Bell, In re

• Decision Date: 22 February 1983
• Docket Number: No. 81-1626,81-1626
• Citation: 700 F.2d 1053
• Parties: 8 Collier Bankr.Cas.2d 199, 10 Bankr.Ct.Dec. 312, Bankr. L. Rep. P 69,224 In re Thomas Howard BELL and Margaret Louise Bell, Debtors. GENERAL MOTORS ACCEPTANCE CORPORATION, Plaintiff-Appellee, v. Thomas Howard BELL and Margaret Louise Bell, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1053

700 F.2d 1053

8 Collier Bankr.Cas.2d 199, 10 Bankr.Ct.Dec. 312,

Bankr. L. Rep. P 69,224

In re Thomas Howard BELL and Margaret Louise Bell, Debtors GENERAL MOTORS ACCEPTANCE CORPORATION, Plaintiff-Appellee, v. Thomas Howard BELL and Margaret Louise Bell, Defendants-Appellants.

No. 81-1626.

United States Court of Appeals Sixth Circuit.

Argued Oct. 28, 1982.

Decided Feb. 22, 1983.

William M. Crawford, Detroit, Mich., Dennis J. Woods, Patrick J. Conway (argued), Detroit, Mich., for defendants-appellants.

Richard Szymczak, Stewart, O'Reilly, Cornell, Lascoe & Rancilio, Sterling Heights, Mich., Kenneth L. Rancilio (argued), Craig S. Schoenherr, Sr., Sterling Heights, Mich., for plaintiff-appellee; Otis M. Smith, Keith U. Landenberger, General Motors Corp., Detroit, Mich., of counsel.

Before KENNEDY and KRUPANSKY, Circuit Judges, and WILHOIT, District Judge ^*.

KRUPANSKY, Circuit Judge.

This action joins the legal issue of whether redemption of secured collateral in a Chapter 7 bankruptcy proceeding may be achieved through installment payments.

Debtors, Thomas and Louise Bell (Bells), were parties to a purchase money security agreement with General Motors Acceptance Corporation (GMAC) covering a 1978 Chevrolet Van. The agreement contemplated that the Bells would pay the balance of the purchase price, approximately $6,000 together with financing charges, in equal monthly installments. At the time debtors filed a joint petition in Bankruptcy on March 28, 1980, under Chapter 7 of the Bankruptcy Reform Act of 1978 (Bankruptcy Act), 11 U.S.C. Sec. 701 et seq., the fair market value of the Van exceeded the outstanding balance on the agreement by approximately $1,000, the debtors had tendered all monthly installments on their obligation to GMAC and had otherwise not defaulted upon any term of the contract. ¹ The Van became property of the estate subsequent to which the debtors exempted their equity and the trustee abandoned the estate's interest. GMAC filed a complaint to reclaim the Van and debtors counterclaimed seeking authorization from the bankruptcy court to retain possession of the Van upon continued payment of monthly installments. The Bankruptcy Court permitted installment redemption, In re Bell, 8 B.R. 549 (Bkrtcy.E.D.Mich.1981), and the District Court reversed, In re Bell, 15 B.R. 859, 7 B.C.D. 219 (E.D.Mich.1981).

The Bankruptcy Reform Act of 1978 authorizes a Chapter 7 debtor to redeem certain secured property:

An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempt under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such item.

11 U.S.C. Sec. 722. ² This provision generally permits a debtor to redeem tangible secured personal property by paying the creditor the approximate fair market value of said property, or the amount of the claim, whichever is less. See In re Zimmerman, 4 B.R. 739 (Bkrtcy.S.D.Calif.1980); In re Hart, 8 B.R. 1020 (N.D.N.Y.1981). ³ However, Sec. 722 is facially silent as to the mechanics of redemption and, particularly, on whether the redemption may be accomplished through installment payments. The weight of authority has denied installment redemption. See: In re Miller, 4 B.R. 305 (Bkrtcy.E.D.Mich.1980); In re Zimmerman, supra; In re Schweitzer, 19 B.R. 860 (Bkrtcy.E.D.N.Y.1982); In re Stewart, 3 B.R. 24 (Bkrtcy.N.D.Ohio 1980); In re Hart, supra; In re Whatley, 16 B.R. 394 (Bkrtcy.N.D.Ohio 1982); In re Cruseturner, 8 B.R. 581 (Bkrtcy.D.Utah 1981); In re Carroll, 11 B.R. 725 (Bkrtcy.Panel 9th Cir.1981), rev'ng 7 B.R. 907 (Bkrtcy.Ariz.1981). Contra: In re Clark, 10 B.R. 605 (Bkrtcy.C.D.Ill.1981).

The bankruptcy redemption provision, Sec. 722, is a legislative derivative of the redemption provision of 9-506, Uniform Commercial Code. The official comment to 9-506 provides:

"Tendering fulfillment" obviously means more than a new promise to perform the existing promise; it requires payment in full of all monetary obligations then due and performance in full of all other obligations then matured.

