Over the years, there have been numerous cases about the impact of a car owner’s bankruptcy filing on the legality of the continued operation of a starter interrupt device installed in the car prior to the bankruptcy filing.
Back in 2005, there was a case involving Yam’s Choice Plus Autos, Inc., where Yam’s financed a car purchased by Toni Hampton and equipped the car with a starter interrupt device that was code-driven. If the correct codes were not entered by certain pre-programmed dates, the car would not operate. Yam’s provided a new code to Hampton each month when she made her payment.
After Hampton filed for bankruptcy, she sued Yam’s, asserting that she had been unable to rely on the car because of the device and that Yam’s’ use of the device constituted a violation of the automatic stay. Specifically, she claimed that the codes given to her did not work as long as they should, her car failed to start with no warning, and Yam’s had given her incorrect codes.
Yam’s responded that Hampton’s problems with the device were due to her misunderstanding of when to call for a new code or her possible misunderstanding of how to use the device and that if incorrect codes were provided, it was an unintentional act of its employees.
The U.S. Bankruptcy Court for the Eastern District of Arkansas concluded that Yam’s willfully exercised control over the car by not ensuring that Hampton had the correct code to operate her car, such as by mailing the correct code to her each month. The court awarded Hampton $2,752 in actual damages.
The lesson from that case – don’t require the debtor to ask for codes. Instead, put the burden on yourself to give the debtor correct codes, such as by mailing them, so that the debtor can continue to operate the vehicle in an unfettered manner.
The facts were similar in a case that came down about a year later. Wanda Dawson bought a 1996 Mustang from J&B Detail, L.L.C., and financed the purchase through J&B. J&B installed an “On-Time Payment Protection System” on the Mustang, allowing J&B to disable the car’s starter in the event of nonpayment so that the engine would not start. After Dawson filed for bankruptcy, she asked J&B to remove the system or give her a new code to enter so the ignition would not be disabled after the grace period, which expired three days later. Her monthly payment was already late.
J&B initially refused her request but eventually removed the system from Dawson’s vehicle after the car had been disabled. Dawson later sued, claiming that J&B violated, among other laws, the Bankruptcy Code’s automatic stay provisions.
The U.S. Bankruptcy Court for the Northern District of Ohio concluded that J&B violated the automatic stay after being notified of Dawson’s bankruptcy filing by allowing the on-time system to disable Dawson’s car. The court noted that “simply having the on-time system operating postpetition without a payment code constitutes a violation of the automatic stay,” and the violation is actionable once the creditor receives actual notice of the bankruptcy filing. The court awarded Dawson damages of $500.
The lesson from that case – same as the 2005 case. Make sure that the debtor has whatever codes are necessary to avoid having the starter interrupt system disable her car.
Then there was a late 2008 case in which a finance company repossessed Mikasa Crawford’s 2001 Chevrolet Prism for nonpayment. After Crawford filed a Chapter 13 bankruptcy petition, the finance company returned the vehicle to her, but she began having problems starting the car due to a malfunction in the disabling device installed by the finance company.
Crawford sued the finance company, alleging that its failure to repair the disabling device was a willful violation of the automatic stay. The U.S. Bankruptcy Court for the Southern District of Illinois agreed. The court concluded that the finance company willfully violated the automatic stay by failing to ensure that the car “operated free from any interference from the disabling device installed at [the finance company’s] behest.” The court awarded Crawford $2,220 in actual damages, $2,860 in attorneys’ fees, and $1,000 in punitive damages, noting that it took the finance company almost 10 months to fix the problem.
The lesson from that case – the same as the lesson from the 2005 and 2006 cases. Make sure that any vehicle equipped with a starter interrupt device remains functional for the duration of the bankruptcy and that the consumer does not need to take any steps to ensure the car’s continued operation during that period.
So, I was a little taken aback when a March 2010 case landed on my desk that showed that creditors just aren’t paying attention.
RSY Corporation, doing business as Rick’s Auto Marketing Center, financed Charles Garner’s purchase of a 1997 Dodge Ram 350. At the time of the sale, RSY installed an “On-Time Payment Protection System” that would prevent Garner from starting the truck without a numeric code that RSY would withhold if Garner failed to make a timely payment.
After Garner and his wife filed a Chapter 13 bankruptcy petition and a plan that provided that the trustee would make payments, the Garners’ attorney wrote to RSY requesting that it remove the protection system. RSY did not remove the system until more than three weeks after the Garners’ bankruptcy filing, and Garner was required to call RSY to get codes to continue to be able to start the truck. The Garners moved for sanctions against RSY for violating the automatic stay.
The U.S. Bankruptcy Court for the Middle District of North Carolina granted the motion, noting that RSY controlled the truck and attempted to collect on a claim by requiring Garner to contact it every two weeks in order to continue to use his vehicle, and ordered RSY to pay nominal damages for Garner’s lost wages (due to Garner’s failure to provide any evidence of a specific amount of lost wages) and $1,500 for his attorneys’ fees.
The lesson – the same as the lesson from the 2005, 2006, and 2008 cases. Don’t put the onus on the debtor to get the information necessary to ensure that the car continues to start.
For anyone financing a vehicle with a starter interrupt device - the courts aren’t wavering from the lessons they began teaching in 2005. If a debtor in bankruptcy has to make any effort to ensure that his or her car operates free from interference by a starter interrupt device, the creditor has violated the automatic stay. So, heed the courts’ warning and think about going one step further – disable the device ASAP after the bankruptcy filing to avoid any argument that, through use of the starter interrupt device, you are exercising control over the car and/or attempting to collect amounts owed by the debtor.
Hampton v. Yam’s Choice Plus Autos, Inc., 319 B.R. 163 (Bankr. E.D. Ark. January 10, 2005).
In re Dawson (Dawson v. J & B Detail, L.L.C.), 2006 Bankr. LEXIS 4396 (Bankr. N.D. Ohio July 28, 2006).
In re Crawford (Crawford v. Credit Acceptance Corporation), 2008 Bankr. LEXIS 3531 (Bankr. S.D. Ill. December 24, 2008).
In re Garner, 2010 Bankr. LEXIS 721 (Bankr. M.D.N.C. March 9, 2010).
Rochelle B. Fowler is an attorney in the Maryland office of Hudson Cook, LLP. Basis Points readers can reach Shelley at 410-865-5406 or by email at rfowler@hudco.com.