 13 bankruptcy within fourteen (14) days after the car is repossessed, they have a good chance of prevailing on the return of the vehicle. If the Debtor waits too long, the car cannot be reclaimed from the creditor after the car is sold.

The secured creditor for the vehicle needs to give adequate notice (usually 21 to 30 days, but it may vary) to the Debtor of the sale date to allow the Debtor an opportunity to pay for the car at the car sale date. If there is a surplus after the sale, the secured creditor needs to notify the Debtor of the surplus.

Breach of the Peace

Repossessions cannot be accomplished with a breach of the peace. If the secured party causes a breach of the peace while repossessiong the collateral, the repossession will be wrongful. When that happens, the Debtor may sue the secured party in conversion for return of the collateral or damages. The creditor also runs the risk of losing their secured status in the vehicle.

A breach of the peace is defined as "[A] violation of public order, a disturbance of the public tranquility, by any act or conduct inciting to violence or tending to provoke or excite others to break the peace, or, as is some times said, it includes any violation of any law enacted to preserve peace and good order. It may consist of an act of violence or an act likely to produce violence. " Morris v. First Natl. Bank & Trust Co. (1970), 21 Ohio St.2d 25, 29, 50 O.O.2d 47, 254 N.E.2d 683, quoting Akron v. Mingo (1959), 169 Ohio St. 511, 513, 9 O.O.2d 7, 160 N.E.2d 225. A breach of peace includes “ ‘all violations of public peace, order or decorum’ ” and “ ‘breaking or disturbing the public peace by any riotous, forceful or unlawful proceedings.’ ” Makepeace v. Chrysler Motors Corp. (May 8, 1981), 2d Dist. No. L–80–187, 1981 WL 5572, quoting Census Fed. Credit Union v. Wann (Ind.App.1980), 403 N.E.2d 348. See Ford Motor Credit Co. v. Ryan, 189 Ohio App.3d 560, 939 N.E.2nd 891 (Ohio App. 2010).

Generally, no breach of the peace occurs by a mere trespass, without something more happening. Pantoja–Cahue v. Ford Motor Credit Co. (2007), 375 Ill.App.3d 49, 55, 313 Ill.Dec. 650, 872 N.E.2d 1039, quoting Chrysler Credit Corp. v. Koontz (1996), 277 Ill.App.3d 1078 1083, 214 Ill.Dec. 726, 661 N.E.2d 1171. If a car is repossessed and there are items in the car, the repossessing party must provide the opportunity to return those items. If the creditor does not allow the return of those items, they can be liable for conversion. Perkins v. City Natl. Bank & Trust Co. (Mar. 22, 1977), 10th Dist. No. 76AP–730, 1977 WL 200020. See also McGrady v. Nissan Motor Acceptance Corp. (M.D.Ala.1998), 40 F.Supp.2d 1323, 1330.

Chapter 13 Bankruptcy and Repossessions

The Chapter 13 plan needs to payback the amount of money that is past due (aka arrearage). In addition, the Debtor needs to also account for the monthly car payment in the Chapter 13 plan to ensure the creditor on the car has adequate assurances that the Debtor will make all the payments. If the Debtor has owned the car more than 910 days (roughly 2 ½ years), they have the possibility of cramming down the car to fair market value according to 11 U.S.C 506. The court allows the Debtor to treat any portion beyond the fair market value as an unsecured debt. In a Chapter 13 plan, the unsecured debt only gets paid a percentage of the value of the unsecured debt. In other words, the creditor does not get dollar-for-dollar in the unsecured debt.

Chapter 7 Bankruptcy and Repossessions

Unlike a Chapter 13 case, when the Debtor files a Chapter 7 case, there is no pay back to the creditors from the Debtor directly. However, the Debtor may be able to work out a loan repayment with the creditor after the Chapter 7 bankruptcy case is filed. Alternatively, the Debtor may be able to redeem the car at fair market value through a redemption. If the creditor is unwilling to work out the payments after a Chapter 7 bankruptcy is filed, the Debtor always has the option of returning the secured collateral to the creditor (aka give back the car), and the Debtor can include the car loan into their bankruptcy and discharge the contractual obligations.

Talk to a lawyer to weigh your options before time runs out with the repossession.