Paper written by:

Dabney D. Bassel                                                                               Pam Bassel, Trustee
Law Office of Dabney Bassel                                                             Office of the Standing Chapter 13 Trustee
500 Main Street, Suite 350                                                                7001 Boulevard 26, Suite 150
Fort Worth, Texas 76102                                                                    North Richland Hills, Texas 76180
Telephone: (817) 989 6485                                                                Telephone: (817) 916 4710                                                    

Present by:

Behrooz Vida                                                                                     Heena Hirani
Vida Law Firm, PLLC                                                                          Office of the Standing Chapter 13 Trustee
3000 Central Drive                                                                            7001 Boulevard 26, Suite 150
Bedford, Texas 76021                                                                        North Richland Hills, Texas 76180
Telephone: (817) 355 0707                                                                Telephone: (817) 916 4710                                                       

Angela Allen
Office of the Standing Chapter 13 Trustee
6851 NE Loop 820, Suite 300
North Richland Hills, Texas 76180
Telephone: (817) 770 8500


I. Surrender - A three-syllable word that means “confusion” (at least for bankruptcy


A Chapter 13 plan may satisfy the allowed secured claim of a creditor by surrendering the

property securing the claim. Everyone knows what “surrender” means, right? So, Congress saw

no need to define it in the Bankruptcy Code. That was when the fun started.

Courts have since grappled with the concept. Surrender can have irrevocable consequences

and can create a Hobson’s choice because surrendering property may not free a debtor from the

burdens of owning that property.

II. Section 1325 gives the debtor the option of surrendering property in a Chapter 13 plan, but

the courts are left to define what constitutes a surrender.

A. Introduction

To confirm a Chapter 13 Plan, “each allowed secured claim” must be provided for in the plan

in one of the following ways: (1) the holder of the claim “accepts” the plan; (2) the plan crams down

the secured claim; or (3) “the debtor surrenders the property securing such claim to such holder.”

11 U.S.C.A. §1325(a)(5)(A)-(C). What constitutes a surrender? The lack of a Congressional

definition forces bankruptcy courts to deal—time and time again—with the situation in which a

debtor cannot deliver physical possession of collateral to the creditor. Does a surrender occur

without the delivery of that physical possession? The simple answer is that the debtor need not

always deliver possession so long as the debtor acts in good faith.

B. The burden of proof

The debtor bears the burden of proving that a plan meets the requirements for confirmation.

In re Higley, 539 B.R. 445, 450 (Bankr.D.Vt. 2015) (“It is the Debtor's burden to establish, by a

preponderance of the evidence, that his plan satisfies the requirements for confirmation under

§1325.”). So, whatever formulation of “surrender” a court adopts, it is the debtor’s burden to show

that he or she has met that standard.1

C. Using statutory interpretation tools to define surrender

Many of the cases take the understandable approach of simply citing prior cases defining

surrender and then deciding how the facts at issue fit within those previous holdings. One court

makes the effort to follow the ordered steps of statutory interpretation to glean a definition, In re

Ware, 533 B.R. 701 (Bankr.N.D.Ill. 2015). Ware described its analytical approach as follows:

1 Id., holding that the debtor bore the burden to show that he made collateral available to the secured

creditor. See also In re Mustafa, No. 15-52410, 2016 WL 4928053, at *7, 2016 Bankr. LEXIS 3348, at *18

(Bankr.E.D.Ken. September 14, 2016), holding that the debtor bears the burden of proof to establish his good faith

when he cannot deliver possession of collateral.

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We examine the statute according to the conventional rules of statutory construction:

absent statutory definitions, we accord words and phrases their ordinary and natural

meaning and avoid rendering them meaningless, redundant, or superfluous; we view

words not in isolation but in the context of the terms that surround them; we likewise

construe statutes in the context of the entire statutory scheme and avoid rendering

statutory provisions ambiguous, extraneous, or redundant; we favor the more

reasonable result; and we avoid construing statutes contrary to the clear intent of the

statutory scheme.

Id. at 705 (quoting In re Merchants Grain, Inc., 93 F.3d 1347, 1353–54 (7th Cir.1996).

Ware wrestled with whether a debtor had surrendered a vehicle even through she could not

deliver physical possession of the vehicle to the secured creditor though no fault of her own. Id. at

704. Stepping through its analysis, Ware concluded:

• The ordinary and natural meaning of the term “surrender” provided no guidance

regarding whether surrender required the physical delivery of possession of the

collateral to the secured creditor.

• Other uses of the term “surrender” in the Bankruptcy Code suggest that the use of the

word in §1325 does not require the delivery of physical possession. The court noted

that a chapter 7 debtor filing a statement of intent under §521 to surrender property

need not physically deliver the property to the secured creditor.

• The court looked at how the Bankruptcy Code used the terms “delivery” and

“abandonment” and concluded “surrender” exists somewhere between the actions

described in those terms.

• Finally, Ware looked to case law interpreting “surrender” and noted that some cases

required physical delivery and some did not, with the distinction turning on whether

the debtor was capable of delivering physical possession and, if not capable, whether

that failure resulted from culpable conduct of the debtor.

Id. at 705-12. The court in Ware admitted that it had to assemble a puzzle to formulate a general

rule defining surrender. That jigsaw process resulted in the following general rule:

Put simply, surrender under 1325 requires at a minimum the surrender of all of the

rights that the debtor has. Further, surrender requires physical delivery of the

property to the holder of the secured claim unless that delivery is not possible

through no fault of the debtor. At the very least, the debtor must not stand in the way

of the secured creditor taking possession of the property, must not retain any rights

to the property and must at all times act in good faith. Id. at 712 (citations omitted).

