Allan G. Cormier and Deborah A. Cormier

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
CENTRAL DIVISION
_________________________________
)
In re: 	) 	Chapter 13
) 	Case No. 09-44865-HJB
ALLAN G. CORMIER, 	)
DEBORAH A. CORMIER, 	)
)
Debtors 	)
_________________________________ )
MEMORANDUM OF DECISION
The issues presented in this Chapter 13 case raise important questions regarding
the interplay between the rights of mortgage holders and those of financially-strapped
property owners seeking relief under the Bankruptcy Code. At a time when the soaring
foreclosure rate has left a backlog of bank-owned properties, and both owners and banks
often choose to simply walk away – leaving abandoned homes and buildings to blight and
burden their neighborhoods, cities, and towns – the inadequacy of existing state and
federal laws to provide meaningful, responsible solutions becomes distressingly obvious.
Yet, judges are interpreters and not architects of the law.
I. 	FACTS AND TRAVEL OF THE CASE
On November 13, 2009, Allan and Deborah Cormier (the “Debtors”) filed a petition
for relief under Chapter 13 of the United States Bankruptcy Code (the “Bankruptcy Code”
1
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or the “Code”). 1 In the required financial schedules and statements filed with the case (the
“Schedules”), the Debtors disclosed ownership interests in two pieces of real property: their
residence and a three-family house located in Fitchburg, Massachusetts (the “Property”).
On Schedule A – Real Property, the Debtors listed the current market value of the Property
as $75,000, and subject to a secured claim in the amount of $94,747.58. On Schedule D,
the Debtors listed American Home Mortgage Service, Inc. (“American”) as the holder of the
relevant mortgage.
On Schedule I – Current Income of Individual Debtor(s), the Debtors reported the
sum of $5,681.32 as their monthly income net of taxes, insurance, and other deductions.
On Schedule J – Current Expenditures of Individual Debtor(s), the Debtors listed their
average monthly expenses as $5,263.70, and thereby calculated a monthly surplus of
$417.62. 2
On November 19, 2009, the Debtors filed and served their Chapter 13 plan (the
“Plan”). 	Under Section C of the Plan – “Modification of Secured Claims” – the Debtors
propose to surrender American’s collateral (the Property) “in full satisfaction of debt.” The
Debtors’ Plan also provides an 8.785% dividend on unsecured claims and calculates the
monthly Plan payments at $418.
On February 3, 2010, American filed a motion requesting relief from the automatic
stay imposed by § 362(a) (the “Motion for Relief”), and indicating the Debtors’ assent
1 Unless otherwise stated, all statutory and section references are to the Bankruptcy Code,
11 U.S.C. § 101 et seq.
2 The Debtors are below-median debtors – i.e., their annualized income falls below the
median for households of the same size in Massachusetts.
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thereto. 	According to the Motion for Relief, the pre-petition arrearage on American’s
secured claim totaled $5,606.94, and the Debtors had made no post-petition payments.
American seeks relief from the automatic stay so that it may “exercis[e] its various non-
bankruptcy rights and remedies including and without limitation: i. taking possession of the
Property, obtaining a deed-in-lieu of foreclosure and/or foreclosing the Mortgage at issue;
and ii. taking such action as may be necessary to evict the Debtor(s) and/or any occupant
from the Property.”
On February 12, 2010, before the Court could act on the Motion for Relief,3 the
Debtors 	filed 	a 	“Motion 	to 	Require 	American 	Home 	Mortgage 	Servicing, 	Inc. 	to
Acknowledge the Debtor’s Surrender of the Property [ ] and to Allow an Administrative
Claim for the Debtors’ Post-Petition Expenses for Insuring and Preserving that Property”
(the “Debtors’ Motion”). 	Through their Motion, the Debtors seek an order “(a) directing
[American] to acknowledge that the Debtors have surrendered their interest in [the
Property], and (b) allowing them to deduct from their plan payments, on account of
administrative expenses, the actual amounts they are incurring to insure and preserve that
property.” In their memorandum in support of the Motion (the “Debtors’ Brief”), the Debtors
clarify that they want American to “formally acknowledge the surrender of the property so
they can reasonably stop paying to insure and preserve it.”
