Chapter 13 Debtor Could Not Defer Surrender of her Home Until her Son Graduated High School

Chapter 13 Debtor Could Not Defer Surrender of her Home Until her Son Graduated High School

The Debtor in this case, filed a proposed chapter 13 plan on April 12, 2017, containing the following treatment of the secured claim of CIT Bank, N.A., holder of the first mortgage on her home:

Debtor is surrendering the property located at 36 Nichols Road, Malden to Creditor effective July 1, 2019. Creditor’s interest will be adequately protected in the form of post petition payments commencing May 2017 in the amount of $1,460.00 per month which includes escrow for taxes and insurance. Additionally, the Debtor and her father, the contractual obligor on the mortgage with CIT Bank have a pending modification application which they expect to be allowed [multi-sic].

CIT objected to the plan’s treatment of its claim on the basis that a chapter 13 plan calling for a deferred surrender of collateral violates the provisions of the Bankruptcy Code.

The Debtor’s position is that Bankruptcy Code § 1325(a)(5)(C) recognizes surrender as an appropriate method for treating a secured party’s claim in a chapter 13 plan, that this Code provision contains no express directive as to when surrender must occur, and that deferred surrender is consistent with the letter and spirit of chapter 13 in which most plans, including hers, contemplate creditors’ receiving their plan entitlements over an extended period of time. She explains that her ability to propose a feasible chapter 13 plan depends on her ability to remain in her home post-confirmation because her costs in mortgage payments and upkeep will be less than what she would have to pay to move and rent an apartment in the school district where her son attends high school. The Debtor has tied the surrender date in her plan to her son’s graduation, at which point she would presumably relocate to rental housing in a more affordable neighborhood.

In order to resolve the parties’ dispute and determine whether the Debtor’s deferred surrender plan is confirmable under § 1325(a)(5)(C), it is necessary first to understand what surrender means in the context of bankruptcy.

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