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Consumer Bankruptcy Law and Practice: 3.5.3 Filing and Allowance of Claims

While the nonexempt assets of the estate are being liquidated, the trustee receives and evaluates all claims filed by creditors, objecting to them if they are improper.164 Unless an objection is filed, a proof of claim in proper form is deemed allowed.165 Any objections filed commence contested matters under Rule 9014166 and are ruled upon by the court.

Consumer Bankruptcy Law and Practice: 3.5.4 Distribution of Property to Creditors

After the estate has been liquidated and the amounts of the claims have been determined, the trustee is in a position to make distributions of the estate’s property to creditors. The distribution to creditors is carried out according to priority rules in the Bankruptcy Code, which serve to effectuate various policy decisions of the drafters regarding which creditors should be paid first. Distributions to creditors are generally known as “dividends.”

Repossessions: 5.3.3.7 Attorney Fees

Under some state replevin statutes, attorney fees are available to a replevin defendant who defeats a petition for a writ of replevin or obtains dissolution of the writ.196 A Louisiana court noted that, “[t]he writ of sequestration is an extremely harsh remedy, and when a party makes use of this powerful legal weapon, he must be ready to respond in damages, including attorney fees, if it is found wrongfully issued.”197 Other possible grounds for an attorney fee award include Federal Rule of Civi

Repossessions: 5.3.4.1 Challenging the Creditor’s Bond

When seeking a writ of replevin, creditors usually must post an adequate bond with sufficient sureties to obtain temporary custody of the collateral pending the replevin trial on the merits.200 If the debtor prevails on the merits, the bond protects the debtor from damage to the collateral.

Repossessions: 5.3.4.2.1 Introduction

Most states’ replevin procedures allow the debtor to retain the collateral pending the trial on the merits by posting a counter-bond, although there may be strict time limits for filing the counter-bond. These statutes usually require a surety bond rather than a cash bond, so the debtor need not pay the full amount of the counter-bond to the court, but only find the requisite number of sureties to guarantee the counter-bond.

Repossessions: 5.3.4.2.2 Waiver or reduction of the counter-bond amount

A few state statutes allow the waiver or reduction of counter-bonds in cases of indigency or hardship.215 An Ohio statute allows the court, on either its own motion or the defendant’s motion, to waive or reduce the bond if the defendant is indigent and “as fairness requires.”216 A New York statute authorizes the return of “personal property which if owned by a defendant would be exempt from application to the satisfaction of a money judgment” provided that the value of possession of the property

Repossessions: 5.4.1 Avoiding Trial by Reinstating the Contract

About a dozen jurisdictions give consumers the right to reinstate the contract after the creditor has retaken possession of the collateral due to the debtor’s default.219 The consumer pays the past due amounts and certain expenses, thus reinstating the contract and recovering the collateral.

Repossessions: 5.4.2.1 Raising Defenses

Do not neglect to defend the replevin action itself. When a writ of replevin has been issued ex parte, the sheriff typically delivers the court summons for the replevin action simultaneously with enforcing the writ of replevin. As with any legal action, the debtor must answer the complaint in a timely fashion.

Repossessions: 5.4.2.2 Can the Consumer Raise Counterclaims?

Some jurisdictions allow the debtor to raise counterclaims pertaining to the underlying sales transaction or credit terms.227 This procedure gives the debtor a chance to prove warranty, deceptive trade practice, usury, Truth in Lending, and other claims.

Repossessions: 5.4.2.3 Remedies for Wrongful Replevin

A debtor who shows that replevin was wrongful has the remedy of damages.241 In some jurisdictions, a replevin defendant who prevails at the final judgment stage may be entitled to attorney fees.242 The actual damages awarded may include loss of profit, loss of use of the seized item, injury to reputation, humiliation, and inconvenience.243 In appropriate cases punitive damages may also be awarded.244

Repossessions: 5.4.3 Creditor’s Failure to Pursue Replevin Action

The writ of replevin gives the creditor temporary custody of the collateral pending the outcome of the trial on the merits.248 If the creditor, satisfied with possession of the collateral, does not pursue the replevin action to final judgment, the debtor may be able to obtain a non-suit.249 The creditor will then have to return the collateral to the debtor, and will be liable for the debtor’s damages.250

Repossessions: 5.5.1 Overview

An initial question whenever a manufactured home owner is facing the loss of the home to a secured creditor is whether foreclosure law or repossession law applies. In nearly all states when a dealer initially sells a manufactured home to the consumer, the home at least initially is considered personal property for purposes of secured transactions. It is therefore generally subject to Article 9, including replevin or self-help repossession.258 However, once the home is affixed to the land, its status may change.

Repossessions: 5.5.3.1 Article 9 Treatment of Homes That Are a Fixture to Land

If the manufactured home is a fixture to real property, then Article 9 provides for rules as to its seizure. “Fixtures” are defined by UCC § 9-102(a)(4) as goods that have become so related to particular real property that an interest in them arises under real property law. Generally this interest will arise only when ownership of the home and the land on which it sits are the same.

Repossessions: 5.5.3.2 Complications for Creditor Remedies When Home Is a Fixture

As a practical matter, when a manufactured home is considered a fixture to land, the creditor’s right to opt for state foreclosure law may be complicated, making the Article 9 procedures the better alternative. State law may not make foreclosure available to a creditor that has a security interest in the manufactured home, but not a mortgage on the land. It will be a question of state foreclosure law whether a creditor may force the sale of the land if its security interest only covers the manufactured home.

Repossessions: 5.5.3.4 When State Law Treats Home Not As a Fixture But As Realty

General rules as to seizure of a manufactured home as a fixture may be overridden if a state has a statute that specifies a procedure for converting a manufactured home to real property.277 Some of these statutes specify that, if the home is converted to real property, then foreclosure law or all real estate laws apply. In these states the creditor would no longer have the option of proceeding under Article 9 to repossess the home.

Repossessions: 5.5.4.1 Generally

About three-quarters of the states have statutes that set forth a procedure to convert a manufactured home to real property and to document that conversion.279 These statutes (sometimes referred to as title-purging statutes) may be located among the state’s manufactured home statutes, or may be part of the state’s motor vehicle, finance, or tax laws.

Repossessions: 5.5.4.2 Implications of Conversion Statutes

Some of the title-purging statutes state that once a home is converted to real property, foreclosure law applies. Others achieve the same result by stating that the home, upon conversion, is subject to all laws that apply to real estate.

Repossessions: 5.5.4.4 Conversion of Title Under Other Statutes

Even if a state does not have a title-purging statute, the state titling agency may still grant requests to cancel a manufactured home’s certificate of title. For example, Connecticut formerly issued titles to manufactured homes but no longer does. If a home has a certificate of title, the Department of Motor Vehicles reportedly will grant a request to cancel the title upon a showing that the home is not capable of being operated on a public highway.289

Repossessions: 5.5.6 Other State Statutes

If a state does not have a title-purging statute or one that directs how manufactured homes are to be treated in credit transactions, it may still have a statute that sets forth criteria for treating a manufactured home as real property for some other purpose, often for tax purposes.300 A Vermont statute provides that a manufactured home is to be financed as a residence if it is permanently sited in a manner intended for permanent residence on land owned by the owner of the home, but this statute’s scope appears to be confined to state intere

Repossessions: 5.5.7 Whether Manufactured Home Is Treated As Realty in Absence of State Statute

If there is no state statute which specifically establishes the classification of manufactured homes as real or personal property, then the courts must determine whether a particular manufactured home remains personal property or has become a fixture. If the home remains personal property, then the only remedies available to the creditor are those provided by Article 9 or state replevin law.