Ware next spun out the following scenarios applying its general rule:

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Physical delivery is required where a debtor has possession of the property at the

date of the effective date of the plan, the property is capable of being delivered and

such delivery is feasible. A debtor who exercises the surrender option but, despite

being perfectly capable of physical delivery and such delivery being feasible, refuses

to deliver the vehicle to the creditor has failed to surrender the vehicle. Such

delivery includes not just physical delivery of the property, but in the case of

vehicles, the surrender of the certificate [of] title to the vehicle, the keys, etc., if the

debtor possesses them. Retaining such items would constitute retention of some

rights in the property, which is inconsistent with surrender.

What if, on the other hand, the property is capable of delivery but such delivery is

not feasible? What if, for example, the property is in the debtor's possession but is

in a remote location? In such instances, the only barrier to surrender is one that the

parties could have anticipated in their contractual dealings. If the contract permitted

the property's removal to that location, then the secured creditor bore the risk of an

inconvenient delivery (though may, of course, be entitled to assert its costs in

relation thereto). If the contract did not, it seems reasonable to keep the burden of

delivery on the debtor.

If the debtor is in possession of the property on the effective date of the plan but the

property is incapable of delivery (e.g., a nonoperational vehicle), the debtor must at

the very least make such property available to the creditor, including delivering the

keys, title, etc. as discussed above. The debtor must, for example, allow the creditor

reasonable access [to] the property's locale if controlled by the debtor in order for the

creditor to take possession of the property.

Property that is not capable of physical delivery because the debtor has lost

possession of it may be surrendered as a legal matter without physical delivery if the

record is absent evidence of the debtor's lack of good faith. The court could not, for

example, reasonably allow a debtor to surrender a vehicle of which the debtor had

allowed to be impounded due to the debtor's unpaid parking tickets. Such behavior

would not satisfy the debtor's duty to comply with the surrender in good faith and

would prohibit the debtor from surrendering the vehicle without physical delivery.

On the other hand, if a vehicle is stolen through no fault of the debtor's, physical

delivery should be excused. Id. at 712-13.

Ware concluded its analysis by emphasizing that surrender imposed ongoing obligations both

on the debtor and the creditor. The debtor had to act in good faith after surrender by not doing

things such as concealing the surrendered property. Id. at 713. A creditor who failed to take

possession of surrendered property had “to face the consequences” and to ensure that its efforts to

pursue surrendered property and the costs of recovering that property did not violate the bankruptcy

protections of the debtor. Id.

D. Inventorying the scenarios when surrender has or has not occurred

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Whether you agree with the court’s conclusion or not, Ware provides a well-ordered analysis

of the word “surrender.” A number of other cases deal with whether a surrender has occurred. The

following is a list (not exhaustive) in chronological order of cases analyzing whether a debtor has

done enough to surrender property to a secured creditor:

In re Robertson, 72 B.R. 2 (Bankr.D.Colo.1985). The debtor could not surrender a vehicle

awarded to his ex-wife in a prior divorce. The debtor had no rights in the vehicle to surrender

because those had been taken from him in divorce, i.e., he was “not in a position to give up the

security to the creditor by delivering it to the custody of that creditor.” Id. at 4. The court still

confirmed the plan which did not provide for payment on the claim secured by the vehicle.

Discharge of that debt and the claim would be addressed when the vehicle was located.

In re Gabor, 155 B.R. 391 (Bankr.W.D.W.Va.1993). The court sustained an objection to

a secured claim when the debtor’s wife took the car and the debtor did not know the vehicle’s

location. The car had the same status as if it had been destroyed. Id. at 394. The lienholder’s claim

was unsecured. The creditor retained its security interest and could amend its claim if the vehicle

was recovered or the debtor obtained insurance proceeds for its loss.

In re Stone, 166 B.R. 621 (Bankr.S.D.Tex.1993). Physically abandoning a homestead did

not constitute a surrender when the plan surrendered property to only one of multiple lienholders.

“The term ‘surrender’ was contemplated by Congress to be a return of property and a relinquishing

of possession or control to the holder of the claim.” Id. at 623.

In re Theobald, 218 B.R. 133 (10th Cir. BAP 1998). A Chapter 7 case in which the creditor

sought an order compelling the debtor to sign a special warranty deed for property which was

surrendered in the Statement of Intent. The court concluded that surrender under §521(c) cannot be

used to compel a debtor to sign a special warranty deed conveying property. Section 521 is merely

a notice provision and to require signing a deed would give the creditor more rights than it had under

state law. Id. at 136-37.

In re Alexander, 225 B.R. 665 (Bankr.E.D.Ark.1998). The court overruled an objection to

confirmation of a plan in which the debtor sought to surrender a vehicle absconded with by the

debtor’s husband. In such a circumstance, the debtor should be allowed to surrender and obtain her

“fresh start.” “[Debtor] has complied with the Bankruptcy Code by surrendering the collateral. The

fact that she, through no fault of her own, cannot physically drive the vehicle to the creditor's place

of business does not obviate surrender of the vehicle.” Id. at 667. The creditor was protected

because it retained its lien on the vehicle.

Alexander contrasted a situation in which the debtor was culpable for his/her inability to

deliver the collateral, such as when the debtor tried to modify a plan by surrendering a vehicle which

was destroyed in a post-confirmation accident.

In re White, 487 F.3d 199 (4th Cir. 2007). Debtors sought to surrender a motor vehicle,

household goods, wearing apparel and jewelry in satisfaction of an IRS claim. The IRS was legally

prohibited from taking possession of those types of property and no surrender occurred:

Page 5

We therefore hold that the Whites' proposal, which entails their retention of the

property that they purport to surrender to the IRS, does not constitute a “surrender”

as that term is used in §1325(a)(5)(C) given the significant legal hurdles that the IRS

faces in collecting the property. If a secured creditor is legally foreclosed from

immediately obtaining the property that a debtor proposes to surrender and the debtor

does not in fact voluntarily relinquish all rights in the property, including the right

to possession, to the secured creditor, then the debtor can in no way be said to have

“surrendered” any of his rights in the property. Id. at 207.

