In re Chubb

• Decision Date: 09 September 2004
• Docket Number: No. 04-22357.,No. 04-21945.,04-21945.,04-22357.
• Citation: 351 B.R. 478
• Parties: In re Ralph Eugene CHUBB and Roberta Fitts Chubb, Debtors. In re Harold S. Davis, Jr. and Terri Ann Davis, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

351 B.R. 478

In re Ralph Eugene CHUBB and Roberta Fitts Chubb, Debtors.

In re Harold S. Davis, Jr. and Terri Ann Davis, Debtors.

No. 04-21945.

No. 04-22357.

United States Bankruptcy Court, E.D. Tennessee.

September 9, 2004.

Alan C. Lee, Morristown, TN, for Ralph and Roberta Chubbs and Harold and Terri Davis.

O. Taylor Pickard, Wilson, Worley & Gamble, P.C., Kingsport, TN, for Eastman Credit Union.

MARCIA PHILLIPS PARSONS, Bankruptcy Judge.

MEMORANDUM

These two chapter 7 cases present an issue that has been considered by numerous courts, including at least nine circuit courts of appeal: whether a debtor who is current on his secured debt can retain the collateral of a secured creditor simply by continuing to make contractual payments on the debt. Because this court concludes that 11 U.S.C. § 521(2) interpreted in light of the Sixth Circuit Court of Appeals' decision in General Motors Acceptance Corp. v. Bell (In re Bell), 700 F.2d 1053 (6th Cir.1983), does not permit this result, the creditor's motions for relief from the automatic stay will be granted. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(A) and (G).

I.

Ralph and Roberta Chubb filed for bankruptcy relief under chapter 7 on June 1, 2004. In their Schedule D, which pertains to creditors holding secured claims, the Chubbs listed three obligations to Eastman Credit Union: a debt of $66,042 secured by a first deed of trust on the Chubbs' residence valued at $90,000; a debt of $16,694 secured by a second deed of trust on the same realty; and a debt of $4,312 secured by a lien on a 1999 Chevrolet Malibu automobile valued at $3,000. In their statement' of intention filed pursuant to 11 U.S.C. § 521(2), the Chubbs indicated that the house was claimed as exempt and that they would be retaining the house and Chevrolet automobile, with the original debts kept current.

On June 29, 2004, Eastman Credit Union filed a motion for relief from the automatic stay both with respect to the house and automobile. The basis of the Credit Union's motion is two-fold: first, that relief should be granted under 11 U.S.C. § 362(d)(2) in that the debtors do not have equity in the properties and they are not necessary for an effective reorganization since this is a chapter 7 liquidation case. Second, the Credit Union observes that although the Chubbs' statement of intention provides that the house and automobile will be "retained," the statement fails to indicate whether the retention will be accomplished by redemption or reaffirmation. Accordingly, the Credit Union asserts that the Chubbs have failed to comply with 11 U.S.C. § 521(2) and therefore, must surrender the house and automobile.

On July 8, 2004, the Chubbs filed a response to the Credit Union's motion, stating they are current on all of the loans that are the subject of the stay relief motion and that insurance is in place to protect the Credit Union's collateral. They reject the assertion that § 521(2) of the Bankruptcy Code requires either redemption or reaffirmation and maintain that they may retain the house and automobile merely by continuing to make contractual payments to the Credit Union, notwithstanding that their personal liability on the debts will be discharged through this bankruptcy case. They agree that there is little or no equity in the collateral and state that as such, it would not be in their best interest to enter into reaffirmation agreements. Furthermore, the Chubbs contend that the Credit Union's motion is an attempt to force them to enter into reaffirmation agreements in violation of the "fresh start" provided them by a chapter 7 discharge; that the Credit Union will be unable to proceed with foreclosure because they are not in default; and that granting the motion would force them to choose between losing their property or converting their case to chapter 13. Accordingly, the Chubbs request that the Credit Union's stay relief motion be denied.

