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There is no debate that a debtor must provide a secured creditor with adequate protection of its interests in the seized asset if the creditor requests such protection. Under 11 U.S.C.S. § 363(e), on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of" the creditor's interest.
In April 2003, debtor-appellant Theodore Thompson entered into an installment contract with creditor-appellee General Motors Acceptance Corporation (GMAC) for the purchase of a 2003 Chevy Impala. Appellant defaulted on his installment payments, thus, in 2008, appellee repossessed the vehicle. The following month, appellant filed for Chapter 13 bankruptcy in the United States Bankruptcy Court. Needing his car to commute to work, he requested to return the vehicle to his bankruptcy estate, however, appellee refused absent what it deemed adequate protection of its interests. Appellant then moved for sanctions pursuant to 11 U.S.C. § 362(k), claiming that appellee willfully violated the automatic stay provision in 11 U.S.C. § 362(a)(3). The bankruptcy court denied the motion for sanctions because it found that on the two decisions, held that a creditor need not return seized property to a debtor's estate absent adequate protection of its interests, dispositive on the issue. Appellant sought direct appeal.
Should the motion for sanctions claiming that appellee willfully violated the automatic stay provision be granted?
The court reversed the judgment, and the matter was remanded for further proceedings. The court found that there was no debate that the appellant had an equitable interest in the car, and, as such, it was property of his bankruptcy estate. Also, it was found that the appellee exercised control over the appellant’s car when it refused to return it to the bankruptcy estate upon request. The court reasoned that to hold that exercising control over an asset encompassed only selling or otherwise destroying the asset would not be logical given the central purpose of reorganization bankruptcy. Lastly, the court found that upon the request of appellant that had filed for bankruptcy, a creditor must first return an asset in which the debtor had an interest to his bankruptcy estate and then, if necessary, seek adequate protection of its interests in the bankruptcy court.