Creditor Behavior found Objectively Coercive: Refusal to Release Title or Pickup Vehicle
In Pratt v. GMAC, 462 F. 3d 14 (1st Cir., 2006), debtors intended to surrender their vehicle by ceding possession rather than reaffirming the debt. The creditor wrote off the balance because the value of the vehicle was less than the costs of repossession. The creditor both refused to pickup the vehicle and to release the title. The debtors argued that such behavior by the creditor effectively served to coerce payment of their discharged debt.
Under 11 U.S.C. § 521(a)(2), within a prescribed period, debtors must state their intentions, i.e., reaffirmation, redemption, or surrender, regarding debts secured by property of the estate. To surrender collateral means that the debtor must make the property available to the secured creditor. Nothing in the code suggests the creditor is required to accept possession; therefore, the question remains whether the creditor is required to release its lien in the case that it does intend to repossess.
The 1st Circuit Court of Appeals determined that the creditors’ “refusal had the practical effect of eliminating the [debtors’] “surrender” option under § 521(a)(2).” They determined that the creditor’s behavior was objectively coercive based on the following criteria:
(1) debtors filed timely § 521(a)(2) notice of their intention to surrender the vehicle;
(2) debtors did nothing to prevent creditors from repossessing the vehicle;
(3) “the value of the inoperable vehicle had plummeted to such an extent that it needed to be towed to a junkyard, which declined to accept it absent a valid lien release”;
(4) creditor determined (non)value of vehicle made repossession and resale cost ineffective; and
(5) pursuant to state law, vehicle could not be junked without valid lien release.
Additionally, the creditor announced its explicit intention to not pickup the vehicle as well as its intention to not release the lien UNLESS debtors fully satisfied the loan balance. Thus, the court determined that since the secured creditor determined the collateral was worth less than repossession costs, that creditor must waive the lien so the debtor can dispose of the property and receive their fresh start.