Case study—debtor vs. creditor rights

When bankruptcy does occur, one of the greatest challenges is to balance the rights and needs of the creditor with those of the debtor. Both are in a situation where some loss is inevitable, but the intent is to minimize the effects as much as possible for both parties.

Below is a summary of an actual case. After reviewing the information, you will be asked to respond to several questions.

356 F.3d 518 In re Marlene MOFFETT, Debtor,
Tidewater Finance Company, No. 03-1279. Plaintiff-Appellant,
v.
Marlene Moffett, Defendant-Appellee.
No. 03-1279.
United States Court of Appeals, Fourth Circuit.
Argued: December 3, 2003.
Decided: January 23, 2004.

On January 22, 2001, Marlene Moffett purchased a used 1998 Honda Accord from Hendrick Honda in Woodbridge, Virginia. Moffett agreed to pay $20,024.25 with interest in 60 monthly installments, and Hendrick Honda retained a security interest in the vehicle. Under the purchase contract and Virginia state law, Hendrick Honda had the right to repossess the vehicle in the event of default, subject to Moffett’s right to redeem it. Hendrick Honda assigned its rights under the purchase agreement to Tidewater Finance Company, which subsequently perfected its security interest. According to the bankruptcy court, the automobile was Moffett’s only means of traveling the 40 miles from her home to her workplace at the Federal Emergency Management Agency.

Moffett made her payments in timely fashion for approximately 1 year. Because Moffett failed to make her monthly payments in March and April 2002, however, Tidewater Finance lawfully repossessed the vehicle on the morning of April 25, 2002. Later that day, Moffett filed for voluntary Chapter 13 reorganization. On May 1, 2002, Moffett’s attorney notified Tidewater Finance of Moffett’s bankruptcy filing and demanded return of the vehicle, according to the Bankruptcy Code’s automatic stay and turnover provisions.

Tidewater Finance in turn filed a motion for relief from the provisions, claiming that its repossession of the automobile stripped Moffett and the bankruptcy estate of any interests in the vehicle, except bare legal title and an intangible right of redemption. It therefore asked the bankruptcy court to terminate the automatic stay so that it could sell the vehicle. Tidewater Finance took no steps to dispose of the vehicle or to apply for a new certificate of title.

• How can the interests of both debtor and creditor be fully protected in this case?
• What should the court rule? Explain your answer.

With these thoughts in mind:

By Day 5

Post an initial statement that expresses your thoughts on debtor and creditor rights. The length of your response(s) should be a minimum of 150 words.

Read a selection of your colleagues’ postings.