Coastal Federal Credit Union v. Hardiman, 5:08-CV-17-D.

CourtUnited States District Courts. 4th Circuit. Eastern District of North Carolina
Citation398 B.R. 161
Decision Date28 October 2008
Docket NumberNo. 5:08-CV-17-D.,5:08-CV-17-D.
PartiesCOASTAL FEDERAL CREDIT UNION, Appellant, v. Landon Terrell HARDIMAN, Jr., and Daffney Marritt Hardiman, Appellees.
398 B.R. 161
Landon Terrell HARDIMAN, Jr., and Daffney Marritt Hardiman, Appellees.
No. 5:08-CV-17-D.
United States District Court, E.D. North Carolina, Western Division.
October 28, 2008.

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JAMES C. DEVER III, District Judge.

In 2005, Congress amended the Bankruptcy Code via the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," Pub.L. No. 109-8, 119 Stat. 23 ("BAPCPA"). This case presents the question whether BAPCPA contains a modified version of the "ride-through" option where debtors without legal counsel timely enter into a reaffirmation agreement concerning personal property with their creditor and submit the reaffirmation agreement to the bankruptcy court, but the bankruptcy court refuses to approve the reaffirmation agreement. The bankruptcy court analyzed BAPCPA and held that under the plain meaning of the relevant BAPCPA provisions, such a modified version of the "ride-through" option exists within BAPCPA. Thus, after refusing to approve the reaffirmation agreement, the bankruptcy court held that the debtors could retain the car that was the subject of the reaffirmation agreement and continue to make payments on the car loan.

Coastal Federal Credit Union ("Coastal") appeals and contends that the bankruptcy court erred in analyzing BAPCPA. Coastal argues that BAPCPA's plain meaning leads to absurd results and contravenes clearly expressed Congressional intent in BAPCPA's legislative history. On August 29, 2008, the court held oral argument. As explained below, this court disagrees with Coastal and affirms the bankruptcy court's judgment.


In February 2005, Landon and Daffney Hardiman ("debtors" or "Hardimans") bought a 2005 Chevrolet Equinox. The Hardimans financed the purchase through Coastal. Under the loan agreement with Coastal, the Hardimans are obligated to make a monthly car payment of $479.69 to Coastal, and Coastal has a senior, perfected first lien on the car. See In re Hardiman, No. 07-00954-5-ATS, [D.E. 47], at 1-2 (Bankr.E.D.N.C. Nov. 20, 2007) (order denying motion for reconsideration) (Small, Bankr. J.) [hereinafter "Bankr. Order"]. As of May 2007, the Hardimans were upside down on their loan—the car was worth about $9,000, but the Hardimans owed Coastal over $20,000. See id. Moreover, the loan agreement contains an "ipso facto" clause (which declares the debtors in default on the secured obligation simply by virtue of filing for bankruptcy).

Page 166

See id. at 2-3.1

On May 2, 2007, the Hardimans filed for bankruptcy under Chapter 7 of the Bankruptcy Code. As part of the bankruptcy, the Hardimans desired to reaffirm the automobile loan with Coastal because they have three children and the Chevrolet is their only reliable means of transportation. Id. at 2. The Hardimans (without legal counsel) timely signed a reaffirmation agreement with Coastal. Id. According to the reaffirmation agreement, the Hardimans have $3,925 in monthly income and $2,535 in monthly expenses, leaving $1,390 to make the required monthly car payment of $479.69 to Coastal. Id. Because the reaffirmation agreement did not include an attorney affidavit or declaration under 11 U.S.C. § 524(c)(3),2 the bankruptcy court had to decide whether to approve the reaffirmation agreement as (1) not imposing an undue hardship, and (2) in the Hardimans' best interest. See 11 U.S.C. § 524(c)(6)(A).

The bankruptcy court held a hearing under section 524(d). See Bankr. Order at 2. At the hearing, the bankruptcy court noted that the Hardimans' Schedule I filed with their Chapter 7 petition showed an average monthly income of $4,454.93 and their Schedule J showed average monthly expenses of $5,689, resulting in a net monthly income of $1,234.07. See Bankr. Order 1. Nonetheless, with the "fresh start" arising from their bankruptcy, the Hardimans told the bankruptcy court that their expenses would be reduced to $2,535 and that they thought they could make the monthly payments on the Chevrolet.3 Id. at 3. The Hardimans acknowledged, however, that it would be hard sometimes. Id. On August 15, 2007, the bankruptcy court rejected the reaffirmation agreement as imposing an undue hardship on the Hardimans and not in the Hardimans' best interest. See id. Because the bankruptcy court did not approve the reaffirmation agreement, Coastal believed that the automatic stay no longer applied, that the ipso facto clause became operative, that Coastal could seek to repossess the car under state law, and that Coastal could seek a deficiency judgment against the Hardimans for the difference between the value of the car and the amount owed. However, the bankruptcy court interpreted BAPCPA and held that the automatic stay still applied, and that Coastal could not seek to repossess the vehicle under state law so long as the Hardimans remained current on their payments and complied with the other requirements of the contract and lien. Id.

