In re Chavarria, Bankruptcy No. 90-01329.

• Decision Date: 08 August 1990
• Docket Number: Bankruptcy No. 90-01329.
• Citation: 117 BR 582
• Parties: In re CHAVARRIA, Roberto, Debtor.
• Court: U.S. Bankruptcy Court — District of Idaho

117 B.R. 582 (1990)

In re CHAVARRIA, Roberto, Debtor.

Bankruptcy No. 90-01329.

United States Bankruptcy Court, D. Idaho.

August 8, 1990.

Richard L. Alban, Nampa, Idaho, for debtor.

Laura E. Burri, Boise, Idaho, for GMAC.

Barry Zimmerman, Meridian, Idaho, Trustee.

MEMORANDUM OF DECISION

JIM D. PAPPAS, Bankruptcy Judge.

The facts in this matter are undisputed. The Debtor granted the creditor GMAC a security interest in his vehicle to secure the unpaid balance of the purchase price. The Debtor filed for relief under Chapter 7, but is current on his payments to GMAC.

As required by Section 521(2) of the Bankruptcy Code, the Debtor filed a statement of intention with respect to his assets subject to liens for consumer debts indicating that as to the vehicle secured to GMAC, he would "keep paying".

GMAC has filed a motion attacking the substance of the Debtor's statement of intention arguing that the option elected by the Debtor is not one of the statutory alternatives authorized by the statute — that is, he must either elect to surrender the vehicle, or to redeem it from the lien or reaffirm the GMAC debt. GMAC therefore seeks an order from the Court directing the Debtor to make the election, and to perform any choice he makes.

The Trustee has filed his "no-asset report" and the parties agree there is no non-exempt equity in the vehicle. In addition, when queried at the hearing, the creditor can point to no specific defaults committed by Debtor under the security agreement, other than the filing of the bankruptcy petition.

There appear to be two issues presented for resolution by the Court. First, is the Debtor limited to the statutory alternatives listed in Section 521(2)(A) as to the GMAC claim in filing his statement of intention?¹ And if so, must the Court upon request by the secured creditor enter an order requiring the Debtor to perform his stated intention?

The first issue has already been resolved in this district and after review, there are no good grounds to vary the results of the prior decision. In In re Stevens, 85 B.R. 854, 88 I.B.C.R. 1 (Hagan, C.J.), the Court determined that a debtor must either surrender the collateral, or he must redeem the collateral by payment to the creditor of the cash value of the property, or he must negotiate a reaffirmation agreement with the creditor. The debtor does not have the option to retain the collateral, and keep the contract payments current. Id. at 2-3. The Court granted the debtor in Stevens thirty days within which to either reaffirm or redeem, or to return the security to the creditor.

While at first glance Stevens appears to have also dealt with the second issue in this case, the ruling is not precisely on point as to the enforcement tools available to the Court to correct a deficiency in the Debtor's statement of intention. In Stevens, the matter was before the Court on motion of the Chapter 7 Trustee for entry of an "enforcement" order. The Code squarely places the duty to ensure that the debtor performs according to his stated intention on the trustee. 11 U.S.C. § 704(3). The Trustee in this case is not a party to the motion, and it is the secured creditor seeking entry of the order to either redeem, surrender or reaffirm.²

There is a clear division of authority as to this second question. Representative of one view is Lowry Federal Credit Union v. West, 882 F.2d 1543 (10th Cir.1989) which holds that the bankruptcy court has discretionary authority to permit the debtor to retain collateral securing a consumer debt without either a reaffirmation of the debt or a redemption. As noted by the Lowry court:

". . . there is nothing within the text of § 521 which suggests a creditor succeeds automatically to any rights as a consequence of the debtors\' failure to comply with its mandatory directives. Indeed, only the trustee may take an interest in the property. When the debtor fails to comply with the § 521(2) requirements, the trustee is vested by 11 U.S.C. § 704(3) with ensuring the debtor\'s compliance with § 521(2). That responsibility, however, is not coupled with any power of enforcement. In short, there is a gap between the trustee\'s duty to obtain compliance and the trustee\'s power to enforce that duty because Congress provided neither a penalty for a debtor\'s failure to comply with § 521(2) nor a specific remedy for a creditor as a consequence of such a failure."

882 F.2d at 1546 (footnotes omitted). The creditor in Lowry did not present any evidence of actual prejudice. The Court was unwilling to accept ". . . speculative arguments over dreadful possibilities that may result if the debtors fail to exercise proper care of the truck or ultimately fail to pay . . .", 882 F.2d at 1546, and the Court would not rule on the enforceability of the "ipso facto" bankruptcy clause in the security agreement since the issue was not properly before it. The Lowry Court concluded that while the provisions of Section 521 were mandatory, they did not make redemption or reaffirmation the exclusive means by which the Court can allow a debtor to retain secured property. Lowry affirmed the bankruptcy court's ruling that allowed the debtor to retain the property conditioned upon the debtor's performance of the conditions of the security agreement.

A contrasting perspective is found in In re Edwards, 901 F.2d 1383 (7th Cir.1990). There, the Court interprets the effect of the statutes as follows:

"The 1984 Consumer Finance Amendments to the Bankruptcy Code which included § 521 were intended, inter alia, to protect creditors from the risks of quickly depreciating assets and to keep credit costs from escalating because of the too ready availability of discharge. This legislative purpose speaks strongly against permitting debtors to improve their position dramatically against secured creditors by relieving them of personal liability. When a debtor is relieved of personal liability on loans secured by collateral, the debtor has little or no incentive to insure or maintain the property in which a creditor retains a security interest. The value of the collateral may fall below the level of the loan, leaving the creditor undersecured and driving up future costs of credit."

901 F.2d at 1386. Responding directly to the Tenth Circuit's decision, the Court suggests that ". . . Lowry is not consonant with the plain language of the Bankruptcy Code . . . and renders the statutory scheme set up by § 521 and § 524 (the specific reaffirmation provisions) nugatory." 901 F.2d at 1386-87.

After a careful review of the authorities discussed, and others cited by the parties, this Court will adopt the position explained in Edwards by the Seventh Circuit for several reasons.

The Bankruptcy Code, by its very nature, is an attempt to balance the interests of debtors and their creditors. The Court is of the opinion that in passing Section 521, Congress was likely cognizant of the potential effects of limiting a debtor's options to three choices with respect to secured consumer debts: redemption, reaffirmation or surrender. The Court will not judicially create a fourth...