Recently, the 11th Circuit Court of Appeals ruled in a Florida
bankruptcy case that a creditor is not required to return collateral
(a vehicle in this particular case) if the creditor repossess the
collateral before the debtor files bankruptcy.
The case is a favorable ruling for creditors regarding the issue
as to whether a debtor may compel a creditor to turn over collateral
that was repossessed before the debtor files bankruptcy.
The 11th Circuit's decision was issued for two consolidated
bankruptcy appeals, In re Kalter and In re Chiodo. In Kalter, the
debtors signed a security agreement pledging their 1997 Mitsubishi
Galant as collateral to Bell-Tel Federal Credit Union in return for
a loan from Bell-Tel. Thereafter, the Kalters defaulted on their
Bell-Tel repossessed the vehicle. The next day the debtors filed
a voluntary Chapter 13 Bankruptcy Petition and requested that Bell-
Tel return the vehicle to them. After the credit union refused, the
debtors sought an order from the bankruptcy court requiring Bell-
Tel to turn over the vehicle. The bankruptcy court ordered Bell-Tel
to return the vehicle. The bankruptcy court also found that because
Bell-Tel had intentionally and willfully kept the vehicle after the
Kalters filed bankruptcy, the Kalters had been damaged in terms of
missed work, the cost of a rental vehicle, and damages to the
vehicle's fuel injectors. Therefore, Bell-Tel was ordered to pay the
debtors more than $6,400.
Bell-Tel appealed the bankruptcy court ruling to the district
court. The district court reversed the bankruptcy court decision.
The debtors appealed the district court's ruling to the 11th Circuit
Court of Appeals.
In Chiodo, the debtor bought a 1998 Honda Civic from a car
dealership. The dealership financed the sale and reserved a security
interest in the vehicle for the unpaid purchase price. Thereafter,
the dealership assigned the contract and lien to Tidewater Finance
Co. Subsequently, the debtor defaulted on his car payments and
Tidewater repossessed the vehicle.
Debtor filed a Chapter 13 Bankruptcy Petition before Tidewater
could sell the car. Then, the debtor demanded that Tidewater return
the vehicle. The debtor and Tidewater entered into an agreement
stating that Tidewater would return the vehicle to the debtor, but
that the parties could continue to seek an order from the bankruptcy
court as to who was entitled to the vehicle.
The bankruptcy court ruled against Tidewater. Tidewater appealed
the decision to the district court. Relying on its ruling in Kalter,
the district court ruled in favor of Tidewater. The debtor appealed
the district court's ruling to the 11th Circuit. The 11th Circuit
consolidated both Chiodo and Kalter.
The 11th Circuit began its analysis of both cases by framing the
relatively straightforward issue: whether the vehicles repossessed
before debtors filed bankruptcy were property of the debtors'
bankruptcy estates. Only if the court determined that the vehicles
were property of the debtors' bankruptcy estates would debtors be
entitled to regain possession of the vehicles.
In bankruptcy, a number of concepts interact which determine the
outcome of a case. One such concept is what property a debtor owns
when he files bankruptcy. Property that the debtor owns when he
files bankruptcy is known as "property of the estate. …