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Failla v. Citibank, N.A. (In re Failla)

Failla v. Citibank, N.A. (In re Failla), No. 15-15626 (11th Cir. Oct. 4, 2016)
The word "surrender" in 11 U.S.C. § 521(a)(2) requires that a debtor who designates in his schedules that he will surrender a particular property to, in fact, relinquish his right to possess that property and take no action inconsistent with that designation. And on that interpretation of § 521(a)(2), the bankruptcy court may hold the debtor true to such designation via appropriate orders. Although the Court's statutory analysis is dense and covers 10 pages, some high points are worth highlighting. First, § 521(a)(2) requires a debtor who indicates that he will surrender to surrender as to the trustee and the lender. Second, for reasons having to do with potential surplusage in § 521 and § 554, even if the trustee abandons, the duty to surrender continues as to the creditor. Another reason that "surrender" refers to creditors, and not just to the trustee, is that other sections of the Code give creditors remedies for debtors who violate § 521, namely §§ 362(h) and 521(d). Fourth, "surrender" does not just mean "deliver." Rather, it also means relinquishing all rights to the property, such that contesting a foreclosure is inconsistent with "surrender." Fifth, the Court wanted to avoid permitting a debtor to make a "mockery of the legal system" by promising under oath in federal court to surrender and then violating that promise in state court. Finally, the Court agreed that a bankruptcy court has broad authority, via § 105(a), to issue orders enforcing the debtors' promise to surrender under § 521(a)(2), both in bankruptcy court and outside of bankruptcy court. The court is not just limited to lifting the stay. For example, the bankruptcy court can tell the debtor to stand down in a state court proceeding to enforce the debtor's duties under the Code.
Procedural context:
As more particularly described in the Facts section, a Florida bankruptcy court ordered the Faillas (the debtors) to, consistent with their statement of intention, surrender their home to their lender and to stop opposing a pending state court foreclosure. The district court affirmed. The Faillas appealed to the 11th Circuit to determine whether a person who agrees to "surrender" his home in bankruptcy may oppose a foreclosure action in state court.
The Faillas filed a Ch. 7 bankruptcy in Florida in response to a pending foreclosure action on their home. They filed a statement of intention indicating that they would surrender their home to Citibank, the lender. There was no dispute that the mortgage was valid, the Faillas were in default, or the home was worth less than the debt. The trustee abandoned the home back to the Faillas. When the Faillas continued to live in the home and contest the foreclosure, Citibank filed a motion to compel surrender. The bankruptcy court granted the motion and ordered that the Faillas either surrender their home to Citibank and stop opposing the foreclosure or risk having their discharge vacated. The district court affirmed. The Faillas appealed to the 11th Circuit.
Marcus, Pryor, and Lawson (District Court Judge)

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