by Bernstein-Burkley
Investigating the Condition of a Vehicle Before Accepting a Surrender
It is a fairly regular occurrence for a debtor to propose a Chapter 13 plan proposing to make payments on a secured vehicle claim and to then file an amended plan proposing to surrender the vehicle. A plan will often say that the creditor will accept the surrender of the vehicle in full satisfaction of the debt.
This is a potential minefield because the vehicle may be irreparably damaged. In a recent case in which Bernstein-Burkley was involved, the debtor gutted the vehicle before surrender. The client obtained relief from stay without knowledge of the damage and in reliance on the proposed surrender in the plan. We have many arguments to make in court about the conduct of the debtor, but one solution occurred to me for future cases.
If at all possible, we recommend that creditors inspect vehicles being proposed to be surrendered before choosing to file a motion for relief from stay or accepting the surrender in the amended plan. If inspection is impossible, then the attorney should get written confirmation from the debtor or the debtor’s attorney that the vehicle is in good condition.
This will allow the creditor to learn about damage to the vehicle before being stuck with a confirmed plan or having relief from stay. It would also put the debtor on the spot for potentially lying about the condition of the vehicle.
Better to be safe than sorry.