Daniel K. Gallegos and Kimberly Rae Gallegos

Inre
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
DANIEL GALLEGOS and
KIMBERLY GALLEGOS,
Debtors.
)
)
) 	Case No. 05-20296
) 	CHAPTER 13
)
)
ORDER ON VERIFIED MOTION FOR AN ORDER TO SHOW CAUSE
On July 5, 2005, the court held a hearing on the "Verified Motion for an Order to
Show Cause Why the Court Should Not Find the Respondent in Contempt of the Automatic
Stay" filed by the debtors, Daniel K. Gallegos and Kimberly R. Gallegos (Debtors), and the
response filed by AmeriCredit Financial Services (AFS). The court will treat the Debtors'
motion as one for sanctions under 11 U.S.c. § 362 (h).
The court has jurisdiction over the motion under 28 U.S.C. §§ 157 & 1334(a). This
is a core proceeding as set forth in § 157 (b)(2)(G) & (0).
Findina:s of Fact
AFS has a perfected security interest in the Debtors' 1996 Dodge Caravan (Caravan).
Due to the Debtors' default under the security agreement, AFS repossessed the Caravan on
February 28,2005. When the Caravan was repossessed, the Debtors dropped the insurance
coverage on the Caravan.
Page 1
Inre
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
DANIEL GALLEGOS and
KIMBERLY GALLEGOS,
Debtors.
)
)
) 	Case No. 05-20296
) 	CHAPTER 13
)
)
ORDER ON VERIFIED MOTION FOR AN ORDER TO SHOW CAUSE
On July 5, 2005, the court held a hearing on the "Verified Motion for an Order to
Show Cause Why the Court Should Not Find the Respondent in Contempt of the Automatic
Stay" filed by the debtors, Daniel K. Gallegos and Kimberly R. Gallegos (Debtors), and the
response filed by AmeriCredit Financial Services (AFS). The court will treat the Debtors'
motion as one for sanctions under 11 U.S.c. § 362 (h).
The court has jurisdiction over the motion under 28 U.S.C. §§ 157 & 1334(a). This
is a core proceeding as set forth in § 157 (b)(2)(G) & (0).
Findina:s of Fact
AFS has a perfected security interest in the Debtors' 1996 Dodge Caravan (Caravan).
Due to the Debtors' default under the security agreement, AFS repossessed the Caravan on
February 28,2005. When the Caravan was repossessed, the Debtors dropped the insurance
coverage on the Caravan.
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On March 1,2005, the Debtors filed a voluntary chapter 7 petition. The Debtors did
not list the Caravan on Schedule B, but listed AFS as a deficiency creditor on Schedule F.
At the time the Debtors filed the chapter 7 petition, they were also in default on the
loan secured by a mortgage on their residence. On April 25, 2005, having determined they
were unable to cure the mortgage arrearage, the Debtors converted their case to one under
chapter 13.
The April 26, 2005 chapter 13 plan did not treat the secured claim of AFS or
contemplate retention of the Caravan. 	However, on reflection, the Debtors decided to
recover the Caravan and include the AFS claim in their chapter 13 plan.
To that end, Mrs. Gallegos contacted AFS on April 28, 2005 and May 4, 2005
requesting the return of the Caravan. 	She told the AFS representative the claim would be
included in a chapter 13 plan. AFS did not return the Caravan. 	Instead, on May 10, 2005
AFS filed a Motion for Relief from Stay alleging a lack of adequate protection.
On May 12,2005, the Debtors added the Caravan to the insurance policy covering
their other vehicles. On June 12,2005, Mrs. Gallegos obtained less expensive insurance on
the Caravan with GEICO. The Caravan has been continuously insured from May 12,2005
through the date of this hearing.
On May 16,2005, the Debtors filed a chapter 13 plan which treated the AFS claim in
Class 3, indicating the Debtors' intention to retain the Caravan. 	Mrs. Gallegos and her
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On March 1,2005, the Debtors filed a voluntary chapter 7 petition. The Debtors did
not list the Caravan on Schedule B, but listed AFS as a deficiency creditor on Schedule F.
At the time the Debtors filed the chapter 7 petition, they were also in default on the
loan secured by a mortgage on their residence. On April 25, 2005, having determined they
were unable to cure the mortgage arrearage, the Debtors converted their case to one under
chapter 13.
