Southern District of New York Permits Vehicle Surrender In Full Satisfaction Of The Debt
March 15, 2007
In the case of In re Pinti, 2007 WL 744031 (Bkrtcy.S.D.N.Y.,2007), the Debtor filed a voluntary petition for Chapter 13 bankruptcy. Schedule B of Debtor’s petition listed a 2004 Ford F250 valued at $10,400. The Vehicle was purchased by the Debtor pursuant to a retail installment contract on July 26, 2004. In Schedule D, the Debtor listed Ford Motor Credit Company with a claim of $28,000 secured by the Vehicle.
The debtor fell behind on the car payments, and Ford moved to lift the stay. The debtor did not object to the motion but, after the stay was lifted, the debtor filed a motion to expunge Ford’s claim as fully satisfied by sale of the Vehicle; the Debtor characterized the post-petition seizure of the Vehicle as a “surrender” by the Debtor that was in full satisfaction of the amount owed on the Vehicle. Ford opposed the Motion to Expunge, noting that the Debtor’s original Chapter 13 plan did not provide for surrender of the Vehicle to fully satisfy the debt, and that such a provision would have been objectionable in any event. Ford also requested that after liquidation of the Vehicle, any shortfall be allowed as an unsecured claim.
Judge Cecelia Morris interpreted the “Hanging Paragraph” of 11 U.S.C. § 1325(a)(5) to apply where the debtor’s Chapter 13 plan opts to surrender the collateral, preventing the creditor from asserting an unsecured claim for any deficiency. Put another way, the Court interpreted the Hanging Paragraph as permitting a debtor to surrender collateral in full satisfaction of the claim as part of a Chapter 13 plan.
The impact of this ruling on New York bankruptcy cases is enormous, as debtors who surrender their automobiles no longer need to be concerned with a deficiency increasing their required Plan payments in Chapter 13.
Congratulations to my fellow NACBA member Andrea Malin of Genova & Malin, Wappingers Falls, NY for her excellent representation of this debtor’s interests.
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