## Facts

- Georgina Mitchell financed the purchase of a vehicle through BankIllinois, granting the bank a security interest.
- Mitchell fell behind on payments, and BankIllinois repossessed the vehicle before Mitchell filed bankruptcy.
- Immediately after the repossession, Mitchell filed a Chapter 13 petition.
- Mitchell notified BankIllinois of the bankruptcy filing, provided proof of insurance for the vehicle, and demanded that the bank return the car.
- BankIllinois refused to return the vehicle, asserting that because it had repossessed the car before the petition date, the car was not property of the bankruptcy estate and Mitchell held, at most, a limited right of redemption.
- Mitchell filed a complaint in the bankruptcy court seeking turnover of the vehicle and damages for violation of the automatic stay.
- The bankruptcy court ruled for Mitchell and ordered the vehicle returned; BankIllinois appealed.

## Issues

1. Whether a vehicle repossessed prepetition remains “property of the estate” under 11 U.S.C. § 541 when, under Texas U.C.C. Article 9, the secured creditor has not completed a disposition of the collateral or an acceptance of the collateral in satisfaction of the debt.
2. Whether a secured creditor in possession of a repossessed vehicle must turn it over after a Chapter 13 filing under 11 U.S.C. § 542(a), subject to adequate protection.
3. Whether the creditor’s postpetition refusal to return the vehicle after notice of the bankruptcy constitutes a willful violation of the automatic stay under 11 U.S.C. § 362(a)(3) and supports damages under § 362(h) (now § 362(k)).

## Decision

- The court held that the repossessed vehicle itself was property of the estate under § 541 because repossession did not transfer all of the debtor’s rights under Texas Article 9; BankIllinois had not completed a sale or an acceptance of the collateral in satisfaction of the obligation.
- The court held that § 542(a) required BankIllinois to deliver the vehicle to the estate (and, in a Chapter 13 case, to the debtor for use), while preserving the bank’s lien and ability to seek adequate protection.
- The court held that BankIllinois’s postpetition retention of the vehicle after receiving notice of the bankruptcy and a demand for return was an act to exercise control over estate property in violation of § 362(a)(3).
- The court found the stay violation willful because BankIllinois knew of the bankruptcy filing and intentionally kept the vehicle despite the turnover demand.
- The court ordered turnover of the vehicle and awarded actual damages, including attorneys’ fees, under § 362(h) for the willful stay violation.

## Legal Principles

- Property of the estate under 11 U.S.C. § 541 includes the debtor’s legal and equitable interests as of the petition date, even if the debtor is not in possession of the property.
- Under Texas U.C.C. Article 9, repossession alone does not transfer “all of a debtor’s rights in the collateral” to the secured party; those rights transfer only after a proper disposition of the collateral or acceptance in satisfaction of the secured obligation.
- When collateral is property of the estate and is usable under § 363, 11 U.S.C. § 542(a) requires an entity holding it to deliver it to the trustee (or, in Chapter 13 practice, to the debtor), and the secured creditor’s protection comes from adequate protection remedies rather than continued possession.
- A creditor’s continued retention of estate property after the petition date can constitute an act to “exercise control” over estate property barred by § 362(a)(3).
- A stay violation is willful when the creditor has notice of the bankruptcy and intentionally performs the act that violates the stay, even if the creditor believes it has a legal justification; actual damages and attorneys’ fees may be awarded under § 362(h) (now § 362(k)).

## Conclusion

Mitchell held sufficient state-law rights in her repossessed vehicle at the time of her Chapter 13 filing for the vehicle to be treated as property of the estate, so BankIllinois had a turnover obligation under § 542(a); by refusing to return the vehicle after notice, the bank willfully violated the automatic stay under § 362(a)(3), supporting turnover and an award of damages and attorneys’ fees.


Mitchell v. BankIllinois (In re Mitchell), 316 B.R. 891 (2003)