Neither American nor the Chapter 13 trustee (the “Trustee”) have filed objections to
the Debtors’ Plan (which remains unconfirmed). However, on April 14, 2010, the Court held
a hearing on the Debtors’ Motion and the Motion for Relief (the “Hearing”) and took both
3 See Mass. Local Bankr. R. 4001-1(c) (providing 14 days for parties to file objections to
motions for relief from the automatic stay).
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matters under advisement.
II. 	POSITIONS OF THE PARTIES
A. 	Debtors
In their Brief, the Debtors say that, since September 2009, 	they “have spent
$105.29 on utility expenses for the [Property],” “have incurred $218.79 in unpaid charges,”
and have “maintained in force property and liability insurance” on the Property. 	The
Debtors further state that there is one tenant residing the property who has not paid the
$700 rent since September 2009. In the Debtors’ Brief and at the Hearing, counsel for the
Debtors argued that the Debtors have committed all of their net income after expenses to
the Plan and have experienced unexpected car repair and dental expenses that have
consumed all of their other discretionary income. As such, the Debtors maintain that they
can no longer afford to insure and preserve the Property, nor can they afford to file or
prosecute a summary process action to evict the non-paying tenant.
The Debtors want American to take responsibility for the Property’s expenses so
they can devote all of their disposable income toward the Plan. 	In support of their
argument that American can be held responsible for expenses associated with the
Property, the Debtors rely on the fact that Massachusetts adheres to a “title theory” of
mortgages. 	Because, under Massachusetts law, a mortgage conveys title to the
mortgagee, the Debtors argue that American has accepted a conveyance of the Property.
And since the Debtors have essentially abandoned the Property and are ceding possession
to American, then American, as mortgagee, should have the duty to maintain it. 	The
Debtors attempt to factually distinguish this case from Negron v. Gordon, 366 N.E.2d 241
4
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(Mass. 1977), where the Massachusetts Supreme Judicial Court (the “SJC”) held that a
mortgagor, although financially unable to remedy sanitary code violations at the mortgaged
property, was nonetheless legally responsible for the violations. The Debtors argue that
the mortgagee was not held responsible in that case because, unlike here, the mortgagor
had not taken action to surrender the property to the mortgagee.4
But the Debtors further contend that, to the extent Massachusetts law requires the
mortgagee’s consent before it can be compelled to take possession and responsibility of
surrendered property, that requirement is preempted by § 1325(a)(5)(C) of the Bankruptcy
Code. The Debtors argue that § 1325(a)(5)(C) allows debtors to surrender collateral to a
secured creditor in satisfaction of a creditor’s secured claim, and this ability to surrender
cannot be thwarted by conflicting state law. Requiring the assent of a creditor in order to
accomplish surrender under § 1325(a)(5)(C) would, according to the Debtors, “frustrate[ ]
a federal purpose and impermissibly act[ ] within an exclusively federal field.” Because a
surrender of the Property to American is an integral part of the Debtors’ Plan, the Debtors
say that their ability to unilaterally surrender the Property is essential to their right to relief
under Chapter 13.
Finally, the Debtors seek reimbursement of the expenses they have incurred in
insuring 	and 	preserving 	the 	Property. 	The 	Debtors 	equate 	these 	expenses 	to
administrative claims, as the expenditures were actual, necessary costs and expenses of
4 At the Hearing, Debtors’ counsel noted that the SJC has recently granted review in a case
where Massachusetts’ adherence to the title theory of mortgages is outcome-determinative. See
Faneuil Investors Group v. Bd. of Selectmen of Dennis, 913 N.E.2d 908 (Mass. App. Ct. 2009),
review granted, 920 N.E.2d 73 (Mass. Dec. 22, 2009). Debtors’ counsel postulated that the SJC
may direct the Massachusetts law of mortgages toward a lien theory instead, leaving the issues
here “sufficiently murky” to warrant certification to the SJC.
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preserving the estate, which claims may be asserted by the Debtors as “entities” under
§ 503(b)(1)(A). 	To effectuate the reimbursement, the Debtors propose to deduct the
expenses from their Plan payments after submitting proof of the payments to the Trustee.
B. 	American Home Mortgage Servicing, Inc.
American objects to the Debtors’ Motion as an attempt by the Debtors to “impose
a duty upon [American] for insuring and maintaining the Property,” to “ignore their duties
as owners of the Property,” and “to shirk their responsibilities onto [American] because they
can no longer an afford an investment property.” American also claims that the Debtors
are seeking a “windfall” by having American shoulder the burden of evicting any tenants
and paying for insurance and maintenance. In fact, argues American, the Debtor’s Motion
is unnecessary because American does accept the Debtors’ proposed surrender of the
Property through the Plan, although it objects to being compelled to take immediate
possession of the Property.
