Turner, Matter of

• Decision Date: 26 August 1998
• Docket Number: No. 97-3553,97-3553
• Parties: 40 Collier Bankr.Cas.2d 1105, Bankr. L. Rep. P 77,782 In the Matter of: Chad TURNER, et al., Debtors-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 713

156 F.3d 713

40 Collier Bankr.Cas.2d 1105, Bankr. L. Rep. P 77,782

In the Matter of: Chad TURNER, et al., Debtors-Appellants.

No. 97-3553.

United States Court of Appeals Seventh Circuit.

Argued April 6, 1998.

Decided Aug. 26, 1998.

Jeanne M. Crouse (argued), Department of Justice, Executive Office for U.S. Trustees, Washington, DC, Edward B. Hopper, II, Office of the U.S. Trustee, Peoria, IL, for Truatee-Appellee.

Steven J. Diamond (argued), Law Office of Peter Francis Geraci, Chicago, IL, for Debtor-Appellant.

Before FLAUM, ROVNER and DIANE P. WOOD, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

This appeal calls upon us to decide whether a debtor's unilateral reaffirmation of a pre-petition debt constitutes a valid reaffirmation "agreement" for purposes of 11 U.S.C. § 524(c). We agree with the bankruptcy and district courts that it does not. See In re Turner, 208 B.R. 434 (Bankr.C.D.Ill.), aff'd by Turner v. Hopper, No. 97 C 2149, Order (C.D.Ill. Sept. 29, 1997) (unpublished).

I.

Section 524 of the bankruptcy code enables the debtor in a Chapter 7 proceeding to reaffirm a pre-petition debt that is otherwise dischargeable by agreeing to pay all or part of that debt. 11 U.S.C. § 524(c); see In re Duke, 79 F.3d 43, 44 (7th Cir.1996). If the debt were discharged, the debtor would be relieved of all personal liability, but the creditor would be free to take any collateral securing the debt. Reaffirmation thus permits the debtor who cannot pay off the debt immediately to continue making periodic payments as before and to keep the property for which the debt was incurred (typically something like a car). Studies suggest that anywhere from nineteen to forty-two percent of debtors seek to reaffirm at least one pre-petition debt. Karen Gross, Perceptions and Misperceptions of Reaffirmation Agreements, 102 COM. L.J. 339, 34647 (1997).

Attorney Peter Francis Geraci and his associates file thousands of bankruptcy cases annually in the bankruptcy courts of this circuit. The Geraci firm typically agrees to provide a complete package of bankruptcy services to its client in exchange for a set fee. Consequently, the firm has the incentive to minimize the amount of time its attorneys must devote to any one case. Toward that end, the firm began several years ago to file form unilateral reaffirmations drafted by the firm and executed without notice to or the consent of the creditors involved.

In each of the six Chapter 7 bankruptcy cases underlying this appeal, for example, the Geraci firm filed a document entitled "REAFFIRMATION AGREEMENT" or "AUTOMOBILE REAFFIRMATION AGREEMENT" in which the debtor purported to "reaffirm[ ] and agree[ ] to pay" a pre-petition installment loan "according to its original terms and conditions notwithstanding his/her petition in bankruptcy...." The amount purportedly reaffirmed in each instance was the "balance owed pursuant to [the] original terms of the loan agreement," with the monthly payments remaining the same. In each instance, the debtor or debtors signed the reaffirmation, but the creditor did not; in fact, no space on the document was provided for the signature of the creditor's representative. An attorney from the Geraci firm also signed each of the reaffirmations, thereby certifying (as required by 11 U.S.C. § 524(c)(3)) "that he is the attorney that has represented the Debtor during the course of the negotiation of this reaffirmation agreement and such agreement represents a fully informed and voluntary agreement by the Debtor and it does not impose an undue hardship on the Debtor or a dependent of the Debtor." But so far as the record reveals, no negotiations with any of the creditors involved actually preceded the debtors' execution of these agreements, and in each instance the Geraci firm filed the completed "agreement" without notifying creditor that the reaffirmation had been executed or filed.

Upon learning that reaffirmation agreements had been filed in these six cases without the creditor's signature, the bankruptcy court consolidated the cases for purposes of a hearing to determine whether the agreements were valid. The court subsequently issued a written opinion concluding that, absent the creditor's signature evidencing consent to the reaffirmation, the type of unilateral reaffirmation "agreement" filed by the Geraci firm was invalid. In re Turner, 208 B.R. 434 (Bankr.C.D.Ill.1997) (Fines, J.). "Reaffirmation agreements are unlike any other contractual agreement under the law," the bankruptcy judge observed, "and nowhere else is the requirement that both parties sign the agreement more critical." Id. at 437.

The reaffirmation rules are intended to protect debtors from compromising their fresh start by making unwise agreements to repay dischargeable debts. [...] [Accordingly,] strict compliance with the specific terms in section 524 is mandatory.