Also, no surrender occurred because the IRS could only obtain possession of the property after

confirmation. “A fair reading of §1325(a)(5)(C) is thus that the surrender must be completed at or

before the confirmation of the plan.” Id.

In re Augustine, No. 10–32865–H3–13, 2012 WL 401499, 2012 Bankr. LEXIS 771

(Bankr.S.D.Tex. Feb. 7, 2012). The court approved a modification of a Chapter 13 plan to permit

surrender of the debtor’s interest in a vehicle awarded to his wife in their divorce. “Debtor does not

have legal possession of the Mercedes, and cannot compel his wife to turn it over to [a secured

creditor]. The most that Debtor can do is to relinquish his interest in the Mercedes. Moreover, to

deny approval of the instant modification would permit [creditor] to receive a windfall, as it would

receive payments both from the Debtor and the Debtor's former spouse. The court concludes that

the instant modification should be approved.” Id. at *2.

In re Russell, No. 13–66201–BEM, 2014 WL 4929515, 2014 Bankr. LEXIS 4194

(Bankr.N.D.Ga. Sept. 11, 2014). Another “my spouse ran off with the car” case. The court

permitted the surrender by the wife/debtor, denying the objection to confirmation:

In this case, although neither party presented evidence, the Creditor did not dispute

Debtor's counsel's statements that the Debtor had sought to locate her estranged

spouse in an effort to locate the property and that the Debtor had filed a police report

with respect to the property. Creditor did not allege in its written objection or at the

Hearing that the Debtor lacked good faith. Thus, the Court finds that Debtor's

proposed surrender is proposed in good faith and that there is no indication of bad

faith or fraud, such that the Creditor's objection to confirmation should be overruled.

Id. at *2.

In re Calzadilla, 534 B.R. 216 (Bankr.S.D.Fla. 2015). The bankruptcy court’s Mortgage

Modification Mediating procedures provided that if mediation between the debtor and mortgage

holder failed, the debtor was required to amend the Chapter 13 plan to surrender property that was

subject to the mortgage. After a failed mediation, the debtor amended the plan to provide for stay

relief but not surrender. Agreeing to stay relief in the amended plan did not conform to the

procedures. According to this court, surrender precludes a debtor from taking any action that would

impede foreclosure. Simply agreeing to stay relief was not the equivalent of a surrender.

In re Higley, 539 B.R. 445 (Bankr.D.Vt. 2015). The debtor had memory problems that made

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it impossible for him to confirm that he had made a trailer available to the creditor for repossession.

The court held that surrender, at the least, required the debtor to make property available to the

secured creditor:

At a minimum, surrender “requires a debtor to relinquish secured property and make

it available to the secured creditor.” In re Metzler, 530 B.R. 894, 899

(Bankr.M.D.Fla. 2015). Only two circuit courts have considered this question and

both conclude that while surrender does not require the debtor to physically transfer

the collateral to the secured creditor, it does require the debtor to make the collateral

available to the secured creditor. In re White, 487 F.3d 199, 205 (4th Cir. 2007); In

re Pratt, 462 F.3d 14, 18–19 (1st Cir. 2006). Accord, In re McCann, 537 B.R. 172,

178 (Bankr. S.D.N.Y. 2015); In re Stephens, No. 09–62630, 2013 WL 1305576, at

*8, 2013 Bankr. LEXIS 1202 (Bankr.N.D.N.Y. Mar. 28, 2013).

Id. at 449. The debtor bore the burden of proof to demonstrate that he made the trailer “available”

to the creditor, but his memory problems made it impossible to meet that burden.

Wiggins v. Hudson City Sav. Bank, 2015 WL 4638452, 2015 Bankr. LEXIS 2606

(Bankr.D.N.J. Aug. 4, 2015). The debtor surrendered property to a mortgage holder in the plan but

then sought a loan modification under RESPA. The debtor then sued the lienholder for stay

violations and “violat[ing] RESPA and Implementing Regulation X by continuing to pursue the

foreclosure and sheriff's sale while the Loan Modification was pending...” Id. at *2. The court

granted a motion to dismiss finding that the debtors were estopped from asserting a stay violation.

When the plan, which provided for the surrender of the property, was confirmed, the property ceased

to be property of the estate and the stay was terminated:

Although not defined in the Bankruptcy Code, “surrender” refers to the “act of a

debtor surrendering collateral to a lienholder who then disposes of the property

pursuant to the requirements of state law.” In re Behanna, 381 B.R. 631, 640

(Bankr.W.D.Pa.2008) (citing In re Losak, 375 B.R. 162, 164 (Bankr.W.D. Pa 2007);

see also Bank of New York Mellon v. Watt, No. 3:14–CV–02051–AA, 2015 WL

1879680, at *4, 2015 U. S. Dist. LEXIS 54041, at *11 (D.Or. Apr. 22, 2015)

(defining “surrender” as “the debtor's relinquishment of his or her right to the

property at issue, such that the secured creditor is free to accept or reject that

collateral.”) (citing In re Rosa, 495 B.R. 522, 523 (Bankr.D.Haw.2013)). Once

collateral is surrendered pursuant to a confirmed plan, the collateral ceases to be

property of the bankruptcy estate. See In re Brown, No. 12–51926–JPS, 2012 WL

6021469 at *4, 2012 Bankr. LEXIS 5738, at *11 (Bankr.M.D.Ga. Dec. 3, 2012)

(noting, “surrender upon confirmation of a plan would terminate the estate's interest

in the [collateral].”). Id. at *3-4.

