Frequently Asked Questions about Bankruptcy:
What is bankruptcy?
How should I choose an attorney?
What are the fees for bankruptcy?
Why not hire a bankruptcy petition preparer or paralegal?
What about credit counseling services?
What if I really can’t afford an attorney?
What if a lawsuit is filed against me for a credit card or other unsecured debt?
What if a foreclosure is filed against my home before I file?
What if my car is repossessed before I file?
Can I file even if I own a business?
What should I do before the initial appointment?
What information should I bring to the appointment if available?
What shouldn’t I do before the initial appointment?
What shouldn’t I do at the appointment?
Can I bring friends or relatives with me to the appointment?
What should I expect at the appointment?
What will counsel not give advice on?
Do I have to list all my creditors?
What is the procedure for filing?
Does it really make a difference which attorney I employ?
Example of a Chapter 13 case
Can I just have a telephone consultation without coming in?
What problems can arise in the bankruptcy?
Some minor issues that arise fairly commonly:
Reaffirmation Agreements
Motion to foreclose or repossess
Mortgage or Car companies complaining of late payments
What happens if something happens such that you cant afford the repayment set in a Chapter 13 case?
Why shouldn’t you transfer money or property to friends or relatives before filing?
What should you do when you file Chapter 7 trying to return your car to the creditor, but the creditor won’t take it?
What is bankruptcy?
Bankruptcy is a federal law permitting individuals, married couples, or incorporated or unincorporated businesses to reorganize or eliminate their debts. See the general information page describing the different types of bankruptcy, and the property you can retain in them (in Florida cases).
How should I choose an attorney?
While most Chapter 7 bankruptcy cases are very routine, if a problem arises it can be very important to have a good attorney representing you. Chapter 13 bankruptcy cases are usually more complicated, and require more attention from the attorney than a typical Chapter 7 case. You should meet with two or more attorneys before you decide which attorney to employ.
You should find out if the attorney you are meeting is the same attorney who will appear for you at court and will handle you case, and if not what are the qualifications of the other attorneys involved in your case.
Also, beware of firms that advertise under a number of different names. They may have a bad reputation, and be trying to hide their real identity. If you call what appear to be different firms and get the same answering service, you should consider consulting a different firm.
We are now seeing some firms based outside the state advertising in Florida, and then referring clients to local attorneys. This means the local attorney is having to pay the other firm, often part of the fee you are charged. This can result in paying more than you should for the representation received.
You also may review lawyer information from independent sources such as Martindale-Hubbell lawyer locator.
What are the fees for bankruptcy?
As of the date this note was posted, the filing fee for a Chapter 7 bankruptcy is $338. The filing fee for Chapter 13 is $313.
I charge a retainer under either case which varies according to how much work I anticipate to be involved in the case.
If there were no recent charges on credit cards, and no other problems likely to lead to possible problems in the case my usual fee will be around $1,500 not including the filing fee for a Chapter 7 case, but I work with clients to find something that they can afford, including reducing the fee as necessary.
I am not doing this to get rich, but to help people in need. I file cases for no fee when this appears to be the only way to get the client the needed relief. If there are potential problems the fee may be more, but I will try to work with you to find a way to make my services affordable.
For Chapter 13 most cases I will allow the most or all of the attorney fee to be paid through the Chapter 13 repayment plan. If the client cannot afford fee before filing the entire attorney fee would be paid over 3-5 years by the trustee out of the monthly payment sent to him. This option helps insure that the client has funds they need immediately after the filing of the case to make mortgage or car payments, or pay living expenses. There is an hourly fee which could increase the total amount paid in the plan if more work than usual is required, though most often this is due to the client not making payments to the court on time.
Now that some firms are charging extra to represent clients after the filing, we are willing to review a bankruptcy filed by another firm that is requesting additional fees for representation after filing. We will not charge anything for this review, and if there do not appear to be problems with the original filing of the case, will represent clients for $500 for the balance of the Chapter 7 case.
