On September 1, 2006, the First Circuit Court of Appeals reversed the Maine Bankruptcy Court decision in Pratt v. GMAC. This is one of the most significant decisions in consumer bankruptcy in recent years, and represents a recognition by the First Circuit that creditors have been engaging in inappropriate behavior in attempting to collect money.

In April 2005, the Maine Bankruptcy Court ruled that GMAC was within its rights to refuse to release its lien on a worthless motor vehicle after the owner of the car filed bankruptcy, received his bankruptcy discharge, and the owner surrendered the car to GMAC. GMAC refused to accept the surrender and insisted upon the owner paying GMAC all the money owed on the car in exchange for the lien release. Without the lien release, the owner could not junk the vehicle or otherwise dispose of it. The Bankruptcy Court held that GMAC was only protecting its lien rights, and that GMAC did not violate the discharge injunction.

This author argued the case before the First Circuit, and the legal briefs were written by my associate, Scott Logan. The First Circuit's reversal of the Bankruptcy Court decision was stunning in its sweeping conclusions that a debtor has the absolute right to surrender a vehicle in this circumstance, and that the creditor must accept the vehicle. Before this decision by the First Circuit, both GMAC and Ford Motor Credit had attempted to collect on discharged debts by refusing to issue lien releases not only in Maine, but across the country according to members of NACBA (National Association of Consumer Bankruptcy Attorneys). In addition, the First Circuit held that GMAC's behvior objectively violated the discharge injunction, causing GMAC to be liable to the debtor for actual and consequential damages.