What Are “Fixtures” As Secured Collateral In Bankruptcy Law?

Overland Park Bankruptcy Attorney

In the repossession of secured collateral in a bankruptcy case, it happens on occasion that some of the items have been affixed to the premises, such as boilers, heaters, cooling systems, cabinets, rugs, chandeliers, etc.  What happens then?  Can the creditor take the item or items?

When an item of collateral has been permanently affixed to realty, it is said to be a “fixture” and cannot be removed.  Even if a piece of collateral may be removed from a premises, it may still qualify as a fixture under some situations.  In Re Heflin, 326 B.R. 696 (W.D. Ky 2005).  The relative ease with which an object can be removed is one of the tests to see if something qualifies as a “fixture” or not.

If it is something that can be removed relatively easily without damage to the premises, then it usually is not considered a fixture.  In some cases, the critical factor is not whether the collateral can be removed, but whether it was originally intended to be permanent.  In Re City of New York, 870 N.Y. S. 2d 827, 899 N.E. 2d 933 (2008).

But the situation can vary from case to case.  An item may still qualify as a fixture even if removing it causes no damage to the freehold (the real estate).  In Re Metzgar, 242 B.R. 226, (W.D. NY 1999).  Conversely, the ease of removal may be a factor in disqualifying an item as a fixture.  But the majority rule here is that if something has been affixed to the land and cannot be removed without damaging it or the realty, then it is a fixture and cannot be repossessed.  Williamson v. Washington Mutual Home Loans, 400 B.R. 917 (M.D. Ga. 2009); see also Houston Bldg. Service Inc. v. American Gen. Fire & Casualty Co., 799 S.W. 2d 308 (Tex. App. 1990).

Under the law in one state, Lousiana, things such as plumbing, heating, cooling, electrical items, and other such “utility” items are considered part of the building as a matter of law, and cannot be removed regardless whether doing so would cause no damage to the building.  Miller v. Slam Offshore, 49 F.Supp. 2d 507 (E.D. La. 1999).

Creditors threatening to repossess items that have been attached to the premises will have an uphill battle trying to demonstrate that such things are not fixtures.  In some situations, creditors attempting to repossess fixtures may be liable for damages to the premises or to the debtor for removing things that never should have been removed.  The best practice in repossession scenarios involving things that may include fixtures is to warn an overaggressive creditor beforehand that fixtures are located at the premises.  It is also advisable to have someone supervise the repossession to make sure that it happens in an orderly and proper manner.

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