Id., quoting In re Noble, 182 B.R. 854, 856 (Bankr.W.D.Wash.1995) (in turn quoting In re Getzoff, 180 B.R. 572, 574 (B.A.P. 9th Cir.1995)). The creditor's signature brings a reaffirmation agreement into compliance with the terms of the statute in two key ways, Judge Fines reasoned. First, it evidences the creditor's awareness of the reaffirmation. 208 B.R. at 436. Second, "it provides clear and conspicuous proof that there is a[n] ... agreement [to] which both the creditor and the debtor have assented ... and to which both agree to be bound." Id. Because each of the "agreements" in the six consolidated cases lacked the creditor's signature, the court declared them void and unenforceable. Id. at 438. Consistent with the options identified in 11 U.S.C. § 521(2)(A), ¹ which we deemed to be exclusive in In re Edwards, 901 F.2d 1383 (7th Cir.1990), the court gave each of the debtors thirty days in which to negotiate and execute a valid reaffirmation agreement with his or her creditor (§ 524(c)), to redeem the collateral by making a lump sum payment of its value to the creditor (11 U.S.C. § 722), or to surrender the collateral. Id. at 438, 445. ²

The debtors appealed, and the district court affirmed. Turner v. Hopper, No. 97 C 2149, Order (C.D.Ill. Sept. 29, 1997) (Baker, J.). Judge Baker agreed that more is required than unilateral action on the part of the debtor for a reaffirmation to be valid under section 524:

[The statute] refers repeatedly to an agreement. An agreement necessitates negotiation, a meeting of the minds. The appellants' unilateral declarations cannot suffice to create an agreement to which the creditor is not a party.

Id. at 2 (emphasis in original).

The Geraci firm's practice of filing unilateral declarations of reaffirmation has met with consistent disapproval elsewhere within the circuit. Judges Schmetterer and Ginsberg of the Northern District of Illinois have each written opinions finding these documents to be invalid. In re Lindley, 216 B.R. 811 (Bankr.N.D.Ill.1998); In re Hasek, No. 96 B 23346, Mem. Op. & Order (Bankr.N.D. Ill. June 26, 1997) (unpublished). At oral argument, we inquired of counsel for the United States Trustee whether unilateral reaffirmations had been noticed outside of this circuit. We have since been informed by letter that the United States Trustees and their field offices were canvassed, and of the responses received, none reported seeing these types of reaffirmations outside of the judicial districts encompassed by this circuit. Moreover, within this circuit, the only unilateral reaffirmations that U.S. Trustees have encountered were filed by the Geraci firm. Letter from Jeanne M. Crouse, Office of the General Counsel, Executive Office for U.S. Trustees, to the Clerk of the U.S. Court of Appeals for the Seventh Circuit (April 13, 1998) (on file in this appeal).

II.

So long as a debtor is current on his pre-petition debt and wishes to reaffirm his contract with the creditor according to its original terms, the appellants argue, he is entitled to do so unilaterally and need not first obtain the creditor's consent for the reaffirmation to be valid. We agree with the appellants that their argument poses a legal question and that our review of the decisions below is therefore de novo. See In re Platter, 140 F.3d 676, 678 (7th Cir.1998).

Before we turn to the merits of the appeal, however, we must point out that only two of the six cases underlying this appeal are properly before us at this juncture. In the case of appellants Michael and Molly Kleppin, their creditor, Bank Illinois, withdrew its objection and consented to the unilateral reaffirmation they had filed, and for that reason the bankruptcy court ultimately allowed that reaffirmation. 208 B.R. at 444-45. Because the Kleppins secured the reaffirmation they sought, the judgment under review resulted in no injury to them that could be redressed by anything we have to say. Consequently, they lack standing to appeal. Deposit Guar. Nat'l Bank, Jackson Miss. v. Roper, 445 U.S. 326, 333, 100 S.Ct. 1166, 1171, 63 L.Ed.2d 427 (1980) ("A party who receives all that he has sought generally is not aggrieved by the judgment affording the relief and cannot appeal from it."); see also California v. Rooney, 483 U.S. 307, 311, 107 S.Ct. 2852, 2854, 97 L.Ed.2d 258 (1987); EEOC v. Chicago Club, 86 F.3d 1423, 1431 (7th Cir.1996). Chad Turner as well as Ronald and Margaret Orr have negotiated with their creditors and filed new reaffirmation agreements which supersede the unilateral declarations they originally filed. Because they complied with the bankruptcy court's order by entering into bilateral reaffirmation agreements, there is no relief that we could grant to these appellants, and their appeals are therefore moot. See North Carolina v. Rice, 404 U.S. 244, 246, 92 S.Ct. 402, 404, 30 L.Ed.2d 413 (1971) (per curiam) ("federal courts are without power to decide questions that cannot affect the rights of litigants in the case before them"); see also, e.g., Keyes v. School Dist. No. 1, Denver, Colo., 895 F.2d 659,...