We also now can order credit reports from all three credit reporting agencies online to help insure that all creditors are listed. The fee for these as well as two online or telephone courses required is $50 in an individual case and $100 in a joint case, and must be paid prior to the filing of the case. We also will order some type of asset search which is included in the fees above. If the case is a referral from a legal aid society for which we do not charge fees, these costs will have to be paid separately by the client.
Why not hire a bankruptcy petition preparer or paralegal?
There are no standards or required qualifications for bankruptcy petition preparers or paralegals. Only attorneys are permitted to give you legal advise, and only attorneys can represent you in court and design and write legal documents on your behalf. There are many bankruptcy petition preparers in the Tampa area, which very often charge higher retainers than I do. The Courts are now entering orders requiring many of them to appear in court to justify their fees, but the preparers often close under one name and open in another name and at a new address and phone number before the Court and officials can catch them. You should assume that anyone offering to file bankruptcy for you that is not an attorney is a scam artist.
What about Credit Counseling Services?
If you are close to being able to make your payments, it may be worth going to a credit counseling service before filing bankruptcy. It is always a good idea to get as much information as possible on all your options. There are two general types of credit counseling agencies. The type I do not recommend will have you pay them periodically, but will not not pay the creditors until they offer large discounts on the balance owed. I have never seen a successful workout with this type of agency, rather they charge high fees, end up keeping most of the money paid, and the creditor ends up suing the client for the money owed.
The other type of agency will work out payment arrangements with the creditors up front, and pay them monthly. While this type of agency will generally not reduce the principle balance owed, it will usually reduce the interest rate on most or all creditors. The agency we recommend, Consumer Credit Counseling Agency, is an example of this type of agency.
With any counseling agency you should keep three considerations in mind:
- be sure that the creditors are reporting the debt as current so long as you make the payments to the agency on time;
- be sure the balance is going down on each creditor each month; and
- be sure you know how long you will need to make the payments under the repayment plan.
If these factors are met satisfactorily, credit counseling can be a satisfactory alternative to bankruptcy.
What if I really can’t afford an attorney?
You may see what programs are currently available from the local legal services office. As of the last update to this (2 December 2006) it appears some of these are still requiring attorneys fees of $550 in addition to the filing fee even for the legal aid referrals. Others may be making referrals to attorneys who may file for no charge. Additionally, some attorneys, including myself, take a few cases for no fee (pro bono). These may or may not be referred by the local legal services office. The legal services office screens people for income and assets to see if they qualify for free services, and if so will refer them to a local bankruptcy attorney that works with them.
In Hillsborough and Pasco county you should contact Bay Area Legal Services:
Bay Area Legal Services Inc.
829 W. Dr. Martin Luther King Jr. Blvd.
Suite 200, Tampa, FL 33603-3336
813.232.1343 | 1.800.625.2257
In Polk or Hardee County contact Florida Rural Legal Services at:
Florida Rural Legal Services – Lakeland
963 East Memorial Boulevard, Lakeland, FL 33801
863.688.7376
In Hernando county contact Withlacoochee Area Legal Services at:
Withlacoochee Area Legal Services Inc.
222 S.W. Broadway Street
Ocala, FL 34474-4151
(352) 629-0105
What if a lawsuit is filed against me for a credit card or other unsecured debt?
Most of the time bankruptcy will get rid of these debts, even if they sue you, and may even if they get a judgment against you. Under a recent change in Florida law though, it is much more important to file before any judgment or garnishment is entered, since it may not be possible to eliminate a garnishment on your wages even through bankruptcy if the garnishment is entered before the bankruptcy is filed. Also, if the judgment makes some ruling regarding fraud or wrongful conduct; or if you own non-homestead property on which a judgment lien may attach the judgment may make it much more difficult or impossible to eliminate the debt in bankruptcy. However just the fact that you have a suit or judgment should not prevent you from seeing a bankruptcy attorney to discuss the options. Also, the sooner you file after a judgment, the better the chances of eliminating the debt.
What if a foreclosure is filed against my home before I file?
