1) “reaffirm” their secured obligations and keep the collateral pledged on the secured loan; 2) “redeem” the collateral by paying the secured lender the lesser of the fair market value of its collateral or the amount of the secured lender’s proof of claim; or 3) “surrender” the collateral to the lienholder, who then disposes of it pursuant to requirements of state law.

In the case of Warren Taylor v. Albany Government Employees Federal Credit Union (U.S. Court of Appeals, 11th Circuit, No. 92-8937), the debtor obtained a loan from the credit union secured by debtors’ Chevrolet S-10 pickup truck and a Classic 1985 Chevrolet Caprice. Payments on debtors’ loans with the credit union were current when debtors filed for bankruptcy. Debtors, however, declined to either execute a formal reaffirmation agreement, redeem the collateral or surrender the vehicles to the credit union. The credit union filed a Motion with the court to compel debtors’ selection of one of the above options, however, the debtors responded that they could retain the collateral, as long as the credit union’s loans were current, without reaffirming or redeeming with the creditor. The court disagreed with debtor and held that debtor must either redeem, reaffirm or surrender the collateral. In conclusion, in a jurisdiction which adopts this position, a debtor can be forced to comply with the Bankruptcy Code and cannot merely retain the collateral by maintaining current payments on his or her account with the credit union.

Author:  Charles R. Harroun, Attorney at Law