The April 26, 2005 chapter 13 plan did not treat the secured claim of AFS or
contemplate retention of the Caravan. 	However, on reflection, the Debtors decided to
recover the Caravan and include the AFS claim in their chapter 13 plan.
To that end, Mrs. Gallegos contacted AFS on April 28, 2005 and May 4, 2005
requesting the return of the Caravan. 	She told the AFS representative the claim would be
included in a chapter 13 plan. AFS did not return the Caravan. 	Instead, on May 10, 2005
AFS filed a Motion for Relief from Stay alleging a lack of adequate protection.
On May 12,2005, the Debtors added the Caravan to the insurance policy covering
their other vehicles. On June 12,2005, Mrs. Gallegos obtained less expensive insurance on
the Caravan with GEICO. The Caravan has been continuously insured from May 12,2005
through the date of this hearing.
On May 16,2005, the Debtors filed a chapter 13 plan which treated the AFS claim in
Class 3, indicating the Debtors' intention to retain the Caravan. 	Mrs. Gallegos and her
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attorney, Ken McCartney, made additional requests during May for the Caravan's return. On
June 6, 2005, counsel for AFS, James Salisbury, notified Mr. McCartney by letter as follows:
"Please advise our office immediately where to return the vehicle and we will make
appropriate arrangements to have the vehicle restored to your clients." 	Mr. McCartney
responded the same day by facsimile stating the address and noting that it was the same
address at which the car had been repossessed. AFS did not return the Caravan.
On June 9, 2005, the court held a preliminary hearing on the Motion for Relief. AFS
did not raise insurance issues. Instead, it argued that the arrearage on its claim should be paid
under the Debtors' proposed chapter 13 plan, even though the plan proposed a cram down of
the AFS secured claim to fair market value.
The chapter 13 plan now pending also treats the claim of AFS in Class 3. The Debtors
propose to pay the claim secured by the Caravan at the fair market value asserted by AFS in
its Motion for Relief, i.e., $2975.00.
Also on June 9, 2005, AFS made a request for a copy of an insurance rider on the
vehicle. Mr. McCartney responded on June 13,2005 with a GEICO Verification of Coverage.
On June 22, 2005, Mr. Salisbury again wrote to Mr. McCartney, advising the AFS agreed to
immediately return the vehicle without charge to the Debtors and advised that Mrs. Gallegos
had again requested the Caravan's return.
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attorney, Ken McCartney, made additional requests during May for the Caravan's return. On
June 6, 2005, counsel for AFS, James Salisbury, notified Mr. McCartney by letter as follows:
"Please advise our office immediately where to return the vehicle and we will make
appropriate arrangements to have the vehicle restored to your clients." 	Mr. McCartney
responded the same day by facsimile stating the address and noting that it was the same
address at which the car had been repossessed. AFS did not return the Caravan.
On June 9, 2005, the court held a preliminary hearing on the Motion for Relief. AFS
did not raise insurance issues. Instead, it argued that the arrearage on its claim should be paid
under the Debtors' proposed chapter 13 plan, even though the plan proposed a cram down of
the AFS secured claim to fair market value.
The chapter 13 plan now pending also treats the claim of AFS in Class 3. The Debtors
propose to pay the claim secured by the Caravan at the fair market value asserted by AFS in
its Motion for Relief, i.e., $2975.00.
Also on June 9, 2005, AFS made a request for a copy of an insurance rider on the
vehicle. Mr. McCartney responded on June 13,2005 with a GEICO Verification of Coverage.
On June 22, 2005, Mr. Salisbury again wrote to Mr. McCartney, advising the AFS agreed to
immediately return the vehicle without charge to the Debtors and advised that Mrs. Gallegos
had again requested the Caravan's return.
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Since it was repossessed, the Caravan has been at a vehicle auction lot in Colorado
Springs, Colorado. 	At this hearing, AFS implied that a release from the Debtors was
necessary for the auction company to turn over the Caravan to the Debtors. However, AFS
never provided any such release to the Debtors.
By the time of the hearings, AFS still had not returned the Caravan. The court ordered
AFS to return the Caravan to the Debtors by July 8, 2005.
