Does section 541(a)(1) of title 11 of the U.S. Code, which defines a debtor’s bankruptcy “estate,” include collateral which has been lawfully repossessed by secured creditors pursuant to Article 9 of the Uniform Commercial Code (“UCC”) prior to the debtor’s filing for bankruptcy? The courts have split in answering this pro-debtor issue by defining “estate” differently. Recently, in Tidewater Fin. Co. v. Curry (In re Curry), 509 F.3d 735, 735 (6th Cir. 2007), the Sixth Circuit Court of Appeals split with the Fourth and Eleventh Circuits and held that a secured creditor’s repossession of collateral under the state’s UCC prior to filing for bankruptcy does not alter the debtor’s property rights or remove the collateral from the estate. The effect of this ruling is that a debtor may regain possession of his collateral by paying its value to the creditor, even if his redemption rights under state law requires payment in full of the secured obligation.
This article concludes that Curry was correctly decided because when resolving an issue that involves secured creditors, states should look to Article 9 of the UCC—the substantive law governing secured transactions—rather than state laws regarding redemption. Moreover, the Fourth and Eleventh circuits were wrong to not rely on the UCC, which would have led to the conclusion that the collateral does in fact remain in the estate. Part I of this essay will highlight the relevant statutes pertaining to this issue. Part II will discuss the Curry decision and elaborate on the positive case law it relied on to rule in favor of the debtor. Part III will discuss cases from the Fourth and Eleventh cases that have ruled against the debtor. Part IV will analyze the Fourth and Eleventh cases’ reasoning and argue that the Sixth Circuit correctly resolved this issue.