According to American, the fact that Massachusetts is a title theory state is
immaterial, since Massachusetts courts have routinely held that a mortgagor is regarded
as the “owner” of a property so long as the mortgagor remains in possession. 	Here,
American says, the Debtors remain the owners under Massachusetts law and American
cannot be compelled to take possession and assume responsibility for maintaining and
preserving the Property.
When asked at the Hearing whether the Debtors’ proffer of a deed-in-lieu of
foreclosure would resolve the issues here, counsel to American balked at the idea.
American insists that it is entitled, upon an order lifting the automatic stay, to pursue its
rights under the mortgage and state law at its discretion. 	American has not indicated a
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present refusal to take possession or conduct a foreclosure sale; rather, it maintains that
it cannot be compelled to do so.5
C. 	Chapter 13 Trustee
The Trustee objects to the Debtors’ request to deduct the claimed “administrative”
expenses from Plan payments. Noting that the Debtors’ Schedule J budgeted $300 per
month for discretionary expenses, the Trustee says the approximately $65 per month the
Debtors allegedly spent maintaining the Property should be paid from their discretionary
funds. 	At the Hearing, the Trustee further argued that the expenses do not qualify as
administrative expenses necessary to preserve the bankruptcy estate, since the Debtors
are surrendering the Property under the Plan.
III. 	DISCUSSION
A. 	Massachusetts Law
The Debtors are correct in their characterization of Massachusetts as a “title theory”
state 	under 	the 	common 	law 	regarding 	mortgages 6 ; 	Massachusetts 	courts 	have
5 While not providing a clear answer for why a foreclosure sale, rather than acceptance of
a deed-in-lieu, was preferable, American implied that the reason was related to the presence of
tenants on the property and the liability which it might assume by taking possession of the Property
prior to foreclosure.
6 In states, such as Massachusetts, that adhere to the title theory, “legal ‘title’ to the
mortgaged real estate remains in the mortgagee until the mortgage is satisfied or foreclosed.”
Faneuil, 913 N.E.2d at 912 n.5 (quoting Restatement (Third) of Property (Mortgages) § 4.1, cmt.
a (1997)). In contrast, “in lien theory jurisdictions, the mortgagee is regarded as owning a security
interest only and both legal and equitable title remain in the mortgagor until foreclosure.” Id. And
under an “intermediate theory,” “legal and equitable title remain in the mortgagor until a default, at
which time legal title passes to the mortgagee.” Id. The practical effect of these distinctions “is that
under the [title theory] the mortgagee may enter into possession of the mortgaged premises upon
default and before foreclosure, whereas under the ‘lien theory’ there is no right of possession; the
mortgagee must await sale of the mortgaged property and obtains satisfaction of the mortgagor’s
debt from the proceeds of sale. The right of possession gives the mortgagee under a ‘title theory’
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consistently held that, under Massachusetts law, the granting of a mortgage on property
conveys title to the mortgagee. 7 But this characterization alone does not compel the
conclusion urged by the Debtors, namely, that as holder of “title” to the Property, American
is now responsible for the incidents of ownership of the Property, financially or otherwise.
Despite Massachusetts’ adherence to the title theory, Massachusetts courts have been
equally as consistent in holding that a mortgagor, and not the mortgagee, bears the
responsibilities and holds the rights incident to ownership until the mortgagee obtains
possession or forecloses. As the SJC explained in Chamberlain v. James:
Doubtless a mortgagee, even before breach of the condition of the
mortgage, though not in possession of the mortgaged real estate and not
entitled to possession thereof by the terms of the mortgage, is regarded for
some purposes as the owner of the real estate and can maintain an action
based on his title against the mortgagor or a stranger for injury to his interest
in the property as security. A mortgagor, however, “unless otherwise stated
in the mortgage” until “default in the performance or observance of the
condition of a mortgage’” is entitled to “hold and enjoy the mortgaged
premises and receive the rents and profits thereof.” G.L. (Ter. Ed.) c. 183, §
26. The mortgagee upon such default is entitled to immediate possession
merely in the sense that upon breach of condition he is entitled to recover
possession of the mortgaged premises by an open and peaceable entry on
such premises or by action, or, if the mortgage contains a power of sale, to
foreclose by sale. . . .
