By Shelley B. Fowler*
Bankruptcy laws exist to give debtors a fresh start. But that fresh start doesn’t always allow a debtor to walk away from all of his or her obligations scot-free, especially when a debtor has secured debts. A debtor’s receipt of a discharge in bankruptcy doesn’t necessarily mean that he or she doesn’t have to pay anything to a secured creditor, even for property that the debtor doesn’t want or that is essentially worthless.
A recent case involved a debtor who owned a car that was worth substantially less than the amount of the debt that the car secured. The debtor wanted the creditor to release its lien after he received a discharge so that he could sell the car for a nominal price. The creditor was willing to work with the debtor but wanted something for its lien release. The debtor apparently didn’t want to follow the creditor’s instructions for what he deemed was a worthless car and instead decided to sue.
Let’s see what happened.
Duane Bentley filed a Chapter 7 bankruptcy petition and stated his intent to surrender his 2001 Dodge Dakota, which secured a 2017 loan, to OneMain Financial Group, LLC. OneMain never repossessed the car, which was stored on Bentley’s ex-father-in-law’s property, and Bentley never paid the $8,000 balance owed to OneMain.
After Bentley received his discharge, he called OneMain requesting removal of its lien from the title to his car, which he claimed was “old,” “trash,” and “totaled” and worth only $150, so that he could sell it. On several occasions, OneMain advised Bentley and his ex-father-in-law that it could not release the lien without some payment and advised them to provide an offer from a salvage yard, or from either of them or another person, with a mechanic’s estimate of what was wrong with the car and what the repair costs would be so that it could evaluate the price offered.
Bentley and his ex-father-in-law never submitted any offers. Instead, Bentley sued OneMain for contempt for violating the discharge injunction by attempting to collect a discharged debt. Bentley claimed that OneMain refused to release its lien on his “valueless” car until he paid the full balance owed. OneMain released its lien, and the parties cross-moved for summary judgment. The U.S. Bankruptcy Court for the Eastern District of Kentucky granted OneMain’s motion and denied Bentley’s motion.
Relying on a First Circuit opinion that also involved a creditor’s refusal to release a lien on a vehicle after the vehicle’s owners obtained a Chapter 7 discharge, Bentley argued that OneMain’s actions were objectively coercive and frustrated his right to surrender the car – OneMain decided not to repossess the car because it was essentially worthless, yet it refused to release its lien without payment. The court found that the First Circuit’s opinion heavily relied on the fact that the creditor demanded full payment of the debt, but, in this case, OneMain proposed to resolve the matter for essentially scrap value, far less than the full amount owed, and gave Bentley several reasonable options to obtain a lien release. The court determined that the facts did not support Bentley’s claim of coercive conduct that would provide a basis for finding that OneMain violated the discharge injunction.
This case serves as a good example of how a secured creditor should communicate with a debtor after the debtor’s debt to the creditor has been discharged, where the debtor wants to get rid of the collateral but the creditor decides that it is not cost-effective to repossess and sell the property. If you find yourself in a similar situation as OneMain, read the court’s opinion for ways to reasonably negotiate with the debtor without running afoul of the discharge injunction.
In re Bentley, 2019 Bankr. LEXIS 3118 (Bankr. E.D. Ky. October 2, 2019).
*Shelley B. Fowler is a Managing Editor at CounselorLibrary.com, LLC. She can be reached at 410.865.5406 or by email at firstname.lastname@example.org.