In re Grabinski, Bankruptcy No. 88 B 13773.
| Decision Date | 03 February 1993 |
| Docket Number | Bankruptcy No. 88 B 13773. |
| Citation | 150 BR 427 |
| Parties | In re Judy GRABINSKI, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Ascher Feren, Chicago, IL, for debtor.
Albert Arnstein, Arnstein & Zeller, Skokie, IL, for Boulevard Bank.
M. Scott Michel, Office of the U.S. Trustee, Chicago, IL.
Richard J. Mason, Ross & Hardies, Chicago, IL, interim trustee.
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON DEBTOR'S MOTION TO REOPEN HER CASE TO AMEND SCHEDULES
Debtor Judy Grabinski has moved to reopen her Bankruptcy Case to allow her to amend her schedule of creditors to add the Boulevard Bank ("Boulevard" or the "Bank"). She also moves that a new date be set for the newly listed creditor to file objections to discharge and/or dischargeability. She also moves the Court to vacate her discharge to permit the Bank to file such objections. Boulevard Bank has objected, arguing that Debtor has already reaffirmed her debt. At a status hearing, both parties stipulated to certain facts and documents, and then waived their right to submit further evidence and rested on the record. The parties stipulated to the facts alleged in ¶¶ 1 through 10 of Boulevard Bank's Memorandum in Opposition to Debtor's Motion, and in ¶¶ 11 and 12 of Debtor's Reply Memorandum in Support of her Motion. The stipulated documents are Exhibits 1 through 5 attached to the Bank's Memorandum in Opposition. Having considered the pleadings, stipulations, and arguments of counsel, the Court now makes and enters these Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. On July 15, 1988, Debtor and Boulevard Bank ("Boulevard") entered into a loan agreement whereby Boulevard lent Debtor $5,000, and Debtor agreed to pay off the loan plus interest in 48 monthly installments of $139.55. Bank Ex. 3(2). The loan was unsecured. Id.
2. On September 9, 1988, Debtor filed her voluntary petition for relief under Chapter 7 of the Bankruptcy Code. 11 U.S.C. § 701 et seq. She did not list her debt to Boulevard on her schedules. She alleges in her motion that this omission was "inadvertent", Debtor's Motion at ¶ 3, and Boulevard has not contested that allegation. While the Bank argues that prejudice to it might bar a re-opening to schedule that debt now, it does not demonstrate such prejudice.
3. On March 6, 1989, the Chapter 7 trustee filed a report, finding no assets to administer. On March 24, 1989, the Court set a date for reaffirmation hearing, and subsequently Debtor was granted a discharge. Debtor did not appear for the reaffirmation hearing.
4. Despite filing her bankruptcy petition, Debtor timely paid to Boulevard Bank every installment due under the loan agreement from July 1988 to August 1989. She made twelve such payments after filing her bankruptcy case. The Bank thereby benefitted by debtor's omissions of it from her bankruptcy schedule and her voluntary payments afterwards.
5. In September 1989, Debtor stopped making payments. However, on January 22, 1990, she had a telephone conversation with Mr. Albert Arnstein, Boulevard's attorney in this matter, in which she promised to try to catch up on the schedule payments by making double payments each month until the loan was current. This arrangement was confirmed by a letter from Mr. Arnstein to Debtor, Bank Ex. 1, and a letter from Debtor to Mr. Arnstein, Bank Ex. 2.
6. At some time after Debtor received her discharge, her attorney advised her that it was not necessary to amend the list of creditors filed in the Bankruptcy Court.
7. On February 14, 1991, Boulevard filed suit against Debtor in the Circuit Court of Cook County against Debtor in case No. 91 M1-111359. Before that suit was filed, the Bank was aware of the Debtor's filing in bankruptcy. In its complaint, Boulevard alleged that Debtor defaulted on her obligations under the loan agreement and owed $4,066.30 plus attorney's fees. Bank Ex. 3(1). Boulevard further alleged that Debtor "reaffirmed her debt on January 24, 1990" by her letter to Mr. Arnstein. Id. However, there was no allegation that a reaffirmation agreement was executed pursuant to 11 U.S.C. § 524, nor were there allegations of any of the elements necessary to establish compliance with § 524(c) and (d).