The legislative history of Sec. 722 does not reflect a Congressional intent which contemplated anything other than an intent to incorporate the fundamental requirement of "lump sum" redemption as suggested in the underlying UCC provision upon which Sec. 722 was predicated. See: In re Cruseturner, supra, 8 B.R. at 583-88; In re Miller, supra, 4 B.R. at 307; In re Schweitzer, 19 B.R. at 862, note 4; In re Hart, supra, 8 B.R. at 1021-22; In re Zimmerman, supra, 4 B.R. at 740.

More importantly, the redemption remedy of Sec. 722 must be construed in pari materia with the reaffirmation provision, 11 U.S.C. Sec. 524(c), which pertinently provides:

(c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law, whether or not discharge of such debt is waived, only if--

* * *

* * *

(4) In a case concerning an individual, to the extent such debt is a consumer debt that is not secured by real property of the debtor, the court approves such agreements as--

* * *

* * * (B)(i) entered into in good faith; and (ii) in settlement of litigation under section 524 of this title, or providing for redemption under section 722 of this title.

Section 524(c) authorizes a Chapter 7 debtor to seek renegotiation of the terms of the security agreement with the creditor thereby creating an alternative method pursuant to which a debtor may attempt to retain possession of secured collateral. Such an alternative, obviously attractive to the debtor financially unable to redeem the secured collateral through a lump-sum payment, is the equitable complement to Sec. 722. See: In re Cruseturner, supra, 8 B.R. at 583 et seq. Simply, a debtor incapable or unwilling to tender a lump-sum redemption and redeem the secured collateral for its fair market value may reaffirm with the creditor; contrawise, a debtor confronted with a creditor unwilling to execute a renegotiation may retain the secured collateral by redeeming it for its fair market value, which value may be substantially less than the contractual indebtedness. However, Sec. 524(c) facially contemplates that the creditor, for whatever reason, may reject any and all tendered reaffirmation offers; Sec. 524(c) envisions execution of an "agreement" which, by definition, is a voluntary undertaking. See: In re Whatley, supra, 16 B.R. at 396. Accordingly, if a debtor is authorized by the bankruptcy court to redeem by installments over the objection of the creditor, such practice would render the voluntary framework of Sec. 524(c) an exercise in legislative futility. See: In re Miller, supra, 4 B.R. at 307-08. Phrased differently:

Of course, if Section 722 payments could be made by installment, no debtor would ever have reason to reaffirm under Section 524(c)(4)(B)(ii), since, by right, he could obtain under Section 722 the same end--continuing possession of his property--under the same terms--payment by installment--for what would often be a significantly lower price. Thus, installment payments under Section 722 would render useless Congress' carefully laid scheme for voluntary agreement under Section 524--clearly indicating that Congress had no intention to allow such payments under Section 722.

In re Hart, supra, 8 B.R. at 1022.

Further, authorization of installment redemption would interpose into Chapter 7 a procedure which Chapter 7 is ill-equipped to implement. A Chapter 7 proceeding, whereby the debtor is discharged through liquidation, may conclude prior to the expiration of the installment payment period. A default by the debtor subsequent to discharge--possibly predicated upon a waste of the collateral, inability to meet the monthly installments or lack of motivation to continue payments on a rapidly depreciating collateral such as a vehicle--would burden the creditor with the expense and effort of reapplying to the bankruptcy court for relief. ⁴ See: In re Hart, supra, 8 B.R. at 1022-23 (rapidly depreciating collateral). A bankruptcy court's inability to effectively monitor the installment program and to expeditiously and meaningfully enforce the installment redemption raises serious issues of adequate creditor protection. See: In re Cruseturner, supra, 8 B.R. at 588 ("Chapter 7 bankruptcies are just not equipped with the procedure to enforce redemptions in installments").

A Chapter 7 debtor may assume the anomalous position of being financially unable to redeem the secured collateral by a lump-sum payment and concurrently incapable of persuading a creditor to reaffirm. However, a debtor's inability to exercise the Sec. 722 option of redemption, in the absence of installment redemption, cannot serve as a basis for the bankruptcy court to abdicate its judicial function of statutory interpretation and resort to legislation by judicial decree. See: In re Miller, supra, 4 B.R. at 309, citing West Coast Hotel Co. v. Parrish, 300 U.S. 379, 57 S.Ct. 578, 81 L.Ed. 703 (1937). As has been aptly observed:

Congress was well aware that the typical debtor might well find lump sum redemption unavailable and therefore provided a mechanism for achieving an installment redemption, to wit, by consensual agreement. That this mechanism may well be imperfect cannot be gainsaid; ... it may well be short circuited by the recalcitrant creditor who refuses to come to terms. But those deficiencies are more properly directed to Congressional review, and consequently, provide a poor excuse for judicial legislation.

In re...