In Florida we can usually stop a foreclosure and give you an opportunity to catch up the mortgage payments through a Chapter 13 bankruptcy so long as we file the bankruptcy before the foreclosure sale. If a summary judgment is entered before we file, this may limit our ability to fight the amount owed, so it is best to file as early as possible in the foreclosure process, or before any foreclosure is filed. Once a summary judgment is entered, we usually will no longer be able to fight over the amount you were behind in payments, or the fees and costs charged by the mortgage company. Still, if you are behind on mortgage payments, you should see an attorney as soon as possible to reduce the total fees that will end up being paid to the mortgage company attorneys if they file a foreclosure. If there is a balloon mortgage, ie a mortgage where the final payment is a very large payment due within five years from the day you file bankruptcy, be sure to bring in the mortgage papers and point this out to the attorney as this affects what options you have. However, balloon mortgages are still fairly rare.
What if my car is repossessed before I file?
Based on a decision issued June 7, 2002, if a car is repossessed before the case is filed, we may not be able to get it back. Therefore, if you think there is a risk of the creditors repossessing the car, you need to see an attorney as soon as possible.
Can I file even if I own a business?
Yes. If the business is incorporated, then the business is a separate entity, and it can file without you filing, or you can file without it filing. Often, for instance if many corporate debts are personally guaranteed, both may have to file. Generally, if the business is incorporated and wished to keep operating, it would need to file Chapter 11.
If the business is not incorporated, then it is not a separate entity and only one bankruptcy would be filed. If there is substantial assets or value to the business I will generally recommend filing a Chapter 13 bankruptcy, which will usually allow you to keep control of the business and keep operating it even while you reorganize your debts in bankruptcy.
What should I do before the initial appointment?
Before you first meet with me or any other bankruptcy attorney you should prepare a list of who they owe and how much they owe to this meeting.
You may wish to download and fill out my new client sheet and my budget form. You will be asked to review and sign the Debt Relief Agency disclosure, the Debt Relief Agency contract, and the Information disclosure at the first appointment, so you should download, review, and sign those before the appointment. These forms are all required by the new bankruptcy law now in effect.
You should also know the make, model, and year of your car and should bring a copy of the car loan papers if they have them. If you refinanced any real estate within the last 3 months, bring a copy of the mortgage loan documents. Finally, you should bring a copy of your most recent paystub.
While you do not have to bring anything, all of this information will assist in making a recommendation in your case. You should make out a list of questions you have to ask at the appointment. You also should attempt to obtain the following information for your appointment if you can, and bring it to the meeting.
Information for appointment, if available:
The client should attempt to obtain the following information which counsel will require to determine what type of bankruptcy to file, and what payments, if any, will be required to creditors. Bring these to the first appointment if you have them easily available, or you can bring them to the followup appointment if you cant locate them in time for the initial appointment.
- Bills and other statements from creditors and collection agents for the last 3 months.
- Income records for the last 6 months (or some way to determine the average income for the last six months).
- If the client had moved within the last 1215 (3 1/3 years), the client should show where they were living during that time and the date they moved for each time the moved. A copy of the last 4 years of tax returns may assist in showing this.
- If the client had purchased their homestead within the last 10 years, or in the last 10 years either paid more than the regular monthly mortgage payment, or put other money into the home, then the client should be able to show where that money came from and the date of such actions.
- As is the case under prior law, the client should bring in copies of any lawsuit documents and copies of current bills as well as a list of creditors and amounts owed.
- A copy of the most recent tax return filed by the client.
- Photos of the rooms in the home showing furniture in the house.
- Copies of any car loan papers and the payment terms on any mortgage or lease.
- Some document showing the annual property taxes and insurance on the home, if you own a home.
What shouldn’t I do before the initial appointment?
Do not transfer assets out of your name before you see the attorney. This almost never does any good, and can often cause you to lose property you otherwise would have been able to keep. Do not pay any relatives or friends before you file, or make substantial payments to any creditors, other than regular payments on secured creditors before you see the attorney.
What shouldn’t I do at the appointment?
For attorneys, time is money. While we like children, if you are spending your time chasing after the children or trying to quiet babies instead of listening or answering the counsel’s questions, you are wasting everyone’s time. If the children will sit and draw quietly, bring them. If they will be running about, screaming, and constantly interrupting, find a babysitter. Do not take cell phone calls during the middle of the appointment. Do not come and spend 10 minutes trying to remember who you owe.
