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Can I Modify my Confirmed Chapter 13 Plan to Surrender a Vehicle Being Paid Inside the Plan?

The practical answer to this question is "yes," you technically can ask the Bankruptcy Court to modify your Chapter 13 Plan to provide that the vehicle being paid inside the Plan will now be surrendered to the creditor who financed it. However, the legal problem created by this type of action is that the secured creditor, the auto lender, will retain its status as a secured creditor. In rare instances, the auto lender may be willing to enter into an agreement with the Debtor to provide for the surrender of the vehicle, and then take on the status of a general unsecured creditor, but why would a creditor do that?

Auto Lenders Retain Secured Status in a Confirmed Chapter 13 Plan Upon Surrender of Vehicle

Auto lenders retain their status as a secured creditor inside the Chapter 13 Plan even if the Plan is modified after confirmation to provide for the surrender of the Debtor's vehicle. This means that whatever balance was remaining on the loan will still be paid as a higher priority "secured" claim, with interest, over and above and before any distribution to general unsecured creditors. The Plan payment, then, cannot be reduced based upon a post-confirmation surrender of the vehicle. The loan still must be paid. The loan amount may be reduced if the lender is able to sell the vehicle at auction and apply the net proceeds of sale, but most of the time there is only a small fraction of the existing balance recovered at an auction.

If you are currently in a Chapter 13 Plan that has been confirmed and want to surrender a vehicle being paid inside that confirmed Plan, it may be a better option to convert your case to Chapter 7 ( do not proceed with conversion without first discussing it with an experienced bankruptcy attorney), or possibly dismissing the Chapter 13 and filing a new case with different treatment of the auto lender.

The Private Sale Option

Another outside option would be petitioning the Court to sell the vehicle to pay off the balance of the loan through private sale. This would give the debtor more control over setting the price of sale and the marketing of the vehicle. The Debtor must keep in mind that even if selling the vehicle with Court approval pays off the balance of the auto loan, the Chapter 13 Trustee and possibly some creditors may then petition the Court for an increase in the percentage to be paid to general unsecured creditors. The reason would be that the fixed payment to the auto lender would now be freed up in the Debtor's budget.

Consulting with a Bankruptcy Attorney is Important Before Taking Action in Your Case

The foregoing is only summary of the most basic aspects of surrendering a vehicle in a confirmed Chapter 13 Plan. Chapter 13 bankruptcy can be a very complicated area of law. Sometimes a Chapter 13 Debtor can proceed with a Plan modification in one district but not another. Having personally practiced law in two different states ( formerly Ohio and now Alabama), I can state based upon my own experience that there are more options in the Southern District of Alabama in Chapter 13 cases than there are in the Northern District of Ohio, Cleveland Division.

An attorney who is experienced in bankruptcy law will be able to counsel you as far as all of the practical aspects of your case. A static internet post is no substitute to sitting down with a lawyer who practices at your local bankruptcy court day in and day out. The law, the personnel at your local bankruptcy court, and the area where you live can affect a lawyer's recommendation as far as action taken on your bankruptcy case. It is important to discuss your case with an attorney who can give you the full range of options and an opinion on the chances for success in any given situation arising in your case.

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If you need assistance, please, "Call me. I'll BE there for you." -Kevin M. Ryan, Attorney at Law (251) 241-5234.