And so long as the mortgagor was suffered to remain in possession,
though the condition of the mortgage had been broken, such mortgagor, and
not the mortgagees, had the rights of control and management of the
mortgaged property incident to possession thereof, not only as to all the
world other than the mortgagees, but also as to the mortgagees.
regime slightly better control of foreclosure proceedings.” Maglione v. BancBoston Mortgage Corp.,
557 N.E.2d 756, 758 (Mass. App. Ct. 1990) (citations omitted).
7 See, e.g., Charlestown Five Cents Sav. Bank v. White, 30 F. Supp. 416, 418 (D. Mass.
1939); In re Derosches, 314 B.R. 19, 22 (Bankr. D. Mass. 2004); Negron, 366 N.E.2d at 244;
Harlow Realty Co. v. Cotter, 187 N.E. 118, 119 (Mass. 1933); Faneuil, 913 N.E.2d at 912-13.
8
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200 N.E. 361, 365 (Mass. 1936) (citations omitted).
The same was reiterated by the SJC forty years later in Negron v. Gordon, 366
N.E.2d 241 (Mass. 1977). 	In Negron, tenants of a property brought suit against the
landlord and the bank holding a mortgage on the property, alleging sanitary code violations.
The SJC affirmed the dismissal of the action as to the bank, even though it was clear that
the landlord was financially unable to correct the code violations. The SJC, citing nearly
century-old Massachusetts law, stated: “so long as it remains in possession, the mortgagor
is regarded as the real owner, and it retains all incidents of ownership, not only as to all the
world but as to the mortgagee as well.” 	Id. at 245 (citing Way v. Mullett, 143 Mass. 49
(1886)). 8 Because the bank had not obtained possession and had not foreclosed, only the
landlord could be held liable for the code violations. Id.
And, despite the fact the landlord may have breached the terms of the mortgage,
giving the bank the right to enter into possession or foreclose, the bank was not obliged to
do so. 9 The holding of Negron did not, as the Debtors maintain, turn on the fact that the
landlord had not offered to surrender the property to the bank. Even if the landlord had so
8 See also Charlestown Five, 30 F. Supp. at 418 (although a mortgage conveys a fee, this
is for the purpose of securing the debt and “leave[s] to the mortgagor . . . the full control, disposition
and ownership of the estate.”); Vee Jay Realty Trust Co. v. DiCroce, 277 N.E. 2d 690, 692 (Mass.
1972) (“as to all the world except the mortgagee, a mortgagor is the owner of the mortgaged lands,
at least until the mortgagee has entered for possession”) (quoting Dolliver v. St. Joseph Fire &
Marine Ins. Co., 128 Mass. 315, 316, 1880 WL 10671 (Mass. 1880)); Chamberlain, 200 N.E. at 365;
Santiago v. Alba Mgmt., Inc., 928 N.E.2d 359, 362 (Mass. App. Ct. 2010).
9 Id. at 244 (“The mortgagee is not bound to act when the mortgagor violates the statutory
condition. . . . Neither the breach of the statutory condition nor a lapse of time subsequent thereto
alters the rights of the parties in relation to the property.”);see also Framingham Sav. Bank v.
MacDonald, 1994 WL 902913, *4 (Mass. Super. Oct. 31, 1994) (“[T]he Bank’s duty to its
mortgagors does not require the Bank to accept a deed in lieu of foreclosure.”) (citing Lexington
Trust Co. v. McCabe, 49 N.E.2d 435 (Mass. 1943)), aff’d 661 N.E.2d 129 (Mass. App. Ct. 1996).
9
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offered, the bank had the right to refuse. Rather, the mere fact that the bank did not have
possession, whatever the reason, was dispositive. Id. at 245 & n.6.