8. In her answer filed pro se, Debtor admitted that she was in default of the loan agreement, but she denied that she had reaffirmed the debt. Bank Ex. 4. There was, however, no reference in her answer to the elements of reaffirmation under § 524(c) and (d).
9. On January 21, 1992, a bench trial was held by the state court judge on this complaint. Afterwards, the judge entered a handwritten judgment order prepared by Boulevard's counsel. That order stated:
Conspicuously absent from this judgment order was any finding that the agreement between Boulevard and Debtor complied with § 524, and there were no factual findings made that could support any such conclusion. Moreover, there is no evidence before this Court to demonstrate that Boulevard argued or that the state court considered whether the parties complied with the requirements of § 524(c) and (d), or that any evidence was presented to the Court on this issue. Indeed, the pleadings and ruling are consistent with an adjudication that a novation under state law was found to have been entered into. Debtor did not appeal from the state court judgment.
10. Further facts set forth in the Conclusions of Law will stand as additional Findings of Fact. Legal standards set forth in the Findings of Fact will stand as additional Conclusions of Law.
1. Debtor's motion is before the Court pursuant to 28 U.S.C. § 157 and Local District Rule 2.33. The Court has subject matter jurisdiction over the motion pursuant to 28 U.S.C. § 1334, and this is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).
2. Boulevard objects to the motion, arguing first that a debtor cannot reopen a case in order to seek a discharge on a reaffirmed debt. As a general matter, this contention is correct. By entering into reaffirmation agreements, debtors make themselves legally bound to pay pre-petition debts despite their discharges in bankruptcy. See In re Artzt, 145 B.R. 866, 868 (Bankr.E.D.Tex.1992) ( ). The Bankruptcy Code specifically gives debtors 60 days from the date that the agreement is filed with the court or until the date of discharge (whichever is later) to rescind these agreements. 11 U.S.C. § 524(c)(4). After that time, debtors are bound by reaffirmation agreements just as they would be bound by any other contract in a non-bankruptcy environment.
3. Debtors who do not want to be bound by such an agreement may choose to repay their debts voluntarily. 11 U.S.C. § 524(f). Debtors who follow this path have the right to stop making payments without legal consequences. Ginsberg & Martin, Bankruptcy: Text, Statutes, Rules, § 11.08d1 (3rd Ed.1992). Debtors usually choose to enter into reaffirmation agreements when they receive valuable consideration in the form of an agreement by the creditor to forbear on the exercise of its rights against collateral. Id. Reopening a case in order to grant a discharge on a debt reaffirmed under § 524 would be improper against creditors who are entitled to rely upon such reaffirmation agreements. Furthermore, reopening a case for such a reason would also be contrary to the rescission procedure set out in § 524(c)(4). Therefore, a case should not be reopened for the purpose of enabling debtors to rescind their reaffirmation agreements. See In re Smith, 35 B.R. 95 (Bankr.W.D.Ky.1983) ().
4. Did Debtor reaffirm her loan agreement with Boulevard in this case? The state court found that Debtor had "reaffirmed" the debt. Should that statement in the judgment order be given collateral estoppel here because Debtor did not appeal from that judgment?
5. The debtor's letter of January 1990 cannot be construed to be a reaffirmation agreement in bankruptcy, because there was no compliance with 11 U.S.C. § 524. This agreement was not obtained before Debtor received her discharge as is required by § 524(c)(1). See In re Whitmer, 142 B.R. 811, 813-14 (Bankr.S.D.Ohio 1992) (). The letter did not contain a "clear and conspicuous statement which advises the debtor that the agreement to repay the loan notwithstanding her discharge in bankruptcy may be rescinded at any time . . . within sixty days after such agreement is filed with the court . . .", as is required by § 524(c)(2). In re Thomas, 72 B.R. 223, 226 (Bankr.M.D.Ala.1987) (). The agreement was not filed with the Bankruptcy Court, as is required by § 524(c)(3). Id. Finally, Debtor never appeared before this Court at a § 524(d) reaffirmation agreement, as is required by § 524(c)(5). See Transouth Financial Corp. of...
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