In re Boley, No. 15–31811–DHW, 2016 WL 155700, 2016 Bankr. LEXIS 94

(Bankr.M.D.Ala. January 12, 2016). A mother/debtor helped her son finance the purchase of

vehicle. The son ran off with vehicle but his mother refused to file a stolen vehicle report. The

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lienholder obtained a judgment against the mother on the debt secured by the vehicle. Eventually,

the vehicle was found at a body shop–with $11,000.00 in accrued storage fees. The lienholder

objected to the plan and claimed that the mother/debtor’s attempt to surrender the vehicle was in bad

faith. The court overruled the objection. The court catalogued the relevant cases and concluded

that surrender did not always require the delivery of physical possession and, in the absence of any

proof of bad faith, requiring delivery impeded the debtor’s opportunity for a fresh start:

Surrendering property does not require delivery unto the creditor by the debtor. In

re Pratt, 462 F.3d 14, 18 (1st Cir. 2006)(“‘[S]urrender’ does not necessarily

contemplate that the debtor physically have transferred the collateral to the secured

creditor.”); In re White, 487 F.3d 199, 205 (4th Cir. 2007)(“[T]he word ‘surrender’

means the relinquishment of all rights in property, including the possessory right,

even if such relinquishment does not always require immediate physical delivery of

property to another.”); In re Plummer, 513 B.R. 135, 143 (Bankr.M.D.Fla.

2014)(“When a debtor states his intent to surrender collateral under § 521(a)(2)(A),

he complies with that intention, for purposes of § 521(a)(2)(B), when he allows the

secured creditor ... to obtain possession by available legal means without

interference. The debtor is not required to take any affirmative action to physically

deliver the property.”); In re Metzler, 530 B.R. 894, 899 (Bankr.M.D.Fla.

2015)(“[S]urrender, at a minimum, requires a debtor to relinquish secured property

and make it available to the secured creditor. That does not mean ... that the debtor

must ‘deliver’ the property to the secured creditor.”).

Likewise, in the absence of bad faith, delivery is not only not required, it is also

inconsistent with a debtor's entitlement to a fresh start. See In re Cornejo, 342 B.R.

834 (Bankr.M.D.Fla. 2005)(finding that creditor's request that the debtor satisfy the

mechanic's lien and physically deliver the vehicle was not feasible or consistent with

the principles of a fresh start.); see also In re Alexander, 225 B.R. 665

(Bankr.E.D.Ark. 1998)(finding the debtor not at fault in being unable to deliver the

vehicle when the debtor's husband absconded with the vehicle); see also In re

Walton, 243 B.R. 793 (Bankr.M.D.Ala. 1999)(finding that the amended plan was

properly confirmed even though the amendment made was to surrender a vehicle

which had been stolen and stripped and the debtor could not deliver the vehicle at

time of confirmation.). Here, it was the debtor's son, without the knowledge of the

debtor, who caused the vehicle to be held in a repair shop. Similar to In re Alexander

and In re Cornejo, the facts presented here are absent of any culpable conduct or

intentional concealment by the debtor. Thus, physical delivery of the vehicle is not

required in order for Mrs. Boley to surrender the vehicle. Id. at *2.

In re Mustafa, No. 15-52410, 2016 WL 4928053, 2016 Bankr. LEXIS 3348 (

Bankr.E.D.Ken. September 14, 2016). The lienholder objected to a plan attempting to surrender a

vehicle. The debtor engaged in shenanigans too numerous to list. The end result was that the

vehicle was in the possession of a body shop and had accrued $10,000.00 in storage fees.

Mustafa cited Ware for the proposition that surrender of possession is not required if the

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debtor is acting in good faith. The debtor has the burden of proof on that issue. The debtor in

Mustafa created the situation that deprived the lienholder of the ability to take possession of the

vehicle. The objection to confirmation was sustained because the debtor “failed to meet th[e]

burden [of good faith] because he knows, or should reasonably know, that [the creditor] cannot

repossess the Mercedes without significant time and expense as a direct result of his actions.” Id.

at 7.

E. What we have learned about how to accomplish a “surrender.”

The takeaway from all the foregoing is:

• the debtor bears the burden of proof to show he/ she complied with §1325 and, in the

context of surrender, that includes the burden to demonstrate that the collateral was

made available to the lienholder and that the debtor acted in good faith.

• surrender generally means making the collateral available to the lienholder but does

not always require the delivery of physical possession of the collateral to that


• if the collateral is property capable of physical delivery and the debtor cannot deliver

physical possession of the collateral to the lienholder, the debtor must be prepared

to prove that the failure is not the debtor’s fault, i.e. that the debtor has acted in good


• the obligation to act in good faith continues after the act of surrender; the debtor

cannot frustrate the secured creditor’s ability to recover the collateral and, if the

debtor recovers the collateral after surrender, he/she must work with the secured

creditor to effectuate the delivery of possession.

• the secured creditor must show its diligence and not ignore its opportunities to take

possession of the collateral.

III. A debtor may not be able to challenge a foreclose action after surrendering property.

A. Is the debtor foreclosed from defending against a foreclosure?2

One issue discussed previously should receive special attention. It may be that a debtor

2 Pardon the play on words.

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cannot be two-faced about surrender.3 After surrender, the debtor may not be able to impede the

secured claimant’s ability to recover its collateral. This issue arises most often when the bankruptcy

court prohibits a debtor who is surrendering real property from contesting foreclosure actions in state


For example, a recent case dealt with a Chapter 13 debtor who modified her plan to surrender

her home. In re Metzler, 530 B.R. 894, 896 (Bankr.M.D.Fla. 2015). The debtor then actively

defended the foreclosure action brought in state court. The mortgage company moved to revoke

confirmation of the Chapter 13 plan. The debtor “explained her continued efforts to defend the

foreclosure action even after she ‘surrendered’ her property by claiming ‘surrender’ merely means

‘to make the collateral available to the creditor by dissolving the automatic stay.’” Id.