Can I bring friends or relatives with me to the appointment?
Due to confidentiality concerns, and to insure that the client is not being influenced by others, we will only meet with the individual considering filing bankruptcy at the initial meeting. If that person is mentally incompetent, and a guardian has been appointed, we can meet with the legal guardian. Otherwise, only the client will initially be permitted to discuss the situation with the attorney. Upon the client’s consent, the attorney may agree to meet with the client and others to explain the situation after the appointment. If a married couple is considering filing together, both may meet with the attorney for the initial consultation.
What should I expect at the appointment?
All clients will be asked to review and sign the following three forms at the commencement of the consultation. You may wish to download and sign them before the appointment.
Debt Relief Agency Disclosure
Adobe PDF
Debt Relief Agency Contract
– *a contract does not obligate you to pay anything or to hire us, but new law requires a pre-hiring contract as well as a separate contract if client hires us)
Disclosure Regarding Information Disclosed for Bankruptcy Assistance
I will spend 15-45 minutes initially getting a lot of information from you about your finances. I will then explain what options you have and what option I recommend.
You should never feel pressured to decide what to do at the initial consultation, but should feel welcome to go home and think about it before you employ the attorney.
If you have questions or don’t understand something, you should ask questions. I understand that you have probably not had to employ an attorney before, and bankruptcy can be quite complicated. I expect to take the time to explain it so that you understand the options and what you will need to do.
What will counsel not give advice on?
I only practice bankruptcy and bankruptcy appeals. I will not give advise on other areas of law, other than as they relate to the bankruptcy, or to recommend employing counsel specializing in such areas.
While most cases may involve some degree of pre-bankruptcy financial planning, I will not give advise for extensive pre-bankruptcy financial planning. If you have substantial assets that are not protected in bankruptcy, and you want to set up an investment or asset protection scheme to protect these assets, you should employ an attorney (usually from a large law firm) specializing in such financial planning.
Do I have to list all my creditors?
Everyone you owe money to on the date the bankruptcy is filed must be listed as a creditor. You may not leave any creditors off the list if you are liable on the debt. This includes corporate credit cards on which the person filing is also liable. This includes debts co-signed for others. This includes all debts of any nature.
On the other hand, if you do not owe money to a company (for instance a credit card this is paid off), that company does not have to be listed. Even so, discuss the matter with me before you pay more than $400 to pay off a credit card prior to filing.
What is the procedure for filing?
I insist on personally meeting each potential client before I agree to take the case. This appointment will usually take 30-90 minutes. If I agree to take the case you will need to pay a $100 before I formally represent you, at which time they can start referring creditors to our office. You do not need to pay the $100 at the initial appointment, and do not need to decide whether or not to employ me at that appointment.
If you do employ me, I will give the clients a questionnaire to fill out at this time, which requires listing all debts, assets, creditor addresses, and a budget as well as some other information. When this is returned with the balance of the fee, it will take our office 1-2 weeks to type the petition. The clients will need to come in once more to sign the petition.
The Chapter 13 cases are generally filed the next business day, Chapter 7’s filed within a few days.
There will be a meeting of creditors at the Federal Building about 30 days after the case is filed, which the clients must attend. At this meeting the trustee will ask the same sort of questions as I asked at the initial appointment, but the meeting usually only takes about 5 minutes.
In a Chapter 7, this is usually the only meeting. In a Chapter 13, procedures after this are dependent on the individual case, but will involve at least one more court hearing after the initial meeting.
Does it really make a difference which attorney I employ?
When the number of bankruptcy cases increased, two large national firm opened offices in Florida hiring attorneys with limited experience, and spending lots of money on advertising. These firms have very high volume of cases and therefore can spend very little time on each case, with paralegals handling a large amount of the work.
Also, a number of attorneys practicing in other areas of law starting taking on bankruptcy cases as well as their regular workload. You need to hire an attorney who specializes in bankruptcy, and who has the time to spend on your case, and the experience to advise you properly.