Similarly, here, the Court cannot conclude that American has possessory rights or
obligations regarding the Property by virtue of its “bare legal title.” And there is no basis
in Massachusetts law for the Court to compel American to take possession. 10 Therefore,
the Court cannot find that, under Massachusetts law, American presently has, or can be
compelled to incur, liability for the Property’s maintenance or preservation expenses. 11
B. 	Surrender under § 1325(a)(5)(C)
Section 1325(a)(5) provides debtors with three options for the treatment of secured
claims under a Chapter 13 plan. Subsection (A) allows confirmation if “the holder of such
claim has accepted the plan” and, absent such acceptance, subsection (C) allows
confirmation if the plan provides for surrender of the collateral to the secured creditor. 11
U.S.C. § 1325(a)(5)(C). 12 Here, the Debtors have opted to proceed under subsection (C)
10 Because the Court finds that Massachusetts law is not “murky” on this issue, it declines
the Debtors’ suggestion to certify the issue to the SJC. Furthermore, to the extent the SJC has
granted review in Faneuil, 913 N.E.2d 908, the Court sees no consequence to the outcome of this
case even if the SJC were to change course and adopt a “lien theory” of mortgages. 	As the
Debtors’ counsel readily admitted at the Hearing, “under the lien theory of mortgages, . . . [the
Debtors’] state law theory is very weak . . . .” April 14, 2010 Hr’g Transcript 8:7-8.
11 This does not mean that American is prohibited from bearing the costs of maintaining the
Property. Given the Debtors’ obvious financial difficulties and their desire to extricate themselves
from any relationship with the Property, American may be better served by acting to preserve the
Property’s likely eroding value.
12 Specifically, the Code provides:
(a) [T]he court shall confirm a plan if –
. . .
(5) with respect to each allowed secured claim provided for by the plan –
(C) the debtor surrenders the property securing such claim to such
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in providing for American’s claim in their Plan.
Although the Plan has not yet been confirmed, the Debtors ask the Court to compel
American to “acknowledge” the proposed surrender of the Property. 	American, in turn,
says it readily accepts the proposed surrender. What the Debtors want, it appears, is not
merely American’s “acknowledgment” of the Debtors’ surrender; rather, they want the Court
to compel American to either take a deed-in-lieu of foreclosure, to take immediate
possession of the Property, or to affirm that it will promptly foreclose on the Property. The
Debtors say that, to the extent Massachusetts law does not provide a basis for this relief,
§ 1325(a)(5)(C) of the Bankruptcy Code preempts state law. 	Thus, the Court should
compel American to “accept” the Debtors’ surrender of the Property in order to allow
effective relief under Chapter 13.
“Surrender” is not defined in the Bankruptcy Code, and many of the cases
discussing the concept of surrender under the Code focus on what a debtor can or must
do to effectively surrender property. 	Although the Bankruptcy Code leaves the term
undefined, the First Circuit Court of Appeals provided direction in In re Pratt, where, in
discussing surrender under § 521(a)(2)(A),13 the Court held that “‘surrender’ does not
necessarily contemplate that the debtor physically transfer the collateral to the secured
creditor. 	Thus, the most sensible connotation of ‘surrender’ [where the collateral is not
holder . . . .
11 U.S.C. § 1325(a)(5)(C).
13 In a Chapter 7 case where the “debtor’s schedule of assets and liabilities includes debts
which are secured by property of the estate . . . the debtor shall file . . . a statement of his intention
with respect to the retention or surrender of such property and, if applicable, specifying that such
property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor
intends to reaffirm debts secured by such property.” 11 U.S.C. § 521(a)(2)(A).
11
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actually delivered] is that the debtor agreed to make the collateral available to the secured
creditor – viz. to cede his possessory rights in the collateral.” 462 F.3d 14, 18-19 (1st Cir.
2006) (emphasis in original) (citing In re Cornejo, 342 B.R. 834, 836-37 (Bankr. M.D. Fla.
2005)).
This understanding of surrender under § 521(a)(2) informs the Court’s understanding
of the term’s meaning in the Chapter 13 context, U.S. v. Lachman, 387 F.3d 42, 55 (1st Cir.
2004) (“generally, ‘[t]he normal rule of statutory construction assumes that identical words
used in different parts of the same act are intended to have the same meaning”) (quoting
Sorenson v. Sec’y of the Treasury, 475 U.S. 851, 860 (1986)), and is consistent with case
law from other jurisdictions involving the meaning of surrender under § 1325(a)(5)(C).
Courts have consistently agreed that, generally speaking, when a debtor surrenders
property under § 1325(a)(5)(C), the debtor relinquishes his or her rights to the collateral in
favor of the creditor. 14 What is less settled, however, is the extent to which a creditor is
obliged to actually take possession of or title to surrendered property.
Some courts have gone so far as to state that a debtor cannot surrender property
without the secured creditor’s assent. 	In In re Service, 155 B.R. 512 (Bankr. E.D. Mo.
