| dc.description.abstract | Property is generally understood in two ways. Most people think of property as a thing that is owned by someone. By contrast, lawyers and other specialists understand property as rights against people with respect to things.
This duality in our understanding of property can cause confusion when lawmakers mix the colloquial understanding of property as thing-ownership with the specialist's understanding of property as a bundle of rights. Such mixing seems to have occurred in the law governing security interests in bankruptcy. As a result, courts are split on a frequently recurring issue: must a secured creditor who, at the time the debtor files for bankruptcy, has repossessed goods but not yet sold them at foreclosure, relinquish possession of those goods?
Law governing secured transactions in bankruptcy includes state law, UCC Article 9, and the federal Bankruptcy Code. This article's first section explains that the specialist's understanding of property pervades Article 9 but that an important section of the Bankruptcy Code (section 542(a)) is not as clear about whether it uses the colloquial understanding of property as thing or the specialist's understanding of property as a bundle of rights. Section II of this article briefly summarizes the majority view, based on the Supreme Court's decision in United States v. Whiting Pools, Inc., that section 542(a) uses the colloquial understanding of property. Courts applying this view to secured creditors who have repossessed goods, but not yet sold them at foreclosure, hold that the creditor must deliver (turnover) possession of the goods to a debtor who files for bankruptcy or to the bankruptcy trustee. By contrast, Section III of this article discusses an Eleventh Circuit case holding that section 542(a) uses the specialist's understanding of property and thus requires such a creditor to deliver (turnover), not possession of such goods, but only the debtor's rights with respect to those goods. The Eleventh Circuit's reading of section 542(a) receives scholarly support from Professor Thomas Plank.
The Eleventh Circuit and Professor Plank raise a strong challenge to the majority view about section 542(a) and turnover of property to the bankruptcy estate. There are, however, also strong arguments in defense of the majority view. This article does not seek to make the case for either view. Rather than try to resolve the debate about the best reading of section 542(a), the goal of this article is simply to encourage courts to engage the question. Instead of engaging this important question of federal law, courts have been led astray by another topic, different laws in different states. Section IV of this article critiques these cases and explains why variations in state law are not relevant to bankruptcy cases of goods that have been repossessed but not yet sold at foreclosure. This article concludes with the hope that courts will stop being led astray by irrelevant variations in state law and confront the task of determining the best reading of Bankruptcy Code section 542(a). | |
