In re Heirholzer, Bankruptcy No. 93-3081
Decision Date | 28 July 1994 |
Docket Number | Bankruptcy No. 93-3081,90-00247. |
Parties | In re David HEIRHOLZER, Debtor. MINSTER STATE BANK, Plaintiff, v. David T. HEIRHOLZER, Defendant. |
Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
Benjamin F. Yale, Waynesfield, OH, for defendant.
Thomas Katterheinrich, New Knoxville, OH, for plaintiff.
This cause comes before the Court upon the Motions for Summary Judgment filed by the Defendant and Plaintiff. The Court has reviewed the written arguments of Counsel, supporting memoranda, and exhibits, as well as the entire record in the case. Based upon that review, and for the following reasons, this Court finds that the Plaintiff's Motion for Summary Judgment should be Granted and Defendant's Motion for Summary Judgment should be Denied.
In December of 1988, David Heirholzer (hereafter "Defendant") executed a promissory note to Minster State Bank (hereafter "Plaintiff') in the amount of Fifteen Thousand and 00/100 Dollars ($15,000.00). This note was secured by a second mortgage on real property owned by the Defendant in Auglaize County, Ohio. In January of 1990, unable to make payments upon this note and various other obligations, the Defendant filed a Petition in Bankruptcy. On May 15, 1990, this Court granted the Defendant a discharge from these debts.
On June 11, 1990, three (3) weeks after the discharge, the parties executed a new promissory note with accompanying mortgage in consideration of the Plaintiff agreeing not to foreclose on its mortgage. This subsequent note was for the sum of Fifteen Thousand Five Hundred and 00/100 Dollars ($15,000.00), and its proceeds were used by the Plaintiff to pay off the Debtor's previous note. Subsequently, the Defendant defaulted on the payment of this note as well.
Shortly thereafter, Bank One of Wapakoneta filed a complaint in foreclosure against the Defendant, pursuant to a separate promissory note held against the Defendant. Plaintiff, being listed as a co-defendant, used the opportunity to file a cross-claim demanding judgment against the Defendant regarding the default of its promissory note from June of 1990. In August of 1991, the Auglaize County Common Pleas Court granted the Plaintiff a default judgment pursuant to its cross-claim.
In April of 1992, the sheriff sold Defendant's real estate for the sum of Twenty Four Thousand Five Hundred and 00/100 Dollars ($24,500.00). However, the Plaintiff did not receive any proceeds from this sale. On May 1, 1992, after receiving no payment on its judgment, the Plaintiff received a deficiency judgment against the Defendant.
In February of 1993, the Defendant was served notice of garnishment of wages by the Plaintiff. Thereafter, the Defendant requested a hearing on the garnishment, arguing that his debt had been discharged by this Court in May of 1990. In June of 1993, the case was removed to this Court to determine if the debt was discharged.
The relevant law reads in part as follows:
11 U.S.C. § 524 Effect of discharge.
11 U.S.C. § 362 Automatic stay.
The issue before the Court is whether the second promissory note constitutes a previously discharged debt. The Defendant argues that the June 11, 1990 agreement is an invalid reaffirmation agreement that improperly attempts to revive the original promissory note that was discharged by this Court. The Plaintiff, on the other hand, does not allege that a reaffirmation agreement exists, but rather that the second promissory note is a separate and enforceable post-discharge contract. This case is a core proceeding under 28 U.S.C. § 157(b)(2)(I), since it involves a determination as to the dischargeability of the second promissory note.
The Defendant argues that the Plaintiff is not entitled to any payment on the post-discharge agreement since there was no reaffirmation of the initial promissory note between the parties. This Court agrees specifically that the subsequent note does not constitute a valid reaffirmation agreement. Pursuant to 11 U.S.C. § 524, there are five (5) requirements that must be fulfilled in order to properly reaffirm a previously discharged debt: 1) the agreement must be made prior to discharge; 2) the agreement must advise the debtor that the reaffirmation may be rescinded up to sixty (60) days after it is filed; 3) the agreement must be filed with the court; 4) the debtor cannot already have rescinded the agreement within the proper time frame; and 5) the agreement must be in the best interest of the debtor. The element of most significance to the present case requires that the reaffirmation agreement be executed prior to the time of discharge. In the facts before the Court, the Defendant and Plaintiff entered into the second promissory note on June 11, 1990. Since this occurred three (3) weeks after the May 21, 1990 discharge of the original note, there is no question that the second note fails to reaffirm the previously discharged debt.
The Defendant further alleges that since the subsequent agreement was based in whole or in part upon a dischargeable debt, reaffirmation is the only means...
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