Eric Wayne Colgan and Chrystal Michelle Colgan

In re
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
)
)
ERIC WAYNE COLGAN and
CHRYSTAL MICHELLE COLGAN,
) 	Case No. 08-20215
) 	CHAPTER 7
)
Debtors. 	)
DECISION REGARDING MOTION FOR ORDER
TO SHOW CAUSE AND/OR CONTEMPT CITATION
This matter came before the court on July 30, 2008 on debtors' Motion for Order
to Show Cause and/or Contempt Citation regarding Money Now. The court, having
reviewed the file and evidence, and considered the arguments of the parties, is prepared
to rule.
Jurisdiction
This court has jurisdiction on this matter pursuant to 28 U.S.C. §§157 and 1334.
These are core proceedings under § 157(b)(2)(G) & (E).
Findings of Fact
Prior to filing for bankruptcy protection, Mrs. Colgan, ("Co-debtor") obtained a
pay-day loan from Money Now. To obtain the loan, the Co-debtor issued a check to
Money Now in the amount of $225.00 on April 19,2008. In return, she received $200.00
cash. The remaining $25.00 was the service fee assessed by Money Now. The Co-debtor
had a long-running relationship of obtaining pay-day loans through Money Now.
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Historically, upon receiving her pay check, she would pay Money Now the $225.00 and
received the post-dated check in return. In this case, she filed her bankruptcy on April 21,
2008 and assumed that the check she had written could not be cashed.
The specific check, (check no. 1092) was post-dated to May 3, 2008. Money Now
presented the check to the bank for payment on May 5, 2008 which caused another of the
debtors' checks to be dishonored. The bank assessed the Co-Debtor a $22.00 overdraft
fee for that dishonored check.
The Co-debtor contacted the office of her bankruptcy attorney. Billie Alexander,
the legal assistant for the Co-debtor's attorney, testified that she contacted the manager of
Money Now, Mr. Chet Heil ("Heil"). Heil admitted that he received notice of the
debtors' bankruptcy filing and refused to return the funds to the debtors. Mr. Heil argued
that he had not received a "written" demand to turnover the money.
Discussion
The filing of the Debtors' bankruptcy case prompted the automatic stay
protection I, which provides, in part:
(a) Except as provided in sub-section (b) of this section, a petition
filed under section 301. .. operates as a stay, applicable to all entities,
of-
(3) any act to obtain possession of property of the
estate or of property from the estate or to exercise
111 U.S.C. § 362(a)(2007).
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control over property of the estate[.]
Additionally, the Code provides that: "An individual injured
by any willful violation of a stay ... shall recover actual damages,
including costs and attorneys' fees, and in appropriate circumstances,
may recover punitive damages?
Certain actions are expressly excluded from the automatic
stay, including "the presentment of a negotiable instrument and
giving of notice of and protesting dishonor of such instrument[.]3
Under Wyoming law, a negotiable instrument is defined as:
(a) Except as provided in subsections (c) and (d), "negotiable instrument"
means an unconditional promise or order to pay a fixed amount of money,
with or without interest or other charges described in the promise or order,
if it:
(i) Is payable to bearer or to order at the time it is issued or first
comes into possession of a holder;
(ii) Is payable on demand or at a definite time; and
(iii) Does not state any other undertaking or instruction by the person
promising or ordering payment to do any act in addition to the
payment of money, but promise or order may contain (1) an
undertaking or power to give, maintain, or protect collateral to secure
payment, (2) an authorization or power to the holder or confess
judgment or realize on or dispose of collateral, or (3) a waiver of the
benefit of any law intended for the advantage or protection of an
obligor.
211 U.S.C. § 362(k) (2007).
311 U.S.C. §362(b)(11) (2007).
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( c) 	An order that meets all of the requirements of subsection (a) except
paragraph (a)(I), and otherwise falls within the definition of "check"
in subsection (f) is a negotiable instrument and a check.
(f) 	"Check" means (1) a draft, other than a documentary draft, payable
on demand and drawn on a bank or (2) a cashier's check or teller's
check. An instrument may be a check even though it is described on
its face by another term, such as "money order."4
The definition of "presentment" under Wyoming law, relevant to this case, is a:
"demand made by or on behalf of a person entitled to enforce an instrument
(1) to pay the instrument made to the drawee or a party obligated to pay the
instrument or, in the case of a note or accepted draft payable at a bank, to
the bank, or (2) to accept a draft made to the drawee."
