Surrendering a Car in Chapter 13

Tidewater v. Kenney was a matter of first impression for the Fourth Circuit, the court joined the Seventh, Eighth and Tenth Circuits in holding that after a debtor satisfies the requirements for plan confirmation by surrendering his 910 vehicle, the parties are left to their contractual rights and obligations, and the creditor may pursue an unsecured deficiency claim under state law. 

The Chapter 13 debtors purchased a car and granted the financier a purchase money security interest in the vehicle less than three months before filing for bankruptcy relief.  The financier objected to the debtor’s plan, which proposed to surrender the vehicle in full satisfaction of the creditor’s claim even though the vehicle was worth less that the creditor’s claim.  The question before the court was whether the “hanging paragraph” in the Bankruptcy Code added by BAPCPA prevents a creditor with a PMSI in a “910 vehicle” from exercising his right under state law to an unsecured claim for the deficiency after repossession and the vehicle is surrendered by a Chapter 13 debtor.

The Fourth Circuit found in favor of the creditor.