In re Briggs

• Decision Date: 29 July 1992
• Docket Number: Bankruptcy No. 91-20668.
• Parties: In re George W. BRIGGS, Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

143 B.R. 438 (1992)

In re George W. BRIGGS, Debtor.

Bankruptcy No. 91-20668.

United States Bankruptcy Court, E.D. Michigan, S.D. at Flint.

July 29, 1992.

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Peter L. Bagley, Flint, Mich., for debtor.

W. Schuyler Seymour, Jr., Flint, Mich., for Security Federal Credit Union.

MEMORANDUM OPINION ON DEBTOR'S MOTION FOR SANCTIONS AND INJUNCTION

ARTHUR J. SPECTOR, Bankruptcy Judge.

FACTS AND PROCEDURAL HISTORY

This matter involves no disputed issues of fact. On May 18, 1988, Security Federal Credit Union (the "Credit Union") loaned George W. Briggs (the "Debtor") $8,000. The debt was secured by the Debtor's 1984 Mansion mobile home, as well as a share account maintained by the Debtor at the Credit Union. Pursuant to an automatic payroll deduction arrangement, $125 of the Debtor's wages was paid weekly into his Credit Union account by the Debtor's employer, General Motors Corp. The Credit Union then applied that sum to the mobile home indebtedness and to any amounts owed by the Debtor on an unsecured line of credit.

On May 15, 1991, the Debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. As of that date, the outstanding balance on the mobile home debt was $4,432.17, the mobile home was worth $5,000, and the balance in the Debtor's account was $5.00. When the case was commenced, the Debtor also owed the Credit Union $4,595.00 on the unsecured line of credit.

On May 22, 1991, the Credit Union sent the Debtor two letters, Debtor's Exhibits 1 and 2. Noting that the Debtor's bankruptcy "placed the Credit Union at risk for your unpaid loan balance," Exhibit 1 advised that the Credit Union would discontinue the Debtor's member services. Both letters stated that the Credit Union had frozen the funds in the Debtor's account. Exhibit 1 explained that the funds would remain frozen "pending entry by the Bankruptcy Court of an Order with respect to said account." Exhibit 2 informed the Debtor that "these shares are unavailable unless you reaffirm your loan and the reaffirmation becomes valid. If you are granted a discharge without reaffirming, the shares will be applied to your loan balance." Exhibit 2 also stated:

The Credit Union does not have the power to stop your payroll deductions. If you do not intend to honor your obligations to the Credit Union, you must file a Payroll Deduction Cancellation form. This form may be obtained from the Credit Union. If you do not terminate the payroll deductions, the Credit Union will assume that you intend to continue with the payroll deductions on the same terms as were in effect on the day before the bankruptcy petition was filed.

On May 30, the Credit Union's head delinquent loan officer, Sharon Hogan, advised the office of the Debtor's attorney, Peter L. Bagley, that the Debtor would have to reaffirm both debts or else he could not reaffirm either debt. Thereafter, Ms. Hogan sent a separate reaffirmation agreement for each debt to Mr. Bagley. Creditor's Exhibits B and C. The reaffirmation agreements had already been filled out and signed by Ms. Hogan on behalf of the Credit Union. Each contained a "Declaration of Attorney for Debtor(s)" which, tracking § 524(c)(3),¹ stated that the agreement "represents a fully informed and voluntary agreement by the Debtor(s) and . . . does not impose an undue hardship on the Debtor(s) or a dependent of the Debtor(s)."

Even though Mr. Bagley advised him not to reaffirm the line-of-credit debt, the Debtor signed both reaffirmation agreements on June 4, 1991, because he was afraid he would lose his home and membership privileges if he did not. Mr. Bagley signed the declaration contained in the reaffirmation agreement pertaining to the mobile home (Exhibit C), and returned both agreements to Ms. Hogan. Ms. Hogan noticed that Mr. Bagley had not signed one of them, and wrote to him on June 18, 1991, about it. He responded with a letter dated June 19, 1991 (Creditor's Exhibit D), stating that his refusal to sign the declaration "has no affect sic on the validity of the reaffirmation or on your ability to file the reaffirmations with the court." The letter directed Ms. Hogan to file the reaffirmation agreements with the Court. After consulting with the Credit Union's attorney, however, Ms. Hogan refused to file either of the executed agreements.