Lets take the example of a Chapter 13 case being used to catch up on house payments.
Most Chapter 13 cases are ultimately dismissed due to the client not being able to continue payments each month for three to five years.
How can this be helped?
First, the client needs to try to set aside a little money each month, even when it doesn’t seem any is available, so that they have money for unexpected problems like car repairs. However, the attorney also can often help.
It is often possible to have the court rule that the payments to the trustee may be decreased temporarily until the unexpected problem is cured. It might be possible to change payments to other creditors depending on the situation.
Some attorneys insist on additional payment before they will attempt any of these services. I believe that position is both contrary to the best interest of the client and unethical under the local bankruptcy rules issued by the court. So long as I represent the client (which is either until the case has been completed or until the court issues and order granting me permission to stop representation) I will file all pleadings which I believe have a reasonable chance of success and which accurately state the facts of the situation.
What about when a case has been completed, all payments have been made for the three to five years, is this always the end of the matter?
Not necessarily. I have seen a number of cases where even after the client did everything they were supposed to, the mortgage company claims they still owe thousands of dollars and threaten to start foreclosure all over again.
Usually this is based on attorneys fees not paid in the bankruptcy which the mortgage company claims it is entitled to.
My plans specifically prohibit this type of action, by requiring the mortgage company to include all fees in the claim they file to be paid through the bankruptcy.
Can I just have a telephone consultation without coming in?
Most initial consultations are by telephone.
Our consultation usually lasts 30 minutes to an hour.
What problems can arise in the bankruptcy?
In Chapter 7, it is rare to have any substantial problems, but when problems arise they can be complicated.
Some minor issues that arise fairly commonly:
1. Some creditors will request that you sign a reaffirmation agreement that you still owe them money despite the filing of the case.
These may be credit cards offering to let you keep using the card if you keep paying on it; or may be car or mortgage loans requesting that you sign to remain liable on the debt whether or not you keep the car or house.
I very strongly recommend against reaffirming on unsecured credit cards. Generally the reaffirmation gives them the right to cancel the credit later and still sue you for the balance owed. I may sign reaffirmations on car or mortgage loans.
2. Another fairly common issue in Chapter 7 is if you are behind on house or car payments, the creditor will usually file a motion with the court requesting permission to foreclose or repossess the car.
If you wish to keep the house and vehicles, you should remain current on payments when you file Chapter 7 and continually through the case. If you get behind, the creditor may get permission to repossess or foreclose; or you may be required to not only catch up the payments but also pay the creditors attorneys fees.
If the client has more assets than they are allowed in Chapter 7, the Chapter 7 Trustee will either want to take and sell them, or sell them back to the debtor. If you are filing before you receive your tax refund, or toward the end of the year and are likely to receive a substantial refund the following year, the trustee may have the right to a portion of this refund.
3. In Chapter 13 cases the most common issues are motions by the mortgage or car companies complaining if the house or car payments are not current.
In cases filed under the new law (after October 16, 2005), the car and house payments will by paid by the trustee out of funds you pay to the trustee each month.
The usual rule is that the mortgage payments must be cured through the Chapter 13 plan over three years. If the plan takes longer than that to catch up the arrearage, we may ask the mortgage company to consent to an extended time to make the cure.
If a claim is filed for more than we think is owed, we can object to the claim. We often object to claims of the mortgage companies requesting a reduction in the attorneys fees they are requesting.
The budget filed when the case is filed may have to be updated if the client’s financial situation changes after the filing.
If the client is unable to make the payments required, we may be able to amend the plan to temporarily reduce the payments until the problem is resolved.
In all cases, the information you list on the bankruptcy schedules and statements; as well as the information you disclose at the meeting after filing is under penalty of perjury. If you lie on the forms there is a very good chance that you will have the bankruptcy denied and will be criminally prosecuted; and very well may go to jail. It is absolutely critical that you are honest with me and disclose everything required on the bankruptcy forms. It is much better to put unnecessary information on the forms than to omit required information.
