The bank repossessed collateral including a Kawasaki Ninja motorcycle but under Wisconsin law the debtor retained some property rights prior to sale, so now in Bankruptcy proceedings the debtor’s estate has rights to that property. The banks failure to return the property was a willful violation and the bank was held in contempt.

In re: Jason R. Herbst, Debtor.

(Chapter 13) Case No. 12-11044

UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

469 B.R. 299

April 11, 2012, Decided

Opinion by US Bankruptcy Judge Robert D. Martin:

Jason Herbst (the debtor) filed a Chapter 13 petition on February 29, 2012, and a Motion for Contempt and for Return of Property on March 6, 2012. He alleges that Talmer Bank & Trust (the bank) violated the automatic stay by refusing to return equipment that the bank repossessed prepetition.

The repossessed equipment was the subject to security agreements that provided as a remedy for default, the bank “may repossess the Property so long as the repossession does not involve a breach of the peace. [The bank] may sell, lease, or otherwise dispose of the Property as provided by law.” The debtor defaulted, and in March 2011, the bank filed a complaint for replevin in Lafayette County. A default judgment was entered against the debtor on May 16, 2011, which states:

“…Plaintiff is entitled to possess and sell the following collateral:

Machinery, vehicles, fixtures, farm machinery and equipment, shop equipment, office and record keeping equipment, parts and tools

Farm products, crops, feed, seed, fertilizer, medicines and supplies.

All government program payments.

2004 Kawasaki Ninja 250R VIN: JKADXMF164DA06034

2005 Chevrolet truck VIN: 1GCJK33215F920432

Plaintiff may sell said collateral as provided in the Security Agreements subject to this action and apply the net sale proceeds to the above stated sum adjudged due and owing from Defendant to Plaintiff…

Plaintiff shall be entitled to issuance of a Writ of Replevin upon request of plaintiff.”

Under a Writ of Replevin, the bank repossessed five items of equipment on December 8, 2011, and placed them at an auction house. There is no evidence that a sale or other disposition has yet occurred. Nor is there evidence that a contract for disposition was formed. The bank has refused to release the replevied equipment. The debtor seeks to have the bank adjudged to be in contempt for violation of the § 362(a) stay. He also seeks actual and punitive damages (including costs and attorney fees), and the return of the collateral to the debtor.

Finding,

Wisconsin law indicates that the debtor retains a right of redemption as long as a sale or contract for sale has not occurred

and

The bank may have believed that it was legally entitled to retain possession of the collateral in light of the judgment, but a violation of the stay is “willful” even if the actor believes himself justified. Since the bank knew of the bankruptcy filing and still retained possession of the collateral, it willfully violated the stay. Therefore, the bank is in contempt until it returns the collateral.

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