Metzler concluded that the debtor wanted to backdoor a “ride-through” via surrender. That

is, the debtor sought to retain her rights in property—or ride through—by simply remaining current

on the debt but did not take any action to recognize the debt in the bankruptcy proceeding. That

approach did not constitute a surrender because it did not “relinquish secured property and make it

available to the secured creditor by refraining from taking any overt act that impedes a secured

creditor's ability to foreclose its interest in secured property.” Id. at 899. Surrender would be

meaningless under §1325 if the debtor could surrender property and then “enjoy possession of the

collateral indefinitely while hindering and prolonging the state court process.” Id. at 900.

An analysis of this same issue is found in Hull v. Wells Fargo Bank, N.A., 2016 WL 1271675

(D. Or March 28, 2016), a decision by the United States District Court (based on a removal of a state

court action based on diversity jurisdiction, rather than an appeal from a bankruptcy court decision).

Prior to the filing of the suit that was eventually removed to the district court, the debtor had applied

for a loan modification (which was denied), filed her first Chapter 13 case, filed a plan that provided

for an arrearage cure and direct payments (on which she defaulted), entered into a payment

stipulation when the lender filed a motion for relief (on which she also defaulted), filed a plan listing

the collateral as surrendered, and filed two more Chapter 13 cases while the original case was

pending.4 All three bankruptcies were dismissed and the debtor was barred from re-filing for one

year. The lender foreclosed. After all this activity, the former debtor, now plaintiff, filed a lawsuit

in Oregon state court attempting to invalidate the foreclosure sale alleging, among other grounds,

that the lender violated Oregon foreclosure law. After removal to the federal district court, the

lender moved for dismissal. As to the claim that the lender violated state foreclosure law, the district

court found that filing two bankruptcy proceedings and the law suit after she amended her Chapter

13 plan to surrender the property allowed the court to infer that the debtor/plaintiff never had the

intention of surrendering the property. Her later attempts to invalidate the foreclosure sale were

inconsistent with a surrender. She had represented to the bankruptcy court that she was surrendering

the property and the bankruptcy court had approved an amended plan to that effect. The

debtor/plaintiff also got the advantage of lower payments to the Chapter 13 Trustee following the

surrender because she was no longer paying the arrearage. Judicial estoppel was established as to

her claims that Oregon foreclosure law was violated.

Other recent cases deal with the same issue and reach the same conclusion in the context of

3 There is a split in authority on this issue.

4 It appears that this highly vulnerable debtor, age 90, was the victim of a mortgage “rescue” operation.

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a Chapter 7 debtor whose statement of intent under §521 professes to surrender a homestead and

then contests a foreclosure action. See In re Failla, __ F. 3d.__, 2016 WL 5750666, at *5, 2016

U.S. App. LEXIS 17920, at *14 (11th Cir. Oct. 4, 2016).5 A debtor who surrendered property in the

Statement of Intent cannot challenge foreclosure – “[i]n bankruptcy, as in life, a person does not

get to have his cake and eat it too.”; see also In re Elowitz, 550 B.R. 603, 607 (Bankr.S.D.Fla. 2016)

– “[I]n order for surrender to mean anything in the context of §521(a)(2), it has to mean that ...

debtor[s] ... must not contest the efforts of the lienholder to foreclose on the property.”6

On the other side of the split, we have In re Ryan, 2016 WL 6102312 (Bankr. D. Haw. Oct.

19, 2016) in which the bankruptcy judge (respectfully) expressed disagreement with the Eleventh

Circuit in Failla, supra. In Ryan, the debtors filed a Statement of Intent to surrender a residence,

the mortgage lender got a stay lift, the debtors received a discharge and the court closed the case.

After all that, the mortgage lender foreclosed. A week later, the debtors filed a wrongful foreclosure

suit in state court. The lender filed a motion in the state court to dismiss.7 The debtors re-opened

their bankruptcy and filed a motion requesting an order of the bankruptcy court to the effect that

their discharge and the final decree in the bankruptcy case did not deprive them of their state law

right to litigate a wrongful foreclosure action.

The court first considered what the word “surrender” means in a §521(a)(2)(A) context and

pointed out that in Failla, the Eleventh Circuit relied on the dictionary definition that it means giving

up a right or claim. The bankruptcy judge in Ryan concluded that in the statutory context he was

dealing with in the Chapter 7 proceeding, “surrender” means the debtor is giving up the right to

redeem or reaffirm, not every right the debtor may have. The Ryan court took issue with the Failla

court’s statement that if the debtor does not “ . . . get out of the creditor’s way . . .” following a

surrender it means that “ . . . debtors could obtain a discharge in bankruptcy based, in part, on their

sworn statement to surrender and ‘enjoy possession of the collateral indefinitely while hindering and

prolonging the state court process.’” Failla at *4. As the Ryan court rightly points out, whether the

debtor fails to file a correct Statement of Intention or fails to carry out that intention does not effect

5 Failla resolved a split among Florida bankruptcy courts regarding the debtor’s right to oppose

foreclosure following a surrender.

6 See also Manion v. Providian Nat'l Bank, 269 B.R. 232 (D.Colo.2001) which dealt with a debtor who

tried to game the surrender process. The debtor surrendered property in the Chapter 13 plan and the lienholder

foreclosed. The debtor then executed trust deeds to the property and the holder of those deeds argued that she held

the right to redeem the property because the debtor was still the owner of property, even though the plan surrendered

the property, and title vested in the debtor upon confirmation pursuant to §1327(b). The holder of the trust deeds

argued “a bankruptcy plan surrender provision entitles the creditor to nothing more than a relief from stay and the

opportunity to pursue state law remedies to enforce its claim.” Id. at 239. The court would have none of this

argument. By surrendering the property, the debtor was bound to honor the plan by taking steps to relinquish control

of the property to the original lienholder. The debtor “thwarted the explicit surrender provision of the Plan not only

by failing to take such steps, but by rather brazenly acting to encumber the Property still further with the later Deeds

of Trust.” Id.