1993), the Chapter 13 debtors elected to surrender real property to a secured creditor in
satisfaction of its claim pursuant to § 1325(a)(5)(C) and assented to the court lifting the
14 See, e.g., White v. Logan (In re White), 487 F.3d 199, 205 (4th Cir. 2007); In re Cope,
2010 WL 376380, *6 (Bankr. E.D. Pa. Jan. 26, 2010); Gelibert v. United States (In re Gelibert), 2010
WL 2026520, *1 (Bankr. N.D. Ga. March 1, 2010); In re Carter, 390 B.R. 648, 652 (Bankr. W.D. Mo.
2008); In re White, 282 B.R. 418, 421-22 (Bankr. N.D. Ohio 2002); In re Anderson, 316 B.R. 321,
323 (Bankr. W.D. Ark. 2004); Providian Nat’l Bank v. Vitt (In re Vitt), 250 B.R. 711, 719 (Bankr. D.
Colo. 2000); In re Stone, 166 B.R. 621, 623 (Bankr. S.D. Tex. 1993); accord In re Gray-Bailey, 427
B.R. 536, 539-40 (Bankr. D. Idaho 2010) (discussing surrender in context of Chapter 12 plan); In
re Kiklis, 352 B.R. 355, 359 (Bankr. D. Mass. 2006) (discussing surrender in context of Chapter 11
plan).
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automatic stay in order to allow the creditor to proceed with foreclosure. Id. at 513. The
creditor did not object to the proposed surrender and the plan was confirmed. 	Id.
Thereafter, the debtors filed a motion asking the bankruptcy court to compel the creditor
to accept the surrender and foreclose on the property, arguing that the creditor had failed
to do so in violation § 1325(a)(5)(C), leaving the debtors at risk for liabilities associated with
the property. 	Id. at 513-14. 	The Bankruptcy Court for the Eastern District of Missouri,
relying in part on In re Robertson, 72 B.R. 2, 4 (Bankr. D. Colo. 1985), held that surrender
was a “contractual” act and required the “consent of both parties.” Service, 155 B.R. at
514. 	Although the debtors could provide for satisfaction of the claim by offering to
surrender the property, the debtors “could not compel [the] creditor to accept surrender [or]
enforce its rights and take title to the realty.” Id. Instead, the surrender and relief from stay
left the creditor “free to exercise its remedies under the note and deed of trust,” but the
choice “[w]hether to proceed with its remedies [was] within the sole discretion of [the
creditor].” Id. Relying on the language in Service and similar cases, several courts have
agreed and have stated that a debtor cannot surrender property absent a creditor’s
assent. 15
Other courts, however, have rejected the notion that a creditor must assent to a
debtor’s intent or plan to surrender property under the Bankruptcy Code. For example, in
In re White, 282 B.R. 418 (Bankr. N.D. Ohio 2002), the Bankruptcy Court for the Northern
15 See, e.g., Losak v. Beneficial Consumer Disc. Co. (In re Losak), 375 B.R. 162, 164
(Bankr. W.D. Pa. 2007) (quoting Phillips v. City of South Bend (In re Phillips), 368 B.R. 733, 742-44
(Bankr. N.D. Ind. 2007); In re Koeller, 170 B.R. 1019, 1023 (Bankr. W.D. Mo. 1994); Service, 155
B.R. at 514); Phillips, 368 B.R. at 742-44 (agreeing with Koeller, 170 B.R. 1019); In re Koeller, 170
B.R. at 1023 (citing Service, 155 B.R. at 514; Robertson, 72 B.R. at 4); Stone, 166 B.R. at 623.
13
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District of Ohio overruled an objection to a Chapter 13 plan where the secured creditor
objected on the basis that it did not consent to surrender in satisfaction of its claim. Id. at
422-23. 	In overruling the objection, the court noted that nothing in the Code requires a
secured creditor’s assent to surrender, id. at 422, and § 1325(a)(5)(C) specifically grants
the debtor the option to surrender property where the creditor does not consent, id. at 423.
