Recent Case Clarifies What it Means to Surrender a Vehicle

If you file for Chapter 13 bankruptcy and are required to surrender your vehicle as part of a payment plan, what happens if the car gets stolen? It might seem like an odd question, but it is one that became a significant issue in a recent case before the U.S. Bankruptcy Court for the North District of Illinois. In short, a debtor is not required to physically deliver a vehicle “when she is incapable of doing so through no fault of her own,” according to Judge Timothy A. Barnes. Let’s take a closer look at this recent bankruptcy case.
Learning the Facts of In re: Ware
In order to understand why the court ultimately decided that the debtor’s Chapter 13 bankruptcy plan could be confirmed despite the fact that she could not physically deliver her vehicle (as required by the plan), we should examine the facts of this case, In re: Ware.
Back in early 2011, the debtor bought a 2006 Chevrolet Monte Carlo from a lender, Santander. The purchase agreement came with an interest rate of 24.99% and equal monthly payments of $475.92 to be paid to the lender. The debtor made payments on the vehicle, but in October of 2012, she reported the vehicle stolen from a parking lot in Chicago. The debtor filed a police report and filed an insurance claim. The insurance claim was denied. The debtor still informed the lender of the theft of her vehicle and her subsequently filed police report, as well as the insurance company’s denial of her claim. At that point, the debtor stopped making payments to the lender.
For about two years following the insurance claim denial, the lender did not try to contact the debtor about the vehicle and the payments she owed. The lender also failed to “commence any action in state court for the recovery of the vehicle or for collection of the underlying debt.” In addition, the lender did not try to file a claim with the debtor’s insurance company.
In early February of 2015, the debtor filed for Chapter 13 bankruptcy. The debtor’s initial schedules and payment plan did not address the vehicle or any money the debtor owed to Santander. The lender “filed its secured claim as to the vehicle in the amount of $18,806.67 and objected to confirmation of the plan on the grounds that the plan omitted its claim.” The debtor then modified her plan to include this language: “Debtor hereby surrenders the 2006 Chevrolet Monte Carlo to Santander Consumer Usa [sic] in full satisfaction of its secured claim.”
The lender argued that the requirement of “surrendering” property under section 1325(a)(5)(C) of the Bankruptcy Code requires actual physical delivery of the property, while the debtor argued that the law does not require actual physical delivery. As such, the court had to determine the meaning of the word “surrender” as it pertains to this section of the Bankruptcy Code.
Defining “Surrender” in Bankruptcy Law
To determine how “surrender” should be construed in this section of the Bankruptcy Code, the court looked to ordinary meanings of the word, meanings of the word in other parts of the Bankruptcy Code, and legislative intent with similar terms in the Bankruptcy Code.
Among a variety of points, the court reasoned that, in other parts of the Bankruptcy Code where physical delivery of property is required, “Congress elected to use the word ‘deliver.’” The court also emphasized, in looking at other case law, that “surrender is not, within the bankruptcy context, synonymous with actual delivery, but is better seen as a version of constructive delivery.” The court discussed situations in which surrendering property generally has referred to “relinquishment of all rights in property . . . even if such relinquishment does not always require immediate physical delivery of the property to another.”
Because the debtor’s plan required her to turn over her interests in the vehicle to the lender—even though she was not able to physically deliver the vehicle—the court concluded that the debtor had complied with the condition of “surrendering” the vehicle.
Do you have questions about filing for personal bankruptcy or concerns about the court’s confirmation of your Chapter 13 payment plan? Contact an Oak Park bankruptcy lawyer today to discuss your situation.
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