7 The motion to dismiss was based on (1) judicial estoppel because the bankruptcy court relied on the

surrender declaration when it entered the discharge order and (2) a standing argument based on the lender’s claim

that the debtors did not own the residence after they surrendered it. As we have seen previously, though, surrender

does not effectuate a transfer of title. So much for the second argument.

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the discharge.8 The Ryan court concluded that, at least in the Chapter 7 context, the word

“surrender” means that the debtor is giving up his/her right to reaffirm, redeem or exempt the

property at issue.9 The Ryan court also stated that there is no reason to suppose that a debtor’s

objection to a foreclosure is always abusive or that a surrender should give creditors what the court

described as a “free pass” in a foreclosure action.

B. Snooze and you may lose.

The lienholder’s ability to challenge the debtor’s interference with a foreclose action

following surrender is subject to the principle of “use it or lose it.” One court dealt with a lender

that waited more than five years after the closing of a Chapter 7 case to reopen the case and

challenge the debtor’s contest of the foreclosure action. In re Kourogenis, 539 B.R. 625

(Bankr.S.D.Fla.2015). Because of the passage of time, the court found laches barred the lienholder’s

attempt to stop the debtor from contesting the foreclosure. Id. at 628.

And it might not be the bankruptcy court that makes the decision regarding whether the

surrendering debtor can challenge a state court foreclosure action. In re Guerra, 544 B.R. 707

(Bankr.M.D.Fla. 2016) dealt with a lender who waited more than two years after a Chapter 7

discharge to dispute a surrendering debtor’s right to challenge a foreclosure in state court. The court

held that judicial estoppel might bar the debtor’s attempt to challenge the foreclosure. If the lender

had acted quickly, the bankruptcy court would have decided whether judicial estoppel applied or not.

“But if years pass between the time a debtor indicates an intent to surrender and the time the debtor

opposes a state court foreclosure, then the issue of judicial estoppel should be decided by the state

court, which is in the best position to determine whether the debtor is making a mockery of the

foreclosure action by taking a position inconsistent with the one she took in the bankruptcy case.”

Id. at 711.

Just for the sake of complication, another court held that a long delay did not prevent the

bankruptcy court from deciding the judicial estoppel issue. In re Elowitz, 550 B.R. 603

(Bankr.S.D.Fla. 2016) “The Court appreciates [the approach of Guerra] and acknowledges that it

has now been nearly five years since the Debtors received their discharge and the case was closed.

However, the Debtors' case was reopened in order to decide the matter now before the Court,

significant briefing has taken place in this Court, and the issue is ripe for a decision. It would be a

waste of judicial resources and the parties' time to refer this matter back to the state court at this

stage.” Id. at 609

Thus, the courts may hold a debtor to their commitment to surrender property and frown on

playing fast and loose with the system by making an insincere surrender. But the courts may also

lack sympathy for the lienholder that unreasonably delays the exercise of its remedies after

8 The judge is more eloquent in his analysis. He cited to §727 and noted that the court “shall grant the

debtor a discharge” unless certain enumerated conditions exist and those conditions have nothing to do with filing a

Statement of Intent or performance of the stated intention. Neither does the entry of final decree.

9 The Ryan court found support for its conclusion in the 9th Circuit BAP opinion of Mayton v. Sears,

Roebuck & Co. (In re Mayton), 208 B. R. 61 (BP 9th Cir. 1997) in which the BAP found §521(a)(2) to be a “notice


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IV. The surrender-versus-vesting controversy.

A. Introduction

Even if a debtor has managed to do everything necessary to surrender property, especially

real property, his or her troubles are often not at an end. Simply surrendering property does not

transfer title or “vest” title in the lienholder. If the lienholder fails to foreclose, the debtor may have

continued liability as the titleholder, such as liability for maintenance, environmental issues, HOA

fees and ad valorem taxes. Some courts protect the debtor by holding that a Chapter 13 plan may

vest title (and the burdens of ownership) in the lender, and of course, others hold to the contrary.

B. The cases allowing forced vesting.

The underpinning of the cases permitting a Chapter 13 plan to vest title in the lender is that

saddling the debtor with the on-going obligations of property ownership devastated their chances

for a fresh start. See In re Rosa, No. 13–00630, 495 B.R. 522 (Bankr.D.Haw.2013); In re Rosen,

No. 13-23129, 2015 Bankr. LEXIS 4448 (Bankr.D.Kan. Feb. 24, 2015); In re Sagendorph,

No.14–41675–MSH, 2015 WL 3867955, 2015 Bankr. LEXIS 2055 (Bankr.D.Mass. June 22, 2015);

In re Zair, 535 B.R. 15 (Bankr.E.D.N.Y. 2015); and In re Stewart, 536 B.R. 273 (Bankr. D. Minn.


Under this reasoning, (1) the “paramount federal interest” to provide a fresh start takes

priority over the lender’s argument that the bankruptcy court would be rewriting the parties’ contract

and (2) the Bankruptcy Code often alters the terms of agreements to facilitate a fresh start:

The paramount federal interest here is the fresh start policy of the Bankruptcy Code.

The Code's reorganization provisions advance that policy. So, for example,

“cramdown,” the involuntary re-writing of a secured loan's basic terms, a concept

completely alien to state law contract principles, is a quintessential feature of the

Bankruptcy Code. In chapter 13, cramdown is another of the §1322 menu options

available to debtors for inclusion in their plans. See §1322(b)(2). A secured creditor

who objects to a chapter 13 plan which proposes to reduce to market the interest rate

or secured balance of its loan because state law does not permit such things would

be wasting its time. The same is true for a plan which provides for the involuntary

transfer to the creditor of its collateral. Sagendorph, 2015 WL 3867955, at *5, 2015

Bankr. LEXIS 2055, at *14.

Also, a Chapter 13 plan can both surrender and vest property in a lienholder because vesting

10 In both Rosa and Stewart, the lienholder failed to object to the plan. Thus, in both cases the court could

confirm the plan without resolving the surrender versus vesting issue.