(b) 	Presentment may be made at the place of payment of the instrument
and must be made at the place of payment if the instrument is
payable at a bank in the United States; may be made by any
commercially reasonable means, including an oral, written, or
electronic person to whom presentment is made; and is effective if
made to anyone (1) of two (2) or more makers, acceptors, drawees,
or other payors."s
The Tennessee bankruptcy court, in a case remarkably similar to the case before
this court, determined that ''presentment alone of a negotiable instrument is sufficient to
fall within the scope of §362(b)(11 )."6 The check from the Co-debtor to Money Now was
a negotiable instrument under Wyoming law. Money Now presented the check to the
4WyO. Stat. §34.l-3-104 (2007).
5WyO. Stat. §34.1-3-502 (2007).
6In re Davison, Case No. 07-32621,2008 Bankr. LEXIS 459, (Tenn., Feb. 19,2008).
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bank. That is sufficient to meet the exception §362(b)(11). Money Now's action of
presenting the check was not a violation of the automatic stay.
However, at the time of filing the bankruptcy case, the debtors' property and any
interest held in property, including the checking account balance became property of the
bankruptcy estate. 7 The exception to the automatic stay for presentment of a check does
not provide an exception to the definition of property of the estate. 8 Cashing the
Debtor's check, post-petition, is an unauthorized post-petition transfer, avoidable by the
Chapter 7 trustee pursuant to 11 U.S.C. §549(a)(I) and (2)(B).9
Money Now was not prevented from presenting the Co-Debtor's check for
payment but had an affirmative duty to turn over the $225.00, pursuant to the Bankruptcy
Code. "[A]n entity .. .in possession, custody, or control, during the case, of property that
the trustee may use, sell.. .or that the debtor may exempt...shall deliver to the trustee, and
account for, such property or the value of such property ... ")O
The Tenth Circuit Bankruptcy Appellant Panel determined that:
"The language of this turnover provision is mandatory. This
mandatory language squares with the language and impact of the automatic
711 U.S.C. §541(a) (2007).
SIn re Meadows 379, B.R. 737, 742 (Bankr. S.D. Ohio 2008).
9Id at 744.
1011 U.S.C. § 542(a) (2007).
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stay. By requiring a creditor to turn over property of the estate upon the
filing of a bankruptcy petition, Section 542(a) prevents the continued
exercise of control over property of estates - a violation of the automatic
stay. Section 542(a) works to avoid what Section 362(a) forbids - the
retention of property of the estate after filing."11
The Kansas court, in Hundl ey 12, determined that when a creditor retains possession
of property of the estate, after a case is filed, that creditor violates the stay by taking
possession of the property and also in exercising control over the property. The United
States Court of Appeals for the Tenth Circuit held that in order to demonstrate a violation
ofU.S.C. §362(k)(1), a debtor bears the burden of establishing, by a preponderance of the
evidence, that the creditor knew of the automatic stay and intended the actions that
constituted the violation; no specific intent is required.13 Money Now's manager admitted
to having knowledge that the debtors' bankruptcy had been filed. He also knew that he
could not keep the funds, as evidenced by his description of the policy that Money Now
had regarding funds that were involved in a bankruptcy. That policy included presenting
the check to the bank to have the check returned, so that Money Now could take the debt
off its books. This particular check was not returned. Money Now received the $225.00.
Money Now did not return the funds to the debtors or the trustee but retained possession
llIn re Yates, 332 B.R. 1 (RA.P. 10th Cir. 2005).
12In re Hundley, Case No. 05-13580, Chapter 13,2006 Bankr. LEXIS 245, (Kan., Feb. 7,
2006).
13Johnson v. Smith, 501 F.3d 1163 (Wyo. 2007).
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of the funds, even after the check cleared the bank and after inquiry by debtors' counsel.
Money Now's action was a deliberate and willful violation of the automatic stay for
which sanctions are mandated by § 362(h).
Conclusion
The court concludes Money Now willfully violated the automatic stay imposed by
§ 362(a) when it refused to tum over the $225.00 to the Debtors or trustee after notice of
the bankruptcy filing.
The court will issue a separate judgment requiring Money Now to tum over the
funds and will set a hearing on appropriate sanctions.
DATED this 4 	day of August, 2008.
Service to:
Stephen Winship
Chet Heil
Money Now
By the Court
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