Creditor Cannot Be Compelled to Take Possession of Surrendered Collateral

Posted by NCBRC - January 13, 2021

Surrender of collateral under section 521(a)(2) is a procedural action lifting the bankruptcy stay and permitting a lienholder to exercise state remedies with respect to the collateral. Because surrender does not affect the substantive rights of the debtor or the creditor, however, the debtor could not compel the creditor to take possession or release the lien. In re Loucks, 619 B.R. 908 (Bankr. E.D. Mich. Oct. 9, 2020) (case no. 20-42265).

In her confirmed plan, the chapter 13 debtor surrendered her vehicle to the lienholder. The lienholder, deciding that the car had little value, declined to take possession, and the debtor moved the bankruptcy court to compel the lienholder to either take possession or release its lien. Relying on precedents such as Maple Forest Condo. Assoc. v. Spencer (In re Spencer), 457 B.R. 601, 604, 612 (E.D. Mich. 2011), the court found that the practical effect of surrender under section 521(a)(2) is to establish that the debtor will not oppose the creditor’s right of repossession but does not otherwise impact the rights of the creditor or the debtor’s obligations and ownership status. Nor did the debtor’s chapter 13 plan, which explicitly lifted the stay, impose a requirement on the lienholder to take possession or release the lien. The court denied the debtor’s motion to compel as having no legal basis.

Loucks Bankr ED Mich Oct 2020


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