Cаrlton and Christine Pratt, chapter 7 debtors, appeal the district court judgment which affirmed a bankruptcy court ruling that General Motors Acceptance Corporation (GMAC) did not violate the chapter 7 discharge injunction by declining to discharge its lien on the debtors’ automobile until they paid the remaining balance due on their prepetition car loan. We now reverse and remand for further proceedings.
I
BACKGROUND
In 1994, Carlton Pratt bought a new Chevrolet Cavalier and financed the purchase through GMAC, which acquired a lien on the vehicle. Four years later, the
In 1999, the Pratts converted their chapter 13 case to chapter 7, by which time the balance due on the GMAC secured claim approximated $2620. Pursuant to Bankruptcy Code § 521(a)(2)(A), the Pratts gave notice that they intended to “surrender” the vehicle, viz., by ceding possession in lieu of reaffirming their prepetition loan obligation to GMAC. The bankruptcy court granted the GMAC motion for relief from the automatic stay in order to allow GMAC to realize on its lien. GMAC notified the Pratts in writing of their right to cure the default. After concluding that the expense of repossession would outstrip the value of its secured claim, GMAC followed its customary practice of writing off the remaining loan balance. The Pratts retained possession of the vehicle. The bankruptcy court granted the Pratts a chaptеr 7 discharge, which released them from their outstanding personal indebtedness for the balance due on the GMAC car loan.
By September 1999, the Pratts realized that the Cavalier was inoperable, hence essentially worthless, and that they would have to dispose of it. Before they could “junk” the car, however, salvage dealers were required by Maine law to obtain a release of the GMAC lien. During the next few months, the Pratts repeatedly contacted GMAC and requested that it either repossess the car or release the lien. GMAC refused to release its lien unless and until the outstanding loan balance was paid in full.
The bankruptcy court allowed the Pratts’ motion to reopen their chapter 7 ease to permit them to file the instant adversary proceeding against GMAC, which alleges that GMAC’s refusal either to repossess the vehicle or to release the lien, absent full payment of the discharged loan balance, violated the chapter 7 discharge injunction prescribed by Bankruptcy Code § 524(a)(2).
Cf., e.g., Arruda v. Sears, Roebuck & Co.,
In due course, the court entered judgment for GMAC.
In re Pratt,
II
DISCUSSION
A. The Putative Violation of the Chapter 7 Discharge Injunction
The Pratts reiterate on appeal that GMAC violated the chapter 7 discharge
Following an intermediate appeal to the district court, we directly review the bankruptcy court decision, conducting
de novo
review of its legal conclusions, and clear error review of its findings of fact.
See In re New Seabury Co. Ltd. P’ship,
“A [bankruptcy] discharge ... operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.” 11 U.S.C. § 524(a)(2);
Fleet Mortgage Group, Inc. v. Kaneb,
Although the unsecured portion of a secured creditor’s claim may be discharged in a chapter 7 or 13 case, its lien in the collateral normally survives the bankruptcy proceeding and the discharge, and is enforceable in accordance with state law.
See In re Valente,
[I]f an individual debtor’s schedule of assets and liabilities includes debts which are secured by property of the estate — •
(A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the mеeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, the debtor shall file with the clerk 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;
(B) within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day period fixes, the debtor shall perform his intention with respect to such property, as specified by subpara-graph (A) of this paragraph; and
(C) nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor’s or the trustee’s rights with regard to such property under this title, except as provided in section 362(h).
11 U.S.C. § 521(a)(2).
Subsection 521(a)(2) thus contemplates three distinct debtor preroga
Subsection 521(a)(2) does not, however, define the term “surrender.” Since Congress did not use the term “deliver,” however, one reasonably may assume that “surrender” does not necessarily contemplate that the debtor physically have transferred the collateral to the secured creditor.
See, e.g., In re Cornejo,
The more difficult question is whether the “surrender” provision required that GMAC release its lien. In assessing violations of the automatic stay and the discharge injunction, the core issue is whether the creditor acted in such a way as to “coerce” or “harass” the debtor improperly.
See In re Diamond,
The particular record facts material to our assessment of objective coercion are: (i) the Pratts timely filed a § 521(a)(2) notice of their intention to surrender the vehicle; (ii) they did nothing to prevent GMAC from repossessing the vehicle; (iii) the value of the inoperable vehicle had plummeted to such an extent that it needed to be towed to a junkyard, which deсlined to accept it absent a valid lien release; (iv) GMAC determined — presumably based upon the precipitous drop in the vehicle’s worth — that it was not cost effective to repossess and resell the vehicle; and (v) according to state law, the vehicle could not be junked unless GMAC released its lien.
Although GMAC did not create all these circumstances, and we find no record evidence that it acted in bad faith, in these circumstances its actions were objectively coercive. Maine law unquali-fiedly entitled GMAC to refuse to release its lien unless and until the outstanding loan balance was paid,
see
11 Me.Rev.Stat. Ann. tit. 11, §§ 9-1620 to — 1624, but state law governs in a bankruptcy proceeding “unless some federal interest requires a different result.”
