When a debtor files a chapter 13 bankruptcy, Section 363(a)(3) of the Bankruptcy Code operates as an injunction against all collection activity against the debtor, commonly called the “automatic stay”. The automatic stay is invoked immediately upon a debtor filing for bankruptcy. Many courts have held that it is established law that a debtor retains an interest in the repossessed vehicle after the repossession. Section 542(a) of the Code provides that a creditor in possession of property of estate (the repossessed vehicle) shall deliver such property to the trustee (or the debtor).
The stay freezes the debtor’s assets at a single point in time so the trustee can effectively value the estate to develop the debtor’s bankruptcy plan.
In the majority of jurisdictions, failing to return vehicles violates the automatic stay. Once the chapter 13 is filed the creditors have an affirmative duty to turn over the estate property. The act of passively holding onto an asset constitutes exercising control over the asset and is a violation of Section 363.
Under Minnesota repossession laws, a secured creditor can take possession of the secured property as soon as you are in default of your loan. The filing of a chapter 13 bankruptcy may offer a debtor a way to recover possession of the vehicle. Contact the attorneys at Kain and Scott and see us at www.kainscott.com.