In re Jamo
| Decision Date | 26 March 2002 |
| Docket Number | No. 01-9010.,01-9010. |
| Citation | 283 F.3d 392 |
| Parties | In re: Stephen J. JAMO and Lynn M. Jamo, Debtors. Stephen J. Jamo and Lynn M. Jamo, Plaintiffs, Appellees, v. Katahdin Federal Credit Union, Defendant, Appellant. |
| Court | U.S. Court of Appeals — First Circuit |
Daniel L. Cummings, with whom Norman, Hanson & DeTroy, LLC was on brief, for appellant.
George J. Marcus, with whom Lee H. Bals and Marcus, Clegg & Mistretta, P.A. were on brief, for Maine Credit Union League and Credit Union National Association, amici curiae.
Richard D. Violette, Jr. for appellees.
Before SELYA, Circuit Judge, STAHL, Senior Circuit Judge, and LIPEZ, Circuit Judge.
This bankruptcy appeal requires us to decide an issue of first impression at the circuit level: In a Chapter 7 case, may a lender who is owed both secured and unsecured debts insist upon reaffirmation of the latter as a condition to reaffirmation of the former? The bankruptcy court ruled that such an "all or nothing" negotiating posture amounted to a per se violation of the automatic stay, Jamo v. Katahdin Fed. Credit Union, 253 B.R. 115 (Bankr.D.Me. 2000) [Jamo I], and the bankruptcy appellate panel (the BAP) agreed, Katahdin Fed. Credit Union v. Jamo, 262 B.R. 159 (B.A.P. 1st Cir.2001) [Jamo II]. We reverse.
The critical facts are not in dispute. On March 18, 1999, the debtors, Stephen J. Jamo and Lynn M. Jamo (husband and wife), initiated proceedings under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701-766. On the filing date, they owed $61,010 to Katahdin Federal Credit Union (the credit union). This indebtedness was composed of $37,079 owed on a promissory note secured by a first mortgage on their residence in Millinocket, Maine; $12,731 owed on unsecured personal loans; and $11,200 owed on credit cards.
In their bankruptcy petition, the debtors indicated that they desired to reaffirm the mortgage obligation. When their attorney inquired about reaffirmation, the credit union responded, through counsel, that it would not enter into a reaffirmation agreement unless the debtors also agreed to reaffirm their other indebtedness with the credit union. In taking this position, the credit union cited a "long-standing" policy that stated in relevant part:
It shall be the policy of [the credit union] to allow members to reaffirm debts owed to the credit union. If members have more than one debt with [the credit union], all debts must be reaffirmed or re-written (post-petition). Reaffirmation will not be granted to members who wish to have some debts excused (discharged), and to reaffirm others.
Initially, the debtors' counsel tried to get the credit union to accept a reaffirmation of the secured indebtedness alone. When that effort failed, he signaled that the debtors would consider reaffirming all of their obligations to the credit union. The credit union then proposed a comprehensive reaffirmation package that bundled the debtors' outstanding obligations into two loans (each secured by a home mortgage) and dramatically reduced the debtors' total monthly payments. The debtors executed the papers presented by the credit union.
The deal came a cropper when the debtors' counsel balked. See 11 U.S.C. § 524(c)(3)(A)-(B) (). In refusing to approve the arrangement, the lawyer singled out the proposed reaffirmation of the unsecured debts and questioned whether his clients were "succumbing to the extortion that is inherently present in the Credit Union's all or nothing approach to reaffirmation."
The "linked" reaffirmation agreements were filed with the bankruptcy court. Absent counsel's stamp of approval, however, the court had no choice but to reject them.1
The debtors promptly notified the credit union that they remained willing to reaffirm the mortgage, shorn of any linkage to the unsecured debts. Further negotiations ensued. The credit union and the debtors reached a second accord, this time purposing to reaffirm the secured indebtedness on its original terms and to reaffirm the unsecured debts without interest. Despite these changes, the debtors' lawyer remained adamant in his refusal to endorse the arrangement.
Although the revised agreements lacked the imprimatur of the debtors' counsel, the debtors filed them with the bankruptcy court. The debtors then commenced an adversary proceeding charging the credit union with a violation of the automatic stay, 11 U.S.C. § 362(a)(6), and seeking sanctions. After some skirmishing (not relevant here), the bankruptcy court concluded that the credit union's efforts to condition reaffirmation of the mortgage debt upon the simultaneous reaffirmation of other (unsecured) debts violated the automatic stay in two ways. Jamo I, 253 B.R. at 127-30. First, the credit union's insistence upon linkage constituted an impermissibly coercive attempt to "strong-arm" the debtors into reaffirming their separate, unsecured obligations. Id. at 127-29. Second, the credit union had engaged in prohibited conduct by threatening to foreclose on the debtors' home. Id. at 129-30.
