In re Amoakohene

Decision Date23 July 2003
Docket NumberNo. 03 B 07231.,03 B 07231.
Citation299 B.R. 196
CourtU.S. Bankruptcy Court — Northern District of Illinois
PartiesIn re Fred AMOAKOHENE, Debtor.

Michael J. Kalkowski, Shapiro & Kreisman, LLC, Chicago, IL, for Movant.

Fred Amoakohene, pro se.

Gregg Szilagyi, Chicago, IL, for trustee.

MEMORANDUM OPINION AND ORDER

JACQUELINE P. COX, Bankruptcy Judge.

On February 18, 2003, Fred Amoakohene ("Amoakohene") filed the instant chapter 7 bankruptcy petition, listing Washington Mutual Bank as a secured creditor holding a lien on his town house located at 2170 East 96th Street, Chicago, Illinois 60617. On the same day, Amoakohene executed the necessary statement of intention regarding this real property, opting to retain it rather than surrender it. In order to do so, he made an offer to Washington Mutual Bank to "reaffirm" the underlying debt pursuant to 11 U.S.C. § 524(c),1 but Washington Mutual Bank refused to accept the offer.

The refusal caused Amoakohene to file the pending "Debtor's Motion to Compel Creditor Washing Mutual to Enter into a Reaffirmation Agreement," which alleges, among other things, that he is current on his mortgage payments through the June 2003 installment, although Washington Mutual Bank has rejected his April payment of $462 (which includes a late fee) and his May payment of $445. Washington Mutual Bank has filed a cross motion for modification of the automatic stay in this case pursuant to 11 U.S.C. § 362(d)(2), which alleges that Amoakohene has no equity in the real property and that it is not necessary for an effective reorganization. According to Washington Mutual Bank, Amoakohene is in default on his note and mortgage from April on to the present, and he owes in excess of $38,000 on the town house worth approximately $45,000. These cross motions implicitly raise the legal issue of whether a chapter 7 debtor may retain his home against the objection of the mortgagee by simply remaining current on payments, or conversely, whether a mortgagee should be entitled to foreclose in pursuit of its in rem claim against real property only because the debtor-mortgagor has obtained a discharge of personal liability under chapter 7.

The provision of the Bankruptcy Code governing this latter issue is § 521(2), which provides as follows:

(2) if an individual debtor's schedule of assets and liabilities includes consumer debts which are secured by property of the estate —

(A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, the debtor shall file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property;

(B) within forty-five days after the filing of a notice of intent under this section, or within such additional time as the court, for cause, within such forty-five day period fixes, the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; and

(C) nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title....

As long as the debt secured by property of the estate is a consumer debt-that is, as long as the debt was not incurred for the purpose of a profit-seeking venture, see In re Kelly, 841 F.2d 908, 913 (9th Cir.1988); In re Rathbun, 275 B.R. 434, 437-38 (Bankr.D.R.I.2001)-this section governs a debtor's treatment of collateral regardless of whether it is real property or personal property. Although the parties here have not discussed the relevance of § 521(2), they appear to be in agreement that Amoakohene incurred the debt secured by the town house for the purpose of obtaining personal habitation and not for conducting a business venture. Amoakohene attempted to comply with this provision by informing the Court of his intent to retain the property and then offering to reaffirm the promissory note and mortgage. Because Washington Mutual Bank refused to accept the offer, Amoakohene filed the motion to compel them to do so. Nevertheless, the law is clear that a reaffirmation agreement is just that, an agreement, and the Court cannot coerce an offeree-creditor to enter the same. As one court stated:

The first clause of section 524(c) refers to "[A]n agreement between a holder of a claim and the debtor ..." 11 U.S.C. § 524(c). The plain language of section 524(c) of the Bankruptcy Code requires that both the creditor and the debtor[] agree to a reaffirmation agreement. The word "agreement" typically refers to a voluntary, mutually agreed upon action between at least two people. In re Whatley, 16 B.R. 394, 396 (Bankr.N.D.Ohio 1982). A debtor cannot force a creditor into a reaffirmation agreement.