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under §1322(b)(9) and surrender under §1325(a)(5)(C) are not mutually exclusive concepts.11

Sagendorph described how the two sections dovetail:

Bankruptcy Code § 1322, entitled “contents of plan,” offers a plan proponent a

menu of provisions, some mandatory and some discretionary, to include in a chapter

13 plan. One of the optional provisions is (b)(9), which permits a plan to provide for

vesting of estate property in any entity. Bankruptcy Code §1325, entitled

“confirmation of plan”, tells the proponent that if the plan, composed of the various

menu items catalogued in §1322, meets certain baseline requirements the proponent

can rest assured that the court will confirm it. One of those baseline requirements is

§1325(a)(5)(C) which requires the court to confirm a plan that provides for treatment

of an allowed secured claim by the debtor's surrendering to the claimholder the

property securing that claim. Sagendorph, 2015 WL 3867955, at *4, 2015 Bankr.

LEXIS 2055, at *12.

The Sagendorph court then reasoned that the concepts of vesting and surrender are not at

loggerheads because surrender is the preliminary step in the transfer of title envisioned by vesting:

A plan which contains a provision for transferring or vesting in the secured creditor

the property that is its collateral would be compliant with and confirmable under

§1325(a)(5)(C) because a transfer of property presupposes its surrender by the

transferor. Surrendering or “ceding possessory rights” is a preliminary step in the

process of transferring title. This interpretation of vesting in §1322(b)(9) is

consistent with and presents an avenue for effectuating §1322(b)(8) which permits

“the payment of part or all of a claim against the debtor from property of the estate

or property of the debtor.” Id.

C. The cases refusing to allow forced vesting.

The line of authority opposed to forced vesting concludes that surrender and vesting are

incompatible. These cases take a more “head over heart” approach, finding no basis in the

Bankruptcy Code to force title onto an unreceptive and unwilling lienholder—no matter the impact

on the debtor’s chances for fresh start. In re Malave, No. 13-13348, 2014 Bankr. LEXIS 5383

(Bankr.S.D.N.Y. April 14, 2014) (“[w]hen a secured creditor timely objects to the confirmation of

a plan that proposes to vest title in that creditor, the court cannot confirm the plan” under §


The courts in the “no vesting” line give a range of rationales for their holdings:

• Surrender, not vesting, is one of the three exclusive treatments for a secure creditor

in section 1325(a)(5). Vesting is an option under §1322 but that option cannot

11 As we shall see, some courts hold that surrender and vesting are mutually exclusive.

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override 1325(a)(5)’s mandate that to confirm a plan, a secured creditor must accept

the plan, have its claim crammed down, or have the collateral securing the claim

surrendered. In re Weller, 548 B.R. 392, 395-96 (Bankr.D.Mass. 2016).

• Surrender is not a preliminary step in the vesting of title in the lienholder. To the

contrary, vesting and surrender are incompatible concepts:

[V]esting precludes surrender: a debtor cannot permit a mortgagee to

exercise its preexisting rights where, by vesting the mortgaged

property in the mortgagee, it has altered those rights out of existence.

Surrender of collateral to a mortgagee and vesting of the same

collateral in the mortgagee are thus mutually exclusive. A plan

cannot do both while giving full and proper meaning to each term;

and a plan that purports to do both at once must be denied

confirmation as internally inconsistent. In re Tosi, 546 B.R. 487, 494


• A transfer of title via vesting imposes burdens on the lienholder that it never agreed

to assume. In re Rose, 512 B.R. 790 (Bankr.W.D.N.C. 2014). Vesting title in a

lienholder forces that lienholder to “assume burdens of ownership for which it did

not contract.” Id. at 795-96. Imposing those duties on a lender is directly contrary

to the lienholder’s contractual right should it decide that foreclosing is not in its best

interest. In re Sherwood, No. 15–10637 (JLG), 2016 WL 355520, at *7, 2016 Bankr.

LEXIS 263 (Bankr.S.D.N.Y. Jan. 28, 2016); see also Bank of N.Y. Mellon v. Watt,

14–cv–2051, 2015 WL 1879680, at *6, 2015 U. S. Dist. LEXIS 54041, at *15-16

(D.Or. Apr. 22, 2015), concluding that the Bankruptcy Code provides for forced

vesting reads language into the Code and the parties’ agreement that does not exist;

In re Williams, 542 B.R. 514, 521 (Bankr.D.Kan.2015) which holds that, “[v]esting

the title over [lienholder's] objection would force it to accept the title and impose

unbargained for obligations on it to pay taxes and other costs associated with the

Property.” Vesting title also places the lienholder in a position where it holds title

subject to the interest of junior lienholders. The liens of these junior lienholder

would be wiped out by foreclosure, but not by vesting. In re Rose, 512 B.R. at 795-


• The debtor’s need for a fresh start does not permit a court to skew the balance

between debtor and lienholder by forcing a lienholder to assume all the burdens of

ownership while completely freeing the debtor from those burdens. Bank of N.Y.

Mellon, 2015 WL 1879680, at 7, n. 6, 2015 U. S. Dist. LEXIS 54041, at *18, n. 6.

• The mere fact that §1322(b)(9) permits vesting does not mandate that it must be

permissible to vest property in a plan. There are several purposes for vesting and

explanations why §1322(b)(9) provides for vesting other than the forced vesting of

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property in a lienholder. It is permissible to vest property in a lienholder if the

lienholder accepts the plan under §1325(a)(5)(A). In re Weller, 548 B.R. at 395. Or

the debtor might cram down a secured creditor but provide that the property vest in

a third party, such as a child, spouse, or wholly-owned entity for estate planning

purposes. In re Sherwood, 2016 WL 355520, at *7.

D. The District Court for the Eastern District of New York tries to unravel the

controversy in In re Zair.