Conclusions of Law
Under § 362 (a)(3), a stay is imposed against any act to exercise control over property
of the bankruptcy estate. The court is mandated to award damages to an individual injured
by a willful violation of the automatic stay. 	11 U.S.c. § 362 (h). A willful violation occurs
if an act which violates the stay is intentionally or deliberately taken with knowledge that the
debtor has filed a petition in bankruptcy. In re Diviney, 225 B.R. 762, 774 (lOth Cir. BAP
1998).
In the case of an entity in possession of estate property, knowledge means notice of the
bankruptcy and that the property in the possessor's custody is the debtor's property. 	In re
Berscheit, 223 B.R. 579, 581 (Bankr. D. Wyo. 1998). Conduct is deliberate ifit is intentional,
and such conduct justifies a sanction award of actual damages. CrysenlMontenay Energy Co.
v. Esselen Assoc., Inc. (In re CrysenlMontenay Energy Co.), 902 F.2d 1098, 1105 (2d Cir.
1990). A finding of maliciousness or bad faith warrants the imposition of punitive damages.
Id.
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Since it was repossessed, the Caravan has been at a vehicle auction lot in Colorado
Springs, Colorado. 	At this hearing, AFS implied that a release from the Debtors was
necessary for the auction company to turn over the Caravan to the Debtors. However, AFS
never provided any such release to the Debtors.
By the time of the hearings, AFS still had not returned the Caravan. The court ordered
AFS to return the Caravan to the Debtors by July 8, 2005.
Conclusions of Law
Under § 362 (a)(3), a stay is imposed against any act to exercise control over property
of the bankruptcy estate. The court is mandated to award damages to an individual injured
by a willful violation of the automatic stay. 	11 U.S.c. § 362 (h). A willful violation occurs
if an act which violates the stay is intentionally or deliberately taken with knowledge that the
debtor has filed a petition in bankruptcy. In re Diviney, 225 B.R. 762, 774 (lOth Cir. BAP
1998).
In the case of an entity in possession of estate property, knowledge means notice of the
bankruptcy and that the property in the possessor's custody is the debtor's property. 	In re
Berscheit, 223 B.R. 579, 581 (Bankr. D. Wyo. 1998). Conduct is deliberate ifit is intentional,
and such conduct justifies a sanction award of actual damages. CrysenlMontenay Energy Co.
v. Esselen Assoc., Inc. (In re CrysenlMontenay Energy Co.), 902 F.2d 1098, 1105 (2d Cir.
1990). A finding of maliciousness or bad faith warrants the imposition of punitive damages.
Id.
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The failure of a creditor to return a repossessed vehicle to the debtor after the filing of
a chapter 13 case is a violation of the automatic stay. In re Diviney, 225 B.R. at 776. In this
case, AFS concedes it had notice ofthe automatic stay well before the Debtors converted their
case to one under chapter 13.
Initially, the Debtors intended to surrender the Caravan, and the chapter 7 trustee did
not demand a turnover. 	However, from when Mrs. Gallegos contacted AFS on April 28,
2005, indicating that a chapter 13 plan would include treatment ofthe secured claim, AFS was
in violation of the automatic stay. And even if AFS were entitled to review the plan prior to
turnover, AFS still failed to return the vehicle after the plan was filed and served.
AFS argued at the preliminary hearing on its Motion for Relief that the plan did not
provide adequate protection. Be that as it may, confirmation issues are not defenses to stay
violations.
AFS did not raise adequacy of insurance coverage at the preliminary hearing on its
Motion for Relief. 	If AFS had a legitimate concern about insurance coverage, AFS should
have brought that concern to the attention of the court immediately. 	A creditor is not the
arbiter of whether collateral is or is not in jeopardy. AFS failed to take any proper steps, only
raising insurance issues at this hearing as a defense to its stay violation. That defense is belied
by the letters sent to Mr. McCartney which indicated AFS was prepared to return the Caravan.
Page 5
The failure of a creditor to return a repossessed vehicle to the debtor after the filing of
a chapter 13 case is a violation of the automatic stay. In re Diviney, 225 B.R. at 776. In this
case, AFS concedes it had notice ofthe automatic stay well before the Debtors converted their
case to one under chapter 13.
Initially, the Debtors intended to surrender the Caravan, and the chapter 7 trustee did
not demand a turnover. 	However, from when Mrs. Gallegos contacted AFS on April 28,
2005, indicating that a chapter 13 plan would include treatment ofthe secured claim, AFS was
in violation of the automatic stay. And even if AFS were entitled to review the plan prior to
turnover, AFS still failed to return the vehicle after the plan was filed and served.