In re Hasek, 1997 WL 1050829, at *2 (N.D.Ill.1997); see also In re Turner, 156 F.3d 713, 718-21 (7th Cir.1998); In re Edwards, 901 F.2d 1383, 1386 & n. 9 (7th Cir.1990); In re Bell, 700 F.2d 1053, 1056 (6th Cir.1983); In re Schmidt, 64 B.R. 226, 229 (Bankr.S.D.Ind.1986); In re Lindley, 216 B.R. 811, 816 (Bankr.N.D.Ill.1998); In re Donley, 131 B.R. 193, 194 (Bankr.N.D.Fla.1991); 4 Lawrence P. King et al., Collier On Bankruptcy ¶ 521.10[3] (15th ed. rev.2001). Amoakohene, therefore, through no fault of his own, has been unable to perform his intention with respect to Washington Mutual Bank's collateral within 45 days according to § 521(2)(B). He has not modified his statement of intent to opt for surrender of his home or sought additional time for performance beyond the 45-day deadline.

The other two retention options, "redemption" and "exemption," are either not applicable or not useful here. Under § 722, a debtor may only "redeem" tangible personal property. See In re Lock, 243 B.R. 332, 336 n. 4 (Bankr.S.D.Ohio 1999). The "exemption" option could only enable the debtor to retain property over a secured creditor's objection under very limited circumstances. First, to free the collateral from the creditor's lien and concomitant foreclosure rights and remedies, the debtor must be able to entirely avoid the lien. But, under § 522(f) of the Bankruptcy Code, the debtor may only avoid liens "to the extant that such lien impairs an exemption to which the debtor would have been entitled." Whether the creditor's lien will in fact be completely or partially avoided will depend on the value of the debtor's interest in the collateral, the amount of the debt secured by the lien, and the amount of the exemption. See 11 U.S.C. § 522(f)(2)(A);2 e.g., Nelson v. Scala, 192 F.3d 32, 33-36 & n. 2 (1st Cir.1999) (declining to avoid in full a judicial lien, even though literal language of § 522 may have led to this result, where a portion of the lien did not impair debtor's homestead exemption). Here, the amount of the Illinois homestead exemption is only $7,500, while Washington Mutual Bank's secured claim is purportedly either $27,000 or $38,000, so the bank's lien could not be completely avoided. Second, a debtor who grants consensual liens (security interests and mortgages) generally cannot overcome them using the state-law exemption scheme alone; rather, he must utilize the specific lien-avoidance powers delineated in § 522(f). See In re Kazmierczak, 24 F.3d 1020, 1021 (7th Cir.1994); Nelson v. Scala, 192 F.3d 32, 33-34 (1st Cir.1999); Tower Loan v. Maddox (In re Maddox), 15 F.3d 1347, 1350-51 & n. 14 (5th Cir.1994). Furthermore, a debtor cannot avoid consensual liens-even if they impair an exemption to which he would have been entitled but for the lien at issue-when they (1) are possessory, (2) are the purchase-money type, or (3) are attached to property other than the personal property enumerated in a very specific list of items. See 11 U.S.C. § 522(f)(1)(B). The lien at issue here does not qualify for lien avoidance under this section.

The only feasible option under § 521(2)(A), then, is to surrender the real property, which Amoakohene has not done. Amoakohene desires, either with or without reaffirmation, to simply retain possession of his home and stay current on his monthly mortgage payments, even though the present chapter 7 is discharging his in personam liability on the promissory note and mortgage and will prevent a future deficiency judgment should he eventually default. See, e.g., In re Lock, 243 B.R. 332, 333 (Bankr.S.D.Ohio 1999). This unlisted fifth option under § 521(2)(A) has been subject to a wide split of authority in the U.S. Courts of Appeals, with the collateral at stake normally being personal property such as vehicles. Compare McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668, 673 (9th Cir.1998); Capital Communications Fed. Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43, 53 (2d Cir.1997); Lowry Fed. Credit Union v. West, 882 F.2d 1543, 1547 (10th Cir.1989); Home Owners Funding Corp. of Am. v. Belanger (In re Belanger), 962 F.2d 345, 347-49 (4th Cir.1992) with Bank of Boston v. Burr (In re Burr), 160 F.3d 843, 849 (1st Cir.1998); Johnson v. Sun Fin. Co. (In re Johnson), 89 F.3d 249, 250 (5th Cir.1996); Taylor v. AGE Fed. Credit Union (In re Taylor), 3 F.3d 1512, 1517 (11th Cir.1993); In re Edwards, 901 F.2d 1383, 1387 (7th Cir.1990).

Of course, this Court is bound by Edwards regardless of its view on the merits of the legal issue. In Edwards, the Seventh Circuit held that because the language of § 521(2) is unambiguous and mandatory (the debtor "shall file" a statement of intent and "shall perform" such intention), the debtor may retain encumbered vehicles after a chapter 7 case only by means of one of the listed options, not by simply remaining in...

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