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28
Apr
2022

Reaffirmation, Redemption or Surrender of Collateral

In some jurisdictions, but not in Michigan, Bankrupt debtors must either redeem, reaffirm or surrender the collateral and cannot keep the collateral and otherwise continue making payments. When a debtor files a Chapter 7 bankruptcy, the Bankruptcy Code provides that the debtor(s) must either:

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



This entry was posted on Thursday, April 28th, 2022 at 7:52 am and is filed under Bankruptcy, Mortgages, National, Secured Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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