AFS argued at the preliminary hearing on its Motion for Relief that the plan did not
provide adequate protection. Be that as it may, confirmation issues are not defenses to stay
violations.
AFS did not raise adequacy of insurance coverage at the preliminary hearing on its
Motion for Relief. 	If AFS had a legitimate concern about insurance coverage, AFS should
have brought that concern to the attention of the court immediately. 	A creditor is not the
arbiter of whether collateral is or is not in jeopardy. AFS failed to take any proper steps, only
raising insurance issues at this hearing as a defense to its stay violation. That defense is belied
by the letters sent to Mr. McCartney which indicated AFS was prepared to return the Caravan.
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Damaees
The Debtors are entitled to their attorney fees incurred to regain possession of the
Caravan under 11 U.S.c. § 362 (h). However, the Debtors did not establish any other actual
damages caused by the violation of the automatic stay. Nevertheless, punitive damages are
warranted.
The Bankruptcy Appellate Panel of the Tenth Circuit Court of Appeals set forth four
factors to be applied in determining whether punitive damages should be awarded under § 362
(h). In re Diviney, 225 B.R. at 777, citing In re Cohen & Sons Caterers, Inc., 108 B.R. 482,
487-488 (E.D. Pa. 1989). The court looks to (1) the nature of the defendant's conduct; (2) the
defendant's ability to pay; (3) the motives of the defendant; and (4) any provocation by the
debtor.
The circumstances in this case are much the same as those in Diviney. In both cases,
the creditor held the car hostage under the guise of insurance coverage. 	Here the creditor
presented a nonsensical argument that the plan did not provide for a cure of an arrearage on
a vehicle loan, even though the secured claim was to be paid only the fair market value under
the plan. 	AFS had sole control over the Caravan, but despite numerous requests by the
Debtors, failed to return the vehicle. The stay violation was egregious, unjustified and in bad
faith.
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Damaees
The Debtors are entitled to their attorney fees incurred to regain possession of the
Caravan under 11 U.S.c. § 362 (h). However, the Debtors did not establish any other actual
damages caused by the violation of the automatic stay. Nevertheless, punitive damages are
warranted.
The Bankruptcy Appellate Panel of the Tenth Circuit Court of Appeals set forth four
factors to be applied in determining whether punitive damages should be awarded under § 362
(h). In re Diviney, 225 B.R. at 777, citing In re Cohen & Sons Caterers, Inc., 108 B.R. 482,
487-488 (E.D. Pa. 1989). The court looks to (1) the nature of the defendant's conduct; (2) the
defendant's ability to pay; (3) the motives of the defendant; and (4) any provocation by the
debtor.
The circumstances in this case are much the same as those in Diviney. In both cases,
the creditor held the car hostage under the guise of insurance coverage. 	Here the creditor
presented a nonsensical argument that the plan did not provide for a cure of an arrearage on
a vehicle loan, even though the secured claim was to be paid only the fair market value under
the plan. 	AFS had sole control over the Caravan, but despite numerous requests by the
Debtors, failed to return the vehicle. The stay violation was egregious, unjustified and in bad
faith.
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The Debtors are not culpable in this case. The court will award the Debtors attorney
fees and costs and punitive damages to be determined after the actual damages are calculated.
IT IS ORDERED:
1. The Debtors' motion for sanctions is granted; and
2. The Debtors shall file a statement of fees and costs incurred in this matter by August
5,2005 and shall provide AFS with notice of a ten-day opportunity to object, following which
the court will enter an appropriate judgment for the Debtors.
DATED this c2LJ day of July, 2005.
Service to:
Ken McCartney
J ames Salisbury
Mark Stewart
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By the Court
The Debtors are not culpable in this case. The court will award the Debtors attorney
fees and costs and punitive damages to be determined after the actual damages are calculated.
IT IS ORDERED:
1. The Debtors' motion for sanctions is granted; and
2. The Debtors shall file a statement of fees and costs incurred in this matter by August
5,2005 and shall provide AFS with notice of a ten-day opportunity to object, following which
the court will enter an appropriate judgment for the Debtors.
DATED this c2LJ day of July, 2005.
Service to:
Ken McCartney
J ames Salisbury
Mark Stewart
Page 7
By the Court
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