One recent case exhaustively surveyed opinions on both sides of the issue. HSBC Bank

USA, N.A. v. Zair (In re Zair), 550 B.R. 188 (E.D.N.Y. 2016)12 Zair summarized the issue as


Is the surrender option found in §1325(a)(5)(C) satisfied by a Chapter 13 plan that

purports to “vest” title to collateral in a secured creditor pursuant to §1322(b)(9) over

that creditor's objection? Posed differently, can a confirmable Chapter 13 plan both

“vest” title to real property and “surrender” that property to a common secured

lender? If so, can the creditor refuse to accept the vesting in satisfaction of its claim?

Can a court nevertheless compel the transfer over the creditor's objection?

Id. at 190. Zair so thoroughly catalogues the cases on both sides of the issues that it is more efficient

to discuss its analysis rather then sort through each case it cites.

So, now we are dealing with “surrender”—a term undefined in the Bankruptcy Code—and

also the concept of “vesting.” Vesting is also undefined, but enters the process through

section 1322(b)(9) which states that a Chapter 13 plan “may ... provide for the vesting of

property of the [bankruptcy] estate, on confirmation of the plan or at a later time, in the

debtor or in any other entity.” As discussed previously, surrender is basically the debtor’s

commitment not to block a lender’s access to collateral, but surrender does not transfer title.

“Rather, surrender means only that the debtor will make the collateral available so the

secured creditor can, if it chooses to do so, exercise its state law rights in the collateral” Zair,

550 B.R. at 192. On the other side of the equation, “[w]hereas ‘[s]urrender means making

the property available to be taken; vesting means transferring title.’” Id. at 193.

In Zair, the lender argued that the debtor’s attempt to vest title via the Chapter 13 plan did

not constitute a proper surrender. Without a proper surrender, the plan was not confirmable because

it failed to provide for one of the options set out in §1325(a)(5). Zair described how the opposing

views on vesting through the plan reflected the tension between the interests of debtors and their

secured creditors, especially those holding liens on real property. Often, a lender does not want to

be forced to take title to property because it does not want all the baggage that comes along with it,

such as taxes, maintenance or liability for environmental cleanup. Of course, the debtor wants to

12Zair is being appealed to the Second Circuit. The docket number is 16-1648.

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be shed of those very obligations. In Zair, the lender argued that it had the right to control its

remedies and that a Chapter 13 plan could not force it to take title—that transfer could only be

accomplished if the lender foreclosed. The lender argued that a plan forcing the vesting of title

interfered with the lender’s state law rights to decide if and when it wished to foreclose and also

rewrote the parties’ contract by forcing a transfer of title when no document gave the debtor that

right. The debtors countered that they could never obtain a “fresh start” if burdened with all the

expenses and obligations of ownership for property that they no longer wanted or could afford. The

debtors turned to section 1322(b)(9) and argued that it “provides a mechanism by which debtors can

offload property that they can no longer afford, and secured creditors may not frustrate that process

by refusing the transfer of the collateral.” Id. Zair devoted seven pages of analysis to the pro- and

anti-vesting lines of authority.

In the end, the district court in Zair went straight down the line in adopting the reasoning of

the cases that reject forced vesting:

• As a matter of statutory interpretation, forced vesting under §1322(b)(9) is “legally

untenable.” Zair, 550 B.R. at 202. Vesting is a permissible, but not mandatory, part

of a Chapter 13 plan. A plan, however, must contain one of the three options listed

in §1325(a)(5).13

• While vesting and surrender are not always mutually exclusive, they are when the

inclusion of a vesting provision “disrupts the mandatory treatment of a secured

creditor under §1325.” Id. The concept of surrender allows a lienholder the option

to use the full array of rights it has as a secured creditor. Vesting creates a “material

curtailment” of those rights. It imposes a “non-consensual reformation of [the]

mortgage contract” on the lienholder by forcing ownership of the property (and all

the expenses and liability of ownership) onto a lienholder that is not contractually

obligated to assume them. Id. at 203.

• One cannot infer that simply because the mechanism of vesting is included in

§1322(b)(9) that a debtor must have the right to vest property via a chapter 13 plan.

Section 1322(b)(9) “may, where appropriate, serve numerous functional purposes

that do not conflict with the requirements of §1325(a)(5)(C).” Id. at 203.

• When properly understood, surrender is not a natural step toward vesting.

Practically, lienholders often do not foreclose on surrendered property.

Conceptually, making property available for a lienholder to exercise its rights does

not force that lienholder to accept the obligations of ownership by a means that

leaves the property subject to the interests of junior lienholders. Id. at 203.

• The debtor’s need for a fresh start cannot trump14 a lienholder’s rights:

13 Two of those options are payment options and one of those options is the surrender option.

14 No reference to any presidential hopeful intended.

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. . . the Court rejects the theory that the Debtors' pursuit of a fresh start in

bankruptcy should be elevated above the other interests of the parties in this case.

Given the very clear delineation of secured creditors' rights in §1325(a)(5); and the

fact that Congress saw fit to fortify those rights by conditioning the confirmability

of all Chapter 13 plans upon conformance with them; the Court can discern no

principled basis for exalting the policy rationale in favor of “fresh starts” for debtors

over the Code's obvious goal of preserving the well-settled property rights of secured

lenders. Id. at 204.

The issue of vesting versus surrender is just one of those innumerable ambiguities in the

Bankruptcy Code that lays in wait until brought to light by a circumstance such as the decline in

property values produced by the housing crisis. Whether you agree with Zair’s result or not, it is

at least a primer on the arguments falling on both sides of the issue. As the natural order progresses,

the Circuit Courts will resolve—probably not with uniformity— the issue of whether a Chapter 13

plan may forcibly vest title in a secured creditor. And by that time, the bankruptcy courts will be

dealing with the next set of ambiguities bought to light by new circumstances and the creativeness

of lawyers.

Onward through the fog.

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