These are just examples of some of the issues that may arise in the bankruptcy, and reasons to hire a competent attorney to help you in the case.
What happens if something happens such that you cant afford the repayment set in a Chapter 13 case?
While there are still certain rules that must be satisfied, and it is not always possible to reduce payments after a repayment plan has been ‘confirmed’ or approved by the court in Chapter 13, in some circumstances such modification is possible. If your income changes after filing, a modification may be warranted or even required. If your income goes down and the income was part of the basis of computing how much you pay to creditors (that analysis could be either based on income or the value of your assets when you filed) then you may be able to reduce your payments. On the other hand, if your income increases after you file the trustee may insist on a modification to increase what you pay to unsecured creditors.
The Atlanta appellate court handing cases from Florida has just recently ruled that the court may modify the plan even if there was no change that was not anticipated when the case was confirmed. In a decision from 25 August 2020 the court rejected an argument by the trustee (the person appointed to oversee Chapter 13 cases) that no modification was possible to reduce the amount paid to unsecured creditors based on an increase in payments to the attorney for the debtor for fees he incurred in the case. Without such reduction, the monthly payment by the debtor would have had to increase, above what was initially shown as an affordable payment. Even though at confirmation it could reasonably have been anticipated that the fees would be higher, the court found that the bankruptcy code permitted such modification despite the fact that the only thing that changed after confirmation is the attorney filed the request for his fees that he incurred beforehand.
Another rule in the bankruptcy laws that is seldom utilized allows for a reduction in payment to the court based on the purchase of a new health insurance policy.
These issues can get complicated, so it is strongly recommended that you obtain competent, board certified counsel that no only has experience in these matters, but who keeps up to date with new decisions published regarding bankruptcy.
Why shouldn’t you transfer money or property to friends or relatives before filing?
You will very likely just cause them to be sued in the bankruptcy. The bankruptcy statute provides that if a transfer was made either with bad intent, or even if made with good intentions, if you didn’t receive back value equivalent to what you transferred to them, the court will likely sue them to get the property back, or for the value of the money or property transferred. The court can usually look back for transfers made within 4 years of the bankruptcy, although especially for older transfers there are other factors that will need to be looked at to see how big the risk is.
Also, repaying debts to relatives or friends can cause similar problems for whoever you repaid. The court does not allow some creditors to be ‘preferred’ to others before filing. Paying mortgage or car loans; or alimony or child support generally will not cause a problem, but paying most other unsecured creditors likely will. For relatives, the court can look back to payments made within a year of the date the bankruptcy is filed. Again, consult an attorney to see how big the risk is in your particular case.
Be sure to consult us before you transfer money or property to family or friends before filing. We can usually suggest better options which will not cause these problems.
What to do when you file Chapter 7 trying to return your car to the creditor, but the creditor won’t take it?
A recent decision from an appellate federal court in Ohio recently wrote a decision on a case where the debtor tried to get sanctions against OneMain Financial for refusing to take a car the debtor tried to give back in a Chapter 7 case unless some arrangements were made to pay them. In Bentley v. OneMain Fin. Grp. LLC, , a decision from 8 July 2020) the appellate court ruled that the bankruptcy court was correct when it had ruled that OneMain Financial had not violated the law prohibiting creditors from attempting to collect a debt after the case was over (the discharge injunction). The case involved a 2001 Dodge Dakota in a Chapter 7 case filed in 2018. The documents filed in the bankruptcy by the debtor showed an $8,000 lien on the vehicle which was valued at $150, and stated an intent to surrender the vehicle to the creditor. Discharge (the order saying the case is concluded and the debts are eliminated) was entered June 11, 2018 with no further action taken on the vehicle. Debtor called the creditor after the discharge asking them to take the lien off the vehicle, noting that the vehicle was totaled. The creditor suggested taking the vehicle to a scrap yard, at which point it would ‘consider accepting that to release the lien.’
