Opinion
Case No. 01-63049.
May 24, 2007
OPINION DENYING DEBTORS' MOTION TO REDEEM
This matter is before the Court on Debtors' Motion to Redeem personal property, specifically a 1999 Harley Davidson motorcycle ("the motorcycle"). For the reasons stated in this Opinion, Debtors' Motion is denied.
Facts
Debtor filed a voluntary chapter 13 bankruptcy petition on November 28, 2001. Creditor Conseco Finance Corporation (now know as Green Tree Servicing, LLC) filed a claim, secured by the motorcycle, in the amount of $21,070.99. On March 14, 2002, an Order confirming Debtors' chapter 13 plan was entered. Under the plan, Green Tree had a class five secured claim in the amount of $17,135, payable at $368.30 per month (10.5% interest) for 60 months.
On June 13, 2006, Green Tree filed a motion for relief from stay as to the motorcycle. Green Tree alleged that Debtors had failed to provide insurance coverage on the motorcycle or reimburse Green Tree $8,140.03 for insurance it had placed on the motorcycle between March, 2002 and March, 2006. The Court entered an Order lifting the stay on July 14, 2006.
At the time the motion for lift of stay was filed, the payoff amount on the motorcycle was $2,767, and the motorcycle had a fair market value of approximately $2,980.
On March 16, 2007, Debtors filed a notice of voluntary conversion from chapter 13 to chapter 7. On May 7, 2007, Green Tree filed a proof of claim in Debtors' chapter 7 case. That claim, for $13,387.56, includes $4,172.56 as an unsecured priority claim and $9,215 secured by the motorcycle. The basis for those amounts (i.e. principle, interest, late fees, etc.) is not clear. Based on the allegations in Green Tree's June, 2006 motion to lift stay, the Court surmises that the claim is largely for unpaid insurance.
On April 5, 2007, Debtors filed the present Motion to Redeem the motorcycle for $351, which they contend is the remaining balance on Green Tree's secured chapter 13 claim. Green Tree objects to the Motion, asserting that the Court's Order granting relief from stay precludes redemption, and that $351 does not represent payment for the unpaid balance on the secured claim.
Analysis
It is well settled that conversion from one chapter of the Bankruptcy Code to another "does not act to reimpose or reinstate the § 362 automatic stay." In re Gilpin, 209 B.R. 490, 491-92 (Bankr. W.D. Mo. 1997), citing British Aviation Insurance Co., Ltd. v. Menut ( In re State Airlines, Inc.), 873 F.2d 264 (11th Cir. 1989); In re Parker, 154 B.R. 240 (Bankr.S.D.Ohio 1993); American Industrial Loan Assoc. v. Voron (In re Voron), 157 B.R. 251 (Bankr.E.D.Va. 1993). Thus, this Court's July 14, 2006 pre-conversion Order lifting the automatic stay as to the motorcycle was not affected by Debtors' conversion from chapter 13 to chapter 7. That Order permits Green Tree to pursue its contractual and non-bankruptcy legal remedies with regards to the motorcycle. Green Tree retains these rights notwithstanding the conversion.
The first issue the Court must address is whether the Order lifting the stay divests the Court of jurisdiction to hear any matters relating to the property on which the stay was lifted. The majority of courts hold that lifting the automatic stay as to certain property does not automatically remove that property from the estate. See e.g. In re Ridgemont Apartment Assoc., 105 B.R. 738, 741 (N.D. Ga. 1989) (lifting the stay is not analogous to an abandonment of the property); In re Killebrew, 888 F.2d 1516, 1520 (5th Cir. 1989) (relief from the automatic stay entitles the creditor to realize its security interest or other interest in the property, but all proceeds in excess of the creditor's interest must be returned to the trustee). The majority view on the effect of a lift of stay on the bankruptcy courts' jurisdiction over an asset is well articulated in In re Remington Forest, 1996 WL 33340744 (Bankr. D.S.C.). The court stated:
The majority of the courts appear to agree that granting relief from the automatic stay as to certain property does not remove that property from the property of the estate. Rather, the relief from the stay removes the restraints imposed under § 362 on the creditor's right to pursue contractual and non-bankruptcy legal remedies. Jurisdiction of the bankruptcy court continues over this property until the creditor achieves a sale or other means of transfer or termination of the debtor's ownership interest in the property.
. . .
While the Court has the jurisdiction to continue to administer the property on which the stay has been previously relieved, whether the Court should exercise that jurisdiction depends upon the proposed disposition of the property through the bankruptcy case and the benefit of such to creditors and other parties.
Remington Forest, 1996 WL 33340744 at *6.
Based on the case law, this Court holds that it may retain jurisdiction over the motorcycle for purposes of adjudicating the rights of the parties after a sale of the collateral (for example, determining the amount and validity of a deficiency claim, or the validity and extent of a creditor's lien if the creditor's claim is not fully satisfied by the sale). However, this Court declines to exercise jurisdiction to place a value on the collateral and force the creditor to accept less than the creditor has a right to obtain through the exercise of its state law remedies. To rule otherwise would render the Order lifting the stay meaningless.
Debtors ignore the jurisdictional problems raised by the existence of the Order lifting the stay and argue that a chapter 7 debtor always has the right to redeem as long as the debtor retains any interest in the property. Debtors in this case retain possession of the motorcycle. Thus, the second issue which must be addressed by the Court is whether a debtor's right to redeem property under 11 U.S.C. § 722 supercedes an order lifting the stay entered pursuant to 11 U.S.C. § 362(d).
Neither party explains why the motorcycle remains in the Debtors' possession ten months after the stay was lifted.
A chapter 7 debtor's right to redeem property is governed by 11 U.S.C. § 722. That section (prior to BAPCPA and applicable to the present case) provides:
An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such line.
A motion to redeem requires that the court determine the secured value of the collateral and allows the Court to order that the creditor extinguish its lien in exchange for that amount. As stated above, the Court's ability to administer an asset after the stay has been lifted is very limited; the Court only continues to administer the asset for the purposes of resolving issues after the creditor has exercised its contractual right to foreclose or repossess the property. Debtors in the present case have no right to redeem through 11 U.S.C. § 722. To the extent that Debtors have a right to redeem, it is controlled by contract and/or non-bankruptcy law.
Conclusion
Debtors' Motion to Redeem is denied.