On June 26, 1991, the Debtor went to the Credit Union to transfer funds from his share account to his mobile home loan account. An employee of the Credit Union informed him that the payment was unnecessary because the Credit Union would be repossessing the mobile home shortly. The Credit Union nevertheless allowed the Debtor to make a $750 withdrawal and to apply $375 of that sum to the mobile home loan account. The Debtor also executed a Cancellation of Payroll Deduction at that time. Creditor's Exhibit F.

The Credit Union subsequently filed a motion on July 8, 1991, for abandonment of the mobile home pursuant to § 554, and for relief from the automatic stay pursuant to § 362(d)(2).² The Debtor objected. At a hearing conducted on July 24, 1991, I noted that the Final Report of Trustee in No-Asset Case was filed on June 18, 1991, from which I inferred that the trustee made a determination that the mobile home was of "inconsequential value and benefit to the estate." 11 U.S.C. § 554(b). I therefore granted the Credit Union's motion for abandonment. However, I denied the motion for relief from the stay because the Credit Union failed to establish that the Debtor did "not have an equity" in the mobile home, as required by § 362(d)(2)(A).³ But see In re Cohen, 141 B.R. 1 (Bankr. D.Mass.1992). I also authorized Mr. Bagley to file photocopies of both reaffirmation agreements, deeming them to be originals for purposes of § 524(c).

On July 26, 1991, the Debtor filed a motion requesting that I find the Credit Union in contempt for violating the automatic stay and for unlawfully discriminating against him. The Debtor also requested that I: (1) order the Credit Union to restore his membership privileges; (2) enjoin the Credit Union from freezing or offsetting his account; and (3) enjoin the Credit Union from repossessing the mobile home absent some post-petition default by the Debtor. On August 1, uncontested copies of both reaffirmation agreements were filed by Mr. Bagley. On August 15, the discharge was entered. An evidentiary hearing on the Debtor's motion was conducted on October 9, 1991. After reviewing post-hearing briefs, I determine that I have jurisdiction under 28 U.S.C. § 1334 and that this dispute is a core proceeding, 28 U.S.C. § 157(b)(2)(A), (C), and (O). Pursuant to F.R.Bankr.P. 7052, made applicable to this contested matter by F.R.Bankr.P. 9014, I now render my conclusions of law on the substantive issues in dispute.

ARGUMENTS OF THE PARTIES

The Debtor argued that the Credit Union's actions in this case "have been coercive, abusive and discriminatory." P. 7 of Debtor's Brief in Support of Motion for Contempt. He claimed to have "suffered considerable anguish as a result of the Credit Union's illegal threats and improper actions." Id. The motion raised two principal issues.

The Debtor argued that by discontinuing its services to him, the Credit Union is guilty of unlawful discrimination in violation of § 525(b). The response of the Credit Union was that § 525(b) is inapplicable because it is not the Debtor's employer.

Second, the Debtor argued that the actions taken by the Credit Union, whether viewed in isolation or seen as a whole, constituted a violation of the automatic stay imposed by § 362(a)(6). Specifically, he identified the following actions by the Credit Union as contrary to the stay: (1) refusing to allow him to withdraw prepetition funds in his share account;⁴ (2) threatening to repossess his mobile home, and actually commencing relief from stay proceedings to permit such repossession; (3) failing to stop his payroll deductions after he requested that it do so and informing him that his payroll deductions would continue according to the same terms as prepetition unless terminated by the Debtor; (4) discontinuing his member services; (5) maintaining a policy of not allowing reaffirmation as to secured debts unless a member also reaffirms unsecured debts; and (6) refusing to file the reaffirmation agreements. The Credit Union denied that any of these actions, either separately or in combination, violated § 362(a).

For the reasons explained below, I conclude that the Credit Union did not violate § 525(b), but that it did violate the automatic stay. I also hold that the Debtor is entitled to an order enjoining the Credit Union from repossessing the mobile home absent default by the Debtor other than violation of the bankruptcy clause contained in the underlying loan agreement.

I. Discrimination under § 525(b)

Section 525(b) reads as follows:

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt —

(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

The Debtor claimed that the Credit Union violated this subsection when it terminated his membership, which the Debtor characterized as a benefit of his employment with General Motors. The Credit Union argued in response that § 525(b) is inapplicable here because the Debtor has never been employed by the Credit Union.

It is not clear whether § 525(b) applies to any "private...