Several weeks later Debtor’s father in law, who owned the property where the vehicle was stored, called the creditor along with the debtor and was told that the creditor would not repossess the vehicle because the value was too low, and indicated that they would have to make an offer to have the lien released, which would then have to be approved by the creditor’s management. The father in law offered to have the vehicle towed to the highway or one of creditor’s locations, but OneMain’s representative indicated that debtor would then be charged any fees associated with abandoning the vehicle. OneMain again suggested getting an estimate for the value of the vehicle on a mechanic’s letterhead saying what’s wrong with the vehicle and what it would cost to repair, along with an offer to purchase the vehicle, and OneMain would consider whether to accept the offer.
In November 2018 Debtor moved to reopen his case and pursue OneMain for an alleged violation of the discharge injunction. Once the case was reopened, Debtor sought sanctions for collecting or attempting to collect a discharged debt by refusing to release it’s lien on the vehicle until payment of the discharged debt. 10 days after the filing of the motion, OneMain released the lien.
The bankruptcy court ruled in favor of OneMain without a trial, citing a prior decision from a different appellate court (Pratt) for the proposition that the debtor must show that the creditor acted in such a way as to ‘coerce’ or ‘harass’ the debtor improperly. Determining that unlike the creditor in Pratt, which requested payment in full of its claim to release the lien, the debtor here only requested a minimal consideration, and that the creditor here gave several options to obtain release of its in rem rights.
The appellate court noted that while bankruptcy releases a debtor’s personal liability on a debt, it does not affect a creditor’s in rights in the property securing the lien. The panel agreed with the Pratt case that when a debtor indicates collateral (the property which secures the creditor’s lien) is to be surrendered, the court must examine whether the creditor acted in a way to ‘coerce’ or ‘harass’ the debtor improperly. The court went into an in depth analysis of Pratt, noting it stated five facts ‘material’ to the assessment of objective coercion.
- the debtor’s timely filed their notice of intent to surrender;
- the debtor’s made the vehicle available to the creditor to repossess;
- the value and condition of the vehicle made it necessary to tow to a salvage dealer who would not accept it without a lien release;
- the creditor determined it was not cost effective to repossess the vehicle; and
- state law would not allow the vehicle to be junked without the release of the creditor’s lien.
The BAP found that the case before it had facts significantly different from Pratt, including that the vehicle had some value, and the creditor did not insist on payment in full of its debt to release the lien. It also determined that even finding all five factual conditions to be met did not require an assessment of objective coercion, as the ruling in Pratt was primarily based on the creditor’s insistence on being paid in full. Nor did the panel find that conversations between the debtor and creditor for release of the lien are prohibited. Such conversations are only prohibited where they are designed to ‘collect, recover or offset the debt as a personal liability of the debtor. Nor did the court find the procedures required by OneMain to be unduly burdensome, as the creditor never required Debtor to do anything other than direct the party wishing to take possession of the vehicle to contact the creditor. The court noted a debtor’s surrender of collateral does not divest a debtor of ownership and its obligations, nor require a creditor to take possession of it.
The case does not apply a bright line for debtors of what they need to do when they wish to surrender collateral a creditor does not want, and that a creditor refuses to release the lien on. A better solution for the debtor would probably have been to file a motion to redeem the vehicle. With this motion, a debtor files a motion with the court saying they will ‘buy’ the liened car (or other personal property as the case may be) from the creditor for what they say the value of that property is. If the debtor had simply filed a motion to redeem the collateral for $150, the creditor would likely have determined it was not worth hiring attorneys to fight the motion, and if the motion was granted debtor’s could have paid OneMain $150 and OneMain would have been required to sign the title over to them. Then, they could have legally sold the now free and clear vehicle to a junkyard, rather than incurring substantially higher fees in an unproductive effort to get additional funds from the creditor.
It should be stressed that other courts may disagree with this court, and may say that OneMain’s conduct was coercive, and subject to sanctions. The point is to decide when it is worth the effort to seek sanctions when a reasonably small effort could have been made to get the same result. The appellate court here ruled that it was not that much effort to get a written estimate from a mechanic or salvage yard to try to get an agreement with OneMain to release the lien. Alternatively, if they had tried that and the court found OneMain unreasonably refused to release the lien for the value shown, the court may have been more inclined to award sanctions against the creditor.
