In this case, the credit union brought an adversary proceeding to determine dischargeability of a debt secured by a classic automobile, which the Chapter 7 debtor had dismantled into composite parts that he then sold.

Here, debtor initially borrowed $6,000 from Moog Employees Federal Credit Union to finance the purchase of a 1970 Chevrolet Camaro Z-28, granting a security interest in the vehicle to the credit union.

Debtor provided appraisals to the credit union for this classic automobile, indicating the vehicle’s value to be no less than $12,500. The credit union had reason to believe that its secured loan was fully protected, since it had properly perfected its lien and the vehicle’s value was far in excess of the loan balance.

The debtor, however, proceeded to dismantle and sell various parts of the vehicle until the shell of the car was virtually worthless. Debtor then filed a Chapter 7 bankruptcy, seeking to discharge the balance of now more than $7,000 to the credit union. The credit union contested the discharge of this obligation.

The court found that debtor had willfully and maliciously caused injury to the credit union when he dismantled and sold the collateral component parts.

The credit union debt was, therefore, held nondischargeable in bankruptcy. Judgment was entered in favor of the credit union and, notwithstanding debtor’s bankruptcy, debtor must still repay this credit union debt. Moog Employees Federal Credit Union vs. Kevin Kibler (U.S. Bkcy. Court, W.D. New York, Case No. 93-1186).

Author: Charles R. Harroun, Attorney at Law