Recent Case Developments
The Meaning of Surrender:
We have previously circulated emails concerning the meaning and effect of a Chapter 7 or 13 debtor “surrendering” an interest in collateral in satisfaction of the secured creditor’s claim. For the most part, the cases hold that such a statement of intention in a Chapter 7 petition or a confirmed Chapter 13 plan binds the debtor such that the debtor cannot oppose a motion for relief from the automatic stay with respect to the collateral or oppose a subsequent foreclosure proceeding.
A recent case from the United States District Court for the Northern District of Illinois, In re Booker, appears to take the binding effect a decision to surrender one step further.
The debtor’s chapter 13 plan provided that the debtor surrendered her interest in real property secured by a mortgage in full satisfaction of the claim. The plan was confirmed by order of the bankruptcy court. Post confirmation, but while the Chapter 13 plan was being administered, the secured creditor continued its foreclosure and sent the debtor a notice of foreclosure sale. The secured creditor did not first file a motion for relief. In response, the debtor filed a federal action under the FDCPA, alleging that the continued prosecution of the foreclosure violated the automatic stay. While it is correct that the automatic stay remains in place during the term of the confirmed plan, the District Court held that the debtor’s statement of intent to surrender in the confirmed plan divested the debtor of any interest in the property such that the automatic stay was no longer applicable. The District Court dismissed the claims.
Practical suggestion. Lenders should not be too quick to embrace this pro-creditor case- other than under the specific facts of the case and in the Northern District of Illinois. We suggest that the meaning and effect of surrender is far from clear and is not consistently applied nationally. Thus, the more prudent and cost effective approach would be to wait for the plan containing the surrender provision to be confirmed and then (i) try to obtain a consent order from the debtor as to the modification of the stay on terms which allow the debtor time to vacate; or (ii) move for relief from the automatic stay based upon the confirmed plan.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. Disclaimer: This web site contains attorney advertising. The clients, matters and results referred to herein are representative in nature only and may not reflect current and future clients or the results which maybe obtained on behalf of current or future clients.
Copyright © 2008 by Teitelbaum Law Group, LLC. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.