Butner v. United States,
In our view, the particular confluence of the above-mentioned circumstances renders the GMAC refusal to release its lien objectively coercive. First, GMAC announced that it did not intend to repossess the “surrendered” vehicle because it was of insufficient value, then expressly conditioned its release of the lien upon the Pratts’ agreement to repay the loan balance in full. Whatever the
bona fides
of the state-law basis for the GMAC state
We do not suggest that a secured creditor invariably would be in violation of the discharge injunction were it to insist upon its
in rem
rights under state law. However, GMAC identifies no compelling reason for doing so in this instance, relying instead upon its bare right of refusal under state law. Since this motor vehicle was essentially worthless, and vehicles rarely (if ever) appreciate in value over time, there was no reasonable prоspect that the automobile would generate future sale proceeds (to which the GMAC lien automati-eally would have attached,
see
Me.Rev. Stat. Ann. tit. 11, § 9-1315(1)). GMAC determined that repossession was not feasible. The Pratts maintained, and the bankruptcy court found, that the vehicle had no significant value. Thus, the legitimate
raison d’etre
for the GMAC lien no longer obtained, and the federal bankruptcy-law interest in according debtors a frеsh start, free from objectively coercive reaffirmation demands, must be accorded supremacy.
Cf. In re Groth,
Although the bankruptcy court aptly noted that this precise situation is likely to arise infrequently (if ever) in future cases, the “coerciveness” involved in , each case must be assessed on its particular facts. We can only conclude that the GMAC refusal to release its valueless lien so that the vehicle could be junked — though presumably not made in bad faith — was “coercive” in its effect, and thus willfully violated the discharge injunction. The Pratts are therefore entitled to establish and recover their compensatory damages, together with other appropriate relief under Bankruptcy Code § 105(a).
B. The Burden of Proof
The bankruptcy court opined that the Pratts needed to prove a GMAC violation simply by a preponderance оf the evidence, rather than by clear and convincing evi
Kaneb
did not speak to the question whether a bankruptcy debtor must prove an alleged violation of the automatic stаy (or by analogy, of the discharge injunction) by the heightened evidentiary standard of clear and convincing evidence, which is normally required to establish civil contempt outside of the bankruptcy context. Rather,
Kaneb
involved a related but distinct issue: namely,
what
facts must a debtor adduce to prove a violation. We rejected the proposition that a stay violation could not be actionable
{viz.,
“willful”) if the creditor had made a good faith mistаke, and we held that “the standard for a willful violation of the automatic stay under § 362(h) is met if there is knowledge of the stay and the defendant intended the actions which constituted the violation.”
Kaneb,
Given the present record, we need not now address or determine the quantum-of-evidence issue.
Compare,, e.g., In re Dunn,
C. Damages
Finally, the parties are in agreement that the bankruptcy court was to determine the issue as to whether GMAC violated the discharge injunction prior to determining damages. As the damages issue remains extant for factual determination, we remand to the bankruptcy court for that purpose.
The judgment of the district court affirming the bankruptcy court decision is hereby reversed, and the case is remanded to the bankruptcy court for the determination of damages. SO ORDERED.
Notes
. Section 105(a) provides:
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
11 U.S.C. § 105(a).
.Subsection 524(c) requires that reaffirmation agreements
(i) be executed before the [general] discharge has been granted;
(ii) be in consideration for a dischargeable debt, whether or not the debtor waived discharge of the debt;
(iii) include clear and conspicuous statements that the debtor may rescind the reaffirmation agreement at any time prior to the granting of the general discharge, or within sixty days after the execution of the reaffirmation agreement, whichever occurs later, and that reaffirmation is neither required by the Bankruptcy Code nor by nonbank-ruptсy law;
(iv) be filed with the bankruptcy court; and
(v) be accompanied by an affidavit of the debtor's attorney attesting that the debtor was fully advised of the legal consequences of the reaffirmation agreement, that the debtor executed the reaffirmation agreement knowingly and voluntarily, and that the reaffirmation agreement would not cause the debtor "undue [e.g., financial] hardship.”
11 U.S.C. § 524(c);
see Jamo,
. Although we need not address the issue, the district court noted that, even though the Pratts’ vehicle had become essentially inoperable and worthless by 1999, subsection 348(f)(1) permanently fixed its redemption value at $2620.73 — its assessed value during their chapter 13 case — thus making § 521(a)(2) redemption economically infeasible for the Pratts.
. Some courts interpret subsection 521(a)(2) to require that the debtor surrender possession of the collateral to the trustee, and not to the secured creditor.
See In re Claflin,
. GMAC could have arranged for adequate protection of its interests: for example, by entering into a contractual agreement with the Pratts that it would release the lien in return for their promise to arrange to have the vehicle junked.