Coastal filed a motion for reconsideration. On October 31, 2007, the bankruptcy court held a hearing on the motion. On November 20, 2007, the bankruptcy court denied the motion for reconsideration. See id. at 10. The bankruptcy court summarized its judgment as follows:

Because court approval of a reaffirmation agreement is not an element of §§ 521(a)(2) and 362(h)(1), the debtors complied with the requirements of the Code by doing everything within their control to reaffirm the debt to Coastal.

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While "ride-through" is not a standalone option in addition to surrender, redemption, or reaffirmation of a debt secured by personal property, it may, in limited circumstances, occur as a result of a debtor's attempt to reaffirm.... The automatic stay remains in place with respect to Coastal, and as long as the debtors remain current in their payments, Coastal may not repossess the vehicle or declare default based on the debtors' bankruptcy filing.

Id. Coastal timely appeals to this court,


The court reviews the bankruptcy court's factual findings for clear error, and reviews its conclusions of law de novo. See In re Baltimore Marine Indus., Inc., 476 F.3d 238, 240 (4th Cir.2007). This appeal involves only questions of law.

Coastal argues: (1) the bankruptcy court erred in determining that section 521(a)(6) does not apply to this case and thereby refusing to lift the automatic stay, and (2) the bankruptcy court erred in determining that sections 521(a)(2)(C) and 362(h) do not mandate the termination of the automatic stay. Coastal's arguments are premised on two exceptions to the plain meaning rule of statutory construction. Essentially, Coastal argues that the court should reject the plain meaning of the BAPCPA provisions at issue because (1) they lead to absurd results, and (2) they run manifestly counter to clearly expressed Congressional intent in BAPCPA's legislative history. See, e.g., Coastal Initial Br. 2, 7-14.

"In interpreting a statute, `a court should always turn first to one, cardinal canon [of construction] before all others': the plain meaning rule." Ayes v. U.S. Dep't of Veterans Affairs, 473 F.3d 104, 108 (4th Cir.2006) (alteration in original) (quoting Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992)). In applying the plain meaning rule, courts must "consider the context in which the statutory words are used because [courts] do not construe statutory phrases in isolation; [courts] read statutes as a whole." Id. (quotation & alterations thereof omitted). However, "[t]he [statutory construction] inquiry ceases if the statutory language is unambiguous and the statutory scheme is coherent and consistent." Barnhart v. Sigmon Coal, Co., 534 U.S. 438, 450, 122 S.Ct. 941, 151 L.Ed.2d 908 (2002) (quotation omitted); see Ayes, 473 F.3d at 108.

Coastal acknowledges the plain meaning rule, but notes that the plain meaning rule is subject to "two narrow exceptions." In re Sunterra Corp., 361 F.3d 257, 265 (4th Cir.2004). According to the Fourth Circuit:

The first such exception, premised on absurdity, exists when literal application of the statutory language at issue results in an outcome that can truly be characterized as absurd, i.e., that is so gross as to shock the general moral or common sense. The second exception is premised on legislative intent, and it exists only when literal application of the statutory language at issue produces an outcome that is demonstrably at odds with clearly expressed congressional intent. A reviewing court may look beyond the plain language of an unambiguous statute only when one of these exceptions is implicated. And [the Fourth Circuit] ha[s] recognized that the instances in which either of these exceptions to the Plain Meaning Rule apply are, and should be, exceptionally rare.

Id. (internal citations & quotations omitted).

To invoke the absurdity exception, the outcome mandated by the plain

Page 168

language must be "so gross as to shock the general moral or common sense." Md. State Dep't of Educ. v. U.S. Dep't of Veterans Affairs, 98 F.3d 165, 169 (4th Cir. 1996). Accordingly, "if it is plausible that Congress intended the result compelled by the Plain Meaning Rule, [a court] must reject an assertion that such an application is absurd." Sunterra, 361 F.3d at 268. Even if the result compelled by the plain language is "anomalous," "unreasonable," or even "quite unreasonable," it must stand if Congress could plausibly have made that choice. Id. at 267-28 (internal quotations omitted) (concluding that plain meaning implications of the phrase "assume or assign" were not absurd where plain language of Bankruptcy Code prohibited Chapter 11 debtor-in-possession from "assum[ing] or assign[ing]" an executory contract without creditor's permission, and where debtor argued that such an interpretation conflicted with the general bankruptcy...

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