Other courts have similarly noted that a secured creditor’s consent to surrender is not
required by the Bankruptcy Code. 16
Ultimately, however, the split between these cases lies more in semantics than
outcomes. In Service, although the court spoke in terms of the creditor’s assenting to the
“surrender,” it was really focusing on the creditor’s obligations in light of a debtor’s valid
surrender. The court did not hold that a debtor could not provide for surrender of property
in a Chapter 13 plan without the secured creditor’s assent. 	Rather, the court held that,
where a debtor validly provides for a surrender under § 1325(a)(5)(C), the secured creditor
could not be compelled to take possession of the property. See Service, 155 B.R. at 514
(creditor “has been given the remedy of receiving its collateral in satisfaction of its secured
claim pursuant to § 1325(a)(5)(C). . . . Whether to proceed with its remedies is within the
sole discretion of [the creditor].”). 17 Similarly, in White, although the creditor’s assent to the
16 See, e.g., Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 962 (1997) (“If a secured
creditor does not accept a debtor’s Chapter 13 plan, the debtor has two options for handling
allowed secured claims: surrender the collateral to the creditor, see § 1325(a)(5)(C); or . . . the cram
down option, . . . see § 1325(a)(5)(B).”); First Brandon Nat’l Bankv. Kerwin (In re Kerwin), 996 F.2d
552 (2d Cir. 1993) (under the identical statutory language governing Chapter 12 plans, surrender
is an option available to debtor “in structuring a reorganization plan 	. . . [and] dealing with a
secured claim when the creditor refuses to consent to the plan”); In re Harris, 244 B.R. 556, 557
(Bankr. D. Conn. 2000).
17 In fact, the court noted that since the plan was confirmed, the creditor’s claim was treated
consistent with the Code, and the creditor had failed to file an unsecured claim, accepting the
14
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debtor’s treatment of the secured claim by surrender was not required for confirmation, the
court also held, similar to the Service court, that it had no authority to direct the creditor’s
action with regard to the collateral. White, 282 B.R. at 423 (“the Code does not provide for
the court or the debtor to direct the means by which the secured creditor deals with the
surrendered property”). Thus, although the language differs, the result in these cases is
essentially the same: a debtor complies with § 1325(a)(5)(C) by ceding the debtor’s rights
to possession of property subject to a security interest, but what the creditor then does, or
doesn’t do, with that property is left to the creditor’s discretion under non-bankruptcy law. 18
The First Circuit Court of Appeals has also stated that, in the usual case, a creditor
can treat surrendered property according to its discretion, as long as it acts consistent with
its security agreement and non-bankruptcy law. See Pratt, 462 F.3d at 19. In Pratt, the
Chapter 7 debtors indicated their intent, pursuant to § 521(a)(2), to surrender their car to
the secured creditor rather than reaffirm the debt or redeem the vehicle. After the debtors
received their discharge and the case was closed, the creditor refused to take possession
of the property. The debtors were left with an inoperable vehicle that the secured creditor
had no interest in taking; but salvage dealers would not take the vehicle because, under
applicable Maine law, the creditor would first have to release its lien. The creditor refused
surrendered property was the creditor’s only remedy and it would receive no other distribution under
the debtor’s Chapter 13 plan. Service, 155 B.R. at 515.
18 See also In re Heflin, 2010 WL 1417776, *1 (Bankr. E.D. Va. April 1, 2010) (where
property is surrendered under a plan, the secured creditor “is free to enforce its lien in accordance
with applicable non-bankruptcy law”); In re Hughes, 402 B.R. 404 (Bankr. M.D. Fla. 2008) (“The
Bankruptcy Code is silent as to the manner in which the holder of an allowed secured claim may
dispose of collateral surrendered pursuant to Section 1325(a)(5)(C). Non-bankruptcy law and the
underlying documents control the disposition of surrendered collateral.”) (citing In re Kerwin, 996
F.2d at 557).
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to do so unless the claim was paid in full. Id. at 17.
The First Circuit concluded that the debtors had surrendered the vehicle within the
meaning of § 521(a)(2) of the Code by making it available to the secured creditor. Id. at
18-19. Yet the court also held – in keeping with the holdings in Service and White that a
creditor can not be forced to take possession of collateral merely because a debtor has
surrendered it – that nothing in § 521(a)(2) required a secured creditor to accept
possession, id., “as such a reading would be at odds with well-established laws that a
creditor’s decision whether to foreclose on and/or repossess collateral is purely voluntary
and discretionary.” Id. at 19.
