Debtor Must Turn Over Motorcycle to Ch. 7 Trustee

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May 9 — A motorcycle acquired by a debtor shortly before he filed for bankruptcy, but not titled in his name until eight months after the filing is property of the bankruptcy estate and must be turned over to the Chapter 7 trustee, a bankruptcy court in Florida held May 4.

Judge K. Rodney May of the U.S. Bankruptcy Court for the Middle District of Florida concluded that debtor Thomas A. Chesley was the beneficial owner of the motorcycle when he filed for bankruptcy, and his equitable interest became property of the estate on the petition date.

Even though the seller of the motorcycle was the record title holder on the petition date, he had already relinquished his interest to the debtor, the court said. The name of the debtor's father, Harry Hammons, wasn't inserted as “buyer” on the 2010 title certificate and Hammons never had any of the attributes of ownership, the court said. Further, the Florida Department of Motor Vehicles' title report showed that as of May 14, 2014, the debtor hadn't transferred title to the motorcycle to anyone else. Thus, the debtor still owned the motorcycle when his case was converted from Chapter 13 to Chapter 7, the court concluded.

Chapter 13 bankruptcy allows individuals receiving regular income to obtain debt relief while retaining their property, but they must propose a plan that uses future income to repay a portion of their debts over a three to five year period. In Chapter 7 bankruptcy, a debtor's nonexempt assets are liquidated and the proceeds are distributed to creditors.

Conversion to Chapter 7

The debtor originally filed for Chapter 13 protection July 21, 2011, but because he was unable to confirm a Chapter 13 plan, the case was converted to one under Chapter 7.

In 2010, the Florida Department of Highway Safety and Motor Vehicles issued a title certificate for the motorcycle to the prior owners. Less than a month before filing his Chapter 13 petition, the debtor gave cash to the owner of the motorcycle, who endorsed the title certificate as seller. The debtor then took possession of the motorcycle.

Eight months after the petition date, the debtor submitted the endorsed title certificate with an application for title to the Florida Department of Motor Vehicles (DMV). The endorsed title certificate names the debtor as the purchaser with the date of sale as June 26, 2011. The Florida DMV issued a title certificate March 28, 2012, naming the debtor as the sole “registered owner.”

Chapter 7 trustee Susan K. Woodard filed an adversary proceeding in the bankruptcy court seeking a ruling that the motorcycle is property of the bankruptcy estate and ordering it to be turned over to the trustee.

Who Is the Owner?

The debtor and his father argued that the debtor wasn't the owner of the motorcycle on the date the Chapter 13 petition was filed because he was acting as an agent for his father when he acquired the motorcycle on June 26, 2011.

According to the debtor, after Hammons decided that the motorcycle was unsuitable, he wanted to sell the motorcycle but the debtor decided to keep it. The debtor said he took title to the motorcycle so he could obtain insurance for it, but he had no authority to “sell or otherwise transfer it,” he said.

Property of the Estate

Property of the bankruptcy estate is broadly described in Bankruptcy Code Section 541(a) as “all legal or equitable interests of the debtor in property as of the commencement of the case,” which is the petition date. Determining what is property of the estate is a question of federal law, but the “nature and existence of a debtor's right to property is determined by looking at state law,” the court said.

According to the debtor and Hammons, Fla. Stat. § 319.22(1) controls the issue of ownership. It provides that: “(1) Except as provided in §§ 319.21 and 319.28, a person acquiring a motor vehicle … from the owner thereof … shall not acquire marketable title to the motor vehicle … until he or she has had issued to him or her a certificate of title to the motor vehicle …. Except as otherwise provided herein, no court shall recognize the right, title, claim, or interest of any person in or to any motor vehicle … sold, disposed of, mortgaged, or encumbered, unless evidenced by a certificate of title duly issued to that person, in accordance with the provisions of this chapter.”

They argued that the motorcycle can't be property of the estate because no title certificate had been issued to the debtor by the petition date. Fla. Stat. § 319.22(1) also bars the court from declaring otherwise, the defendants argued.

After looking at Eleventh Circuit precedent in Geico Gen. Ins. Co. v. Gould, 595 F. App'x 901 (11th Cir. 2014), cert. denied, 135 S. Ct. 2895 (2015), and other Florida appellate decisions, the court concluded that a person could be the owner of a motor vehicle even in the absence of being named on a registered title certificate.

Herbert R. Donica, Donica Law Firm PA, Tampa, Fla., represented Chapter 7 Trustee/plaintiff Susan K. Woodard; Debtor/defendant Thomas Allen Chesley, Wesley Chapel, Fla., represented himself; Defendant Harry Hammons, Crystal River, Fla., represented himself.

To contact the reporter on this story: Diane Davis in Washington at ddavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bna.com