Expensive Repossession

Pursuant to the United States Bankruptcy Code, the filing of a bankruptcy petition by a debtor temporarily prevents creditors from exercising some of their self-help rights against that debtor. In other words, filing a bankruptcy petition operates as an “automatic stay” of, among other things, a creditor’s right to repossess property used to secure a loan. Creditors who willfully violate this automatic stay can be liable to the debtor for damages, including costs, attorneys’ fees, and punitive damages. This can be true even when the debtor does not hold title to the subject property.

In a recent case in the United States Bankruptcy Court for the Southern District of Georgia, the court awarded damages to a debtor who did not hold title to the repossessed vehicle. In that case, the debtor attempted to purchase a Chevrolet Silverado truck. However, the dealership could not complete the sale because the debtor did not hold a valid driver’s license. The debtor’s girlfriend, who did have a driver’s license, entered the negotiations and executed the relevant documents for the purchase and financing of the Silverado, which was subsequently titled in her name. However, the debtor was the primary operator of the Silverado and made all payments on the vehicle out of his own funds.

When the debtor later lost his job, he fell behind on his payments on the Silverado and began working with the dealership to find a payment plan that would allow him to keep the truck. The debtor subsequently filed for bankruptcy. Approximately one month later, the dealership repossessed the Silverado over the debtor’s objections that he had filed for bankruptcy and that the dealership did not have the right to take the vehicle. The dealership also refused to allow the debtor to recover his personal property from the vehicle and ignored demands by the debtor’s attorney to return the truck to the debtor. The debtor filed suit against the dealership seeking damages resulting from the dealership’s violation of the automatic stay.

The court concluded that while the debtor did not hold title to the Silverado, he did hold a possessory interest in the vehicle. The court also held that the dealership willfully violated the automatic stay because it had knowledge of the debtor’s bankruptcy case, as well as the fact that the dealership was listed as a claim-holding creditor in that case, at the time it repossessed the vehicle. Accordingly, the court was required to award the debtor his actual damages, including the value of his personal property and his attorneys’ fees and costs. Moreover, because the debtor demonstrated that the wrongful repossession of the vehicle prevented him from maintaining stable employment, he was entitled to lost wages. The court also exercised its discretion to award punitive damages on the grounds that the dealership’s actions demonstrated a “reckless or arrogant disregard for federal law.” The court entered judgment against the dealership for damages totaling more than $15,000.00, making this an expensive lesson in the dangers of wrongful possession.

Stokes Lazarus & Carmichael LLP concentrates its practice in the areas of Commercial Litigation, Collections, Workout Solutions, Bankruptcy and Employment Relations