But the First Circuit went further. It reasoned that although the creditor could not be
forced to repossess the property, its actions essentially denied the debtors the right to
surrender the property. 	Id. at 20. 	And since it was clear that the creditor would not
foreclose on the collateral, its refusal to release the lien was solely for the purpose of
collecting the discharged debt. Thus, the practical effect was to prevent the debtors from
effectively surrendering the collateral and coerce them into paying the debt in violation of
the discharge injunction. 	Id. at 20-21. 	And in that circumstance, the provisions of the
Bankruptcy Code preempted the creditor’s state law rights. Id. at 19. Accordingly, the First
Circuit held that a secured creditor is free to deal with surrendered property in its discretion
and in keeping with non-bankruptcy law, but if the creditor’s actions have the practical effect
of preventing relief provided by the Code, those state law rights may be overridden. Id.
(“Thus, even legitimate state-law rights exercised in a coercive manner might impinge upon
the important federal interest served by the discharge injunction, which is to ensure that
debtors receive a ‘fresh start’ and are not unfairly coerced into repaying discharged pre-
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petition debts.”).
Here, however, there is no evidence that American has taken any action creating
the “practical effect” of denying rights to which the Debtors are entitled under the
Bankruptcy Code. Although American has not objected to the Debtor’s Plan, the Plan has
not yet been confirmed. More important, relief from the automatic stay has not yet been
granted, preventing American from exercising any rights with regard to the Property. At this
point, American has not said that it will not foreclose on the property, only that it will not
immediately accept a deed-in-lieu of foreclosure. 	Consistent with the First Circuit’s
statements in Pratt, this Court holds that American cannot be compelled to take a deed-in-
lieu and is entitled to exercise its options available under the mortgage and Massachusetts
state law.
And so, for now, the Court need not deal with the thornier issue of whether, following
confirmation of the Plan, American’s state-law rights can be altered to give effect to the
Debtors’ right to surrender the Property under § 1325(a)(2)(C). To the extent the Debtors’
Motion seeks an order compelling American to take a particular action with regard to the
Property, that request must be denied. 	The Motion for Relief will be granted to allow
American to exercise its rights under the mortgage and non-bankruptcy law. And to the
extent that the Debtors ask the Court simply to compel American to “acknowledge” their
proposed surrender, that request is moot, since American has not objected to the Plan and
has already stated that it has no objection to the Debtors’ proposed treatment of its claim.
C. 	Administrative Claim Reimbursement
Finally, the Debtors ask the Court to allow them to submit proof of their expenses
related to the Property to the Trustee and to deduct those expenses from their Plan
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payments. 	Whatever the validity of the Debtors’ argument that these are theoretically
§ 503 administrative expenses, and regardless of whether the Trustee’s objections are
sound, the procedure by which the Debtors wish to proceed is inconsistent with the
Bankruptcy Code and Federal Rules of Bankruptcy Procedure.
First, if the Debtors’ actual expenses vary from those included on Schedule J or in
the CMI Calculation, they are obliged to amend the Schedules to accurately reflect their
present circumstances. By submitting their requested expenses directly to the Trustee, the
creditors are deprived of an opportunity to review accurate schedules and statements of
expenses and raise any appropriate objections.
Second, by seeking a deduction of the expenses directly from their Plan payments,
the Debtors are essentially asking this Court to permit a modification of the Plan and a
reduction of the dividend to unsecured creditors without filing a motion and providing
adequate notice to interested parties in contravention of the Federal and Local Bankruptcy
Rules. See Fed. R. Bankr. P. 2002(b), 3015(d); Mass. Local Bankr. R. 13-10(b). For these
reasons, the request for reimbursement of the expenses must be denied.
IV. 	CONCLUSION
The Court finds no authority under Massachusetts law or the Bankruptcy Code to
compel American to take immediate title to or possession of the Property proposed to be
surrendered pursuant to the Debtors’ pre-confirmation Chapter 13 Plan. Nor can the Court
sanction the procedure by which the Debtors seek reimbursement of their claimed
administrative expenses or deduction of those expenses from their disposable income
currently used to fund the Plan. 	Accordingly, the Debtors’ Motion must be denied.
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However, in order that American may proceed with its rights under the mortgage and non-
bankruptcy law, and in keeping with the Debtors’ assent to the lifting of the automatic stay,
the Motion for Relief will be granted. 	Orders in conformity with this memorandum shall
issue forthwith.
DATED: July 15, 2010 	By the Court,
Henry J. Boroff
United States Bankruptcy Judge
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