Banks That Won’t Take Back Surrendered Cars
Posted By Steve on May 11, 2009
Ever since the bankruptcy laws changed in October of 2005, debtors have had to make a choice about what they are going to do with their car loans. Are they going to pay them off (hardly practical in most cases), reaffirm them (their debt to the bank would not be discharged), or turn in the car? They have to do this within 45 days of the meeting with the trustee or the presumption is surrender, and the automatic stay is lifted, thus allowing the bank to repossess the car. However, what happens when the debtor decides to surrender the car, but the bank won’t come pick it up?
Since this change in the law there has been a pattern of banks not repossessing vehicles that have been surrendered in bankruptcy. This may be due to the cost of repossession and sale, but it might also be an attempt to coerce payment from the debtor, as the U.S. 1st Circuit Court of Appeals found in the case of Pratt v. GMAC. In that case, the debtors had surrendered the car, but GMAC determined that the cost of repossession outweighed any money that might be realized from repossession sale. However, when the car stopped running, and the debtors wanted to junk it, GMAC refused to give them the title free of the lien, so that they could do so. The court ruled that the bank’s refusal to release the lien,
“effectively amounted to a demand for a ‘reaffirmation,”‘without compliance with the stringent ‘anti-coercion’ requirements of 11 U.S.C.S. § 524(c). Its refusal to release its valueless lien in order to junk the car was ‘coercive’ in its effect and, thus, willfully violated the discharge injunction. Debtors were entitled to compensatory damages”
Although this ruling is only authoritative in the First Federal Court District (MA, RI, NH, ME, and PR), debtors here in New Jersey (3rd Circuit) should still consult with their attorney about what to do under these circumstances. Depending on the facts of the case, a judge might rule as the court did in Pratt. Debtors deserve not only a fresh start from a bankruptcy; they deserve some closure as well.
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