Consistent with these conclusions, the court enjoined the credit union from (1) foreclosing on the mortgage for any bankruptcy-related reason, (2) calling the mortgage on account of an asserted payment default for at least one year, (3) collecting (or attempting to collect) any attorneys' fees or costs accruing prior to the effective date of the injunction, (4) conditioning any reaffirmation of the mortgage debt upon the debtors' reaffirmation of their unsecured obligations, and (5) withholding its consent to reaffirmation of the mortgage debt on the terms specified in the original loan documents. Id. at 130. Effectively, then, the bankruptcy court overrode the parties' agreement to reaffirm the unsecured debts and (as a sanction) compelled reaffirmation of the mortgage debt on its original terms. To cap matters, the court awarded attorneys' fees and costs to the debtors. Id. at 130-31.
The credit union appealed, but the BAP affirmed the judgment. Jamo II, 262 B.R. at 165-68. This further appeal ensued.
We traverse an analytical path that delineates the structure of, and the relationship between, two mainstays of the Bankruptcy Code: reaffirmation and the automatic stay. We turn then to the question of whether the credit union transgressed the automatic stay either by conditioning reaffirmation of the mortgage indebtedness upon the reaffirmation of separate, unsecured obligations, or by engaging in strong-arm tactics.
To put this case into perspective, it is necessary to understand how the practice of reaffirmation and the operation of the automatic stay implicate bankruptcy practice. We turn to that task.
1. Reaffirmation. Within thirty days of filing a bankruptcy petition, a Chapter 7 debtor must serve a statement of intention with respect to outstanding consumer debts that are secured by property of the bankrupt estate. 11 U.S.C. § 521(2)(A). The debtor may, of course, surrender the collateral to the secured creditor. Id. To retain it, however, he must (a) demonstrate the applicability of a recognized bankruptcy exemption, (b) pay off the secured creditor in full (thereby redeeming the collateral), or (c) reaffirm the secured debt.2 Id. The focus here is on reaffirmation.
The reaffirmation option is spelled out in 11 U.S.C. § 524(c). We recently explained that section 524(c) requires reaffirmation agreements to satisfy five general criteria. Such an agreement must
(i) be executed before the [general] discharge has been granted;
(ii) be in consideration for a dischargeable debt, whether or not the debtor waived discharge of the debt;
(iii) include clear and conspicuous statements that the debtor may rescind the reaffirmation agreement at any time prior to the granting of the general discharge, or within sixty days after the execution of the reaffirmation agreement, whichever occurs later, and that reaffirmation is neither required by the Bankruptcy Code nor by nonbankruptcy law;
(iv) be filed with the bankruptcy court; and
(v) be accompanied by an affidavit of the debtor's attorney attesting that the debtor was fully advised of the legal consequences of the reaffirmation agreement, that the debtor executed the reaffirmation agreement knowingly and voluntarily, and that the reaffirmation agreement would not cause the debtor "undue [e.g., financial] hardship."
Whitehouse v. LaRoche, 277 F.3d 568, 574 (1st Cir.2002).
There is, however, an overarching requirement. Section 524(c) makes manifest that reaffirmation requires a meeting of the minds. The statutory text uses the word "agreement" no less than nineteen separate times, and this pervasive emphasis can only mean that Congress envisioned reaffirmations as consensual. In conventional legal parlance the essence of an agreement is the existence of mutual consent, e.g., Black's Law Dict. 67 (7th ed.1999); Restatement (Second) of Contracts § 3 (1981), and the presumption is "that Congress knew and adopted the widely accepted legal definitions of meanings associated with the specific words enshrined in the statute," United States v. Nason, 269 F.3d 10, 16 (1st Cir.2001).
We conclude, therefore, that section 524(c) envisions reaffirmation agreements as the product of fully voluntary negotiations by all parties. Whitehouse, 277 F.3d at 575; Gen. Motors Acceptance Corp. v. Bell (In re Bell), 700 F.2d 1053, 1056 (6th Cir.1983). Two things follow from this conclusion. First, both the creditor and the debtor must consent to reaffirmation. See In re Turner, 156 F.3d 713, 718 (7th Cir.1998); Home Owners Funding...
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