At a hearing on the Credit Union's motion and the Chubbs' response held on August 31, 2004, the parties announced that all material facts would be stipulated by the parties to enable the court to rule on the legal issues raised in the motion. Specifically, the parties stipulated that the Chubbs are current on all three of their obligations to the Credit Union, that there is no equity in the house or automobile, and the documents attached to the proofs of claim filed by the Credit Union are admissible as evidence to be considered by this court.

Also before the court is the chapter 7 case of Harold and Terri Davis, who share the same bankruptcy attorney with the Chubbs. The Davises filed for bankruptcy relief on July 7, 2004, listing in Schedule D a debt to Eastman Credit Union in the amount $19,000, secured by a lien on a 2001 Ford F150 truck valued at $16,000. As in the Chubbs' bankruptcy case, the Davises' statement of intention indicated that the truck would be retained and the debt kept current. On July 29, 2004, Eastman Credit Union filed a motion for relief, similarly based on § 362(d)(2) and the Davises' alleged failure to comply with § 521(2) of the Bankruptcy Code. The Davises responded to the motion, requesting that it be denied and arguing that § 521(2) permits a debtor to retain collateral without reaffirming the debt or redeeming the property.

At a hearing on August 31, 2004, the parties stipulated on the record that the Davises are current in their monthly payments to the Credit Union, that there is little or no equity in the Ford truck, and that the agreements and promissory note attached to the Credit Union's proof of claim are admissible. All parties have filed briefs and the issues are ripe for resolution. Additionally, it should be noted that in both the Chubbs and the Davises' cases, the chapter 7 trustees have filed no-asset reports, thereby abandoning any interest that the bankruptcy estates may have in the collateral Eastman Credit Union seeks to recover.

II.

This court will first address the Credit Union's contention that relief from the stay is appropriate in these two cases because the debtors have failed to comply with 11 U.S.C. § 521(2). Section 521 of the Bankruptcy Code, entitled "Debtor's duties," provides in part the following:

The debtor shall —

...

(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.

11 U.S.C. § 521(2).

The courts generally agree regarding the initial duty placed upon a debtor by § 521(2)(A), that within the time specified, an individual chapter 7 debtor with consumer debts secured by property of the estate¹ must file a statement of his intention with respect to the retention or surrender of such property. There is sharp disagreement, however, as to the proper interpretation of the next phrase in § 521(2)(A) which begins with the words "if applicable." As quoted above, in addition to indicating whether he intends to retain or surrender a secured creditor's collateral, § 521(2)(A) directs a debtor to, "if applicable, specify] that such property is claimed as exempt, that [he] intends to redeem such property, or that [he] intends to reaffirm debts secured by such property." (Emphasis supplied.) As succinctly phrased by the Third Circuit Court of Appeals in Price:

The trouble lies with the phrase "if applicable." Do those words merely indicate that the three options — exemption, redemption, and reaffirmation — are relevant when a debtor intends to retain and not applicable when a debtor chooses to surrender the collateral? If so, section 521(2)(A) sets out an exhaustive set of retention options. Or does "if applicable" mean "if' the debtor wishes to choose any of the three options that follow on its heels, i.e., when redemption, reaffirmation, and exemption "apply," that intention must be specifically stated? If the latter construction is correct, then section 521(2)(A) leaves available other methods of retention, such as by keeping the loan current.

Price v. Del. State Police Fed. Credit Union (In re Price), 370 F.3d 362, 370 (3rd Cir.2004).

The courts of appeal in the second, third, fourth, ninth, and tenth circuits have held that "if applicable" means only if the debtor decides to choose one of the options specified in § 521(2)(A) and that therefore, the debtor may choose other options not delineated, such as retention through the continuation of contractual payments. See In re Price, 370 F.3d 362; McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668 (9th Cir.1998); Capital Communications Fed. Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43 (2nd Cir. 1997); Home Owners Funding Corp. of Am. v. Belanger (In re Belanger), 962 F.2d 345 (4th Cir.1992); Lowry Fed. Credit Union v. West, 882 F.2d 1543 (10th Cir.1989). On the other hand, the first, fifth, seventh, and eleventh circuits have concluded that the list of options set forth in § 521(2)(A) provide the only...