SW Legal studies in Business

Creditor May Pursue Unsecured Claim Due to Deficiency in Payment of Secured Claim

Appeals court held that when a bankrupt party surrenders the property subject to a secured claim in a Chapter 13 proceeding, the creditor still maintains the right to pursue an unsecured claim for the balance due from the original debt not covered by the sale of the property. That claim may not be extinguished by a bankruptcy court in favor of other unsecured creditors.

Topic Bankruptcy
Key Words

Chapter 13, Creditor Claims, Deficiency, Vehicle

C A S E   S U M M A R Y

The Barretts bought a 2006 Jeep in 2006. Several months later, the Barretts filed for bankruptcy under Chapter 13. Daimler filed a proof of claim for its secured claim of $25,661, the payoff balance on the vehicle. The debtors proposed to surrender the vehicle in full satisfaction of the debt owed to Daimler and to pay 100% on unsecured claims. Daimler objected to the plan because it did not provide for the payment of any deficiency balance after disposition of the vehicle. The bankruptcy court overruled the objection and confirmed the plan. Daimler appealed.


Vacated and remanded. Under the Bankruptcy Code a creditor has the right to pursue an unsecured deficiency claim when the debtor surrenders a vehicle that is part of the bankruptcy plan. The bankruptcy court did not have the right to confirm a plan with a cramdown provision that changed the debt obligation. Daimler, while accepting the vehicle back, has the right to pursue its claim against the Barretts as part of the Chapter 13 plan.


In re Barrett, 543 F.3d 1239 (11th Cir., 2008)

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