Magazine article The RMA Journal

Creditor Does Not Violate Bankruptcy Code by Refusing to Surrender Possession of Collateral Acquired Prepetition

Magazine article The RMA Journal

Creditor Does Not Violate Bankruptcy Code by Refusing to Surrender Possession of Collateral Acquired Prepetition

Article excerpt

IN IN RE Jared Trenton Cowen, (1) the U.S. Court of Appeals for the Tenth Circuit ruled that there is no violation of Section 362 of the Bankruptcy Code when a secured creditor merely withholds collateral acquired prepetition as opposed to taking affirmative action to gain possession of, or exercise control over, property of the bankruptcy estate.

In doing so, the court admitted this was a minority rule. But it said this interpretation was simply an application of the literal words of the statute.

The factual background is fairly simple. It involved two trucks. The bankrupt had financed a 2000 Peterbilt 379 with one secured party and a 2006 Kenworth T600 with another secured party.

When the deadline for paying the loan on the Peterbilt arrived, the truck was undergoing repairs at a repair facility.

The Kenworth was repossessed by the creditor through self-help and intimidation.

When August 6 arrived, Cowen, the debtor, sought bankruptcy court relief. He demanded that the two creditors return both trucks. They refused. One month later, Cowen sought show cause orders against the two creditors for their willful violations of the automatic stay.

The bankruptcy court obliged and show cause orders were issued. Once again, the creditors failed to comply. The debtor filed an adversary case against the creditors based on a willful violation of the automatic stay. A few months later the debtor's bankruptcy was dismissed. But the court retained jurisdiction over the adversary proceeding.

When the case reached the Tenth Circuit, the court first observed that dismissal of the bankruptcy case did not mandate dismissal of the adversary proceeding, saying, "A court must have the power to compensate victims ol the violation of the automatic stay and punish the violators, even after the conclusion of the underlying bankruptcy case. …

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