by The debtor stated a claim for turnover of the fair market value of a vehicle where the creditor repossessed the vehicle post-petition but prior to the expiration of section 108(b)’s extension of time to redeem or cure a default. Milledge v. Carolina Acceptance, No.21-2968, Adv. Proc. No. 22-80001 (Bankr. D. S.C. April 7, 2022).
The debtor bought a car under a retail installment contract obligating her to pay a $5,050.00 down payment and secure financing from the creditor, Carolina Acceptance, for the principal amount of $20,139.00 at an annual interest rate of 19.88% with 51 monthly payments of $592.87. The debtor paid all but $500.00 of the down payment and arranged with the creditor to pay that amount by November 4, 2021. She failed to make the payment and filed for chapter 13 bankruptcy on November 17, 2021, proposing a plan committing her to pay the car loan in full at 5.25% interest. Because of two prior dismissed bankruptcies the automatic stay did not take effect.
Approximately two weeks later, the creditor sent the debtor a Notice of Right to Cure relating to the $500.00 default and containing the conflicting assertions that because the debtor was in bankruptcy she had no obligation to pay, but that she must pay $500.00 by December 20, 2021 to avoid repossession. The Notice also informed the debtor that her first payment under the retail installment contract was due on December 5, 2021.
The creditor objected to the debtor’s proposed plan as being infeasible, in bad faith, and at too low an interest rate. When the debtor failed to make either of the payments specified in the Notice of Right to Cure, the creditor repossessed the vehicle and notified the debtor of its intent to sell it at a private sale on January 3, 2022. The debtor filed an adversary complaint seeking turnover of the vehicle. She further claimed that despite the parties’ negotiated agreement under which the creditor would return the car and the debtor would make payments according to her plan, the creditor refused the debtor’s attempts to make payments. It sold the vehicle on January 4, 2022. The debtor amended her adversary complaint to seek the fair market value of the vehicle, and the creditor moved to dismiss. The debtor’s amended plan, which no longer included treatment of the debt for the vehicle, was confirmed in February, 2022.
The court held a hearing on the motion to dismiss. The debtor argued that she was entitled to turnover of the fair market value of the vehicle because the creditor sold the vehicle before her right to cure and redeem the property under section 108(b) had expired. The creditor argued that the vehicle was not a part of the bankruptcy estate and that the debtor failed to state a claim under sections 108(b) and 1322.
The court began with the turnover provision, section 542, identifying four elements necessary to compel turnover of the fair market value of estate property: “(1) that during the case, (2) an entity other than a custodian (3) was in possession, custody, or control of property that a trustee could use, sell, or lease under 11 U.S.C. § 363 or that a debtor may exempt under 11 U.S.C § 522, and (4) that such property is not of inconsequential value or benefit to the estate.”
In the context of a motion to dismiss, the court looked to whether the allegations in the complaint stated a claim. It found that the creditor had repossessed the vehicle after the debtor filed for bankruptcy, the creditor was not a custodian, and the debtor was entitled to exempt the vehicle under section 522(d). The court rejected the creditor’s argument that because the vehicle was subject to an exemption, it was not part of the bankruptcy estate. Rather, the court found that in chapter 13, exempt property remains part of the estate even though it is not subject to distribution to creditors. Finally, the court concluded that the value of the vehicle, which ultimately sold for $17,500.00, was not inconsequential.
The court found the debtor had stated a claim for turnover sufficient to overcome a motion to dismiss.
The court turned to the effect of section 108(b) on the debtor’s right to redeem or cure. That section gives a debtor a 60-day extension of any nonbankruptcy law which provides for a right to cure or redeem, if that right did not expire prior to the date of the bankruptcy petition. While section 108(b) applies on its face to the trustee, many courts have held that a debtor may avail herself of the extension.
South Carolina law provides for cure and redemption rights to defaulting debtors. And both rights, as extended by section 108(b) were cut short by the creditor’s sale of the vehicle. The debtor stated a claim under that section.
With respect to any state law claims the debtor may have relied on, the court went on to say that: “Debtor’s Complaint, however, which invokes § 108(b) and claims damages akin to those allowed under nonbankruptcy law, did not specify the nonbankruptcy statutory or case authority on which she relies. To put the Court in the proper posture to consider any such claims and to provide Creditor fair notice of the specifics of any such claim at this early stage of the proceedings, the Court sua sponte has determined Debtor should be more definite and certain in those allegations.”
The debtor’s adversary complaint also alleged that the creditor violated various provisions of chapter 13 when it reneged on an agreement it had reached with the debtor’s counsel under which she would be allowed to cure and redeem the vehicle. Specifically, sections 1322(b)(2) and 1322(b)(3) permit a debtor to restructure a debt to pay it over the course of her plan and the debtor cited section 105(a) as the source of the court’s power to award relief. The court found that, while the Code provides for a debtor to cure a default through her plan, the court found that “a more definite and certain statement of authority, statutory or caselaw, is necessary . . . to evaluate and Creditor to respond to these allegations.”
The court denied the creditor’s motion to dismiss. But, “because it [was] not sufficiently clear whether Debtor [was] attempting to pursue nonbankruptcy law claims beyond the turnover claim for value stated in the Complaint and in order to make a more definite and certain statement of grounds and actions to enforce any alleged agreement between the parties to return the Vehicle and provide treatment of Creditor’s claim in the bankruptcy case,” it ordered the debtor to “allege with sufficient specificity any additional or nonbankruptcy causes of action [in] relation to § 108(b) and circumstances related to the parties’ agreement to be litigated in this adversary proceeding, including any and all damages claims.”