In re Johnson
| Decision Date | 17 December 1992 |
| Docket Number | Bankruptcy No. 87 B 12788. |
| Citation | 148 BR 532 |
| Parties | In re Amanda L. JOHNSON, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Barrie M. Yacher, Chicago, IL, for Amanda L. Johnson, debtor.
David G. Wentz, Schillerstrom & Cresto, Ltd., Naperville, IL, for Harris Bank Naperville.
This matter comes before the Court on the motion of Amanda L. Johnson (the "Debtor") to find Harris Bank Naperville (the "Creditor") in contempt for alleged violation of the permanent injunction provisions of the order of discharge entered in this case under 11 U.S.C. § 524(a). The Debtor failed to attend the reaffirmation hearing held under 11 U.S.C. § 524(d), notwithstanding the Debtor's reaffirmation agreement with the Creditor. She made partial performance and subsequently defaulted thereunder post-discharge.
After review of the pleadings, affidavits and arguments of counsel, the Court denies the motion. Under the undisputed material facts there was no willful violation of the discharge order. Further, the instant reaffirmation agreement is not enforceable for failure to comply with all the requirements of section 524(c), as well as the Debtor's failure to attend the reaffirmation hearing.
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (I) and (O).
The material facts of this matter are undisputed. The Debtor filed a voluntary Chapter 7 petition on September 1, 1987. The Creditor was scheduled as the sole secured creditor holding an undisputed secured claim against the Debtor's automobile which was listed among her other items of personal property. In the required statement of intention pursuant to 11 U.S.C. § 521(2)(A), the Debtor stated she intended to reaffirm the debt owed to the Creditor.
Thereafter, the parties entered into a written reaffirmation agreement, filed on October 29, 1987.1 In essence, the agreement provides that the Creditor would not declare the Debtor in default if she continued to make payments under the terms and condition of the underlying security documents, in consideration for which, the Creditor would refrain from taking any actions against the subject vehicle or instituting any other complaints or motions in the pending bankruptcy proceeding. The reaffirmation agreement further provides that in the event of default under the underlying security documents, or the reaffirmation agreement, the Debtor agrees to pay costs and expenses, plus reasonable attorney's fees. The agreement states that it was voluntary, not forced or coerced, and that the Debtor was represented by her attorney during the course of the case and the execution of the agreement. It is significant that the reaffirmation agreement does not contain any statement concerning the Debtor's rescission rights as required under section 524(c)(2).2 Although the agreement was executed by the Debtor and a representative of the Creditor, the Debtor's attorney did not execute a supporting affidavit, or declaration in conformance with section 524(c)(3)(A) and (B).3
On April 28, 1988, the Honorable David H. Coar, then presiding over the case, entered an order of discharge. In addition, he set a reaffirmation hearing pursuant to section 524(d), for May 23, 1988. From the certificate of service appended to the order, it appears same was mailed out by the Bankruptcy Clerk's Office to the Debtor, her attorney, and all other parties in interest, including the Creditor. The parties have not furnished a record of who may have attended the scheduled reaffirmation hearing. Thereafter, Judge Coar entered an order concluding the hearing which noted that the Debtor failed to appear at same.4 The case was subsequently closed on July 15, 1988.
Effective January 1, 1992, most cases for certain of the outlying counties in this district were reassigned to the undersigned bankruptcy judge, including the instant motion of the Debtor. The motion, filed on October 16, 1992, was supported by the Debtor's affidavit in which she admits she failed to attend the scheduled reaffirmation hearing. Notwithstanding her failure to attend the hearing, she had made payments on the subject debt and agreement. The vehicle was repossessed on July 8, 1989, although the Debtor stated she had made some payments after repossession, but could no longer afford to make any further payments. Also attached to her motion is an affidavit from an attorney who represented the Debtor during the bankruptcy case and the negotiation of the reaffirmation agreement. His affidavit states in relevant part that he advised the Creditor's attorney in September 1992, of the Debtor's failure to attend the reaffirmation hearing; of his opinion that the reaffirmation agreement was not enforceable; and that all further collection efforts should cease. The Creditor, however, indicated to the Debtor's attorney that it would continue in its collection efforts. The Debtor concludes that because she failed to attend the scheduled reaffirmation hearing, the reaffirmation agreement is unenforceable. Moreover, she contends that the continued collection efforts on behalf of the Creditor should result in a finding of civil contempt for violation of the discharge order.
The Creditor maintains that the Debtor made no efforts to rescind the reaffirmation agreement within the sixty days after same was filed with the Court, nor before the entry of the Debtor's order of discharge. The Creditor further alleges that after repossession, the vehicle was sold and the Creditor thereafter pursued the deficiency owing and remaining unpaid under the reaffirmation agreement. The Debtor then voluntarily entered into an agreed installment order apparently entered in connection with state court collection action. Under the terms of that order (not furnished as part of this record), the Debtor paid $4,779.02, leaving a balance claimed due and owing of $6,115.12 including interest and costs. The Creditor concludes, that the Debtor's mere failure to attend the reaffirmation hearing does not invalidate the otherwise enforceable unrescinded reaffirmation agreement because she received notice of the scheduled reaffirmation hearing. The Creditor's response in opposition prays that the reaffirmation agreement be enforced in pending state court proceedings, the Debtor's motion denied, and that it be awarded its attorney's fees and costs. Both parties waived evidentiary hearing and filed supplemental pleadings to brief the issues.
The principal case authority argued by the Debtor is In re Roth, 38 B.R. 531 (Bankr.N.D.Ill.1984), aff'd, 43 B.R. 484 (N.D.Ill.1984). In Roth, the debtor was present at the reaffirmation hearing, but failed to bring the agreement to the judge's attention. A discharge order was entered without giving the debtor the admonitions required by section 524(d). Roth held that the failure of the bankruptcy judge to give the required statutory admonitions rendered the agreement unenforceable despite the debtor's failure to advise of the existence of the agreement. 43 B.R. at 488. Roth has been cited with approval by several courts. See, e.g., Arnhold v. Kyrus, 851 F.2d 738, 741 (4th Cir.1988).
In addition, the Debtor cites In re Saeger, 119 B.R. 184 (Bankr.D.Minn.1990), for the proposition that if a creditor wants to be sure reaffirmation agreements are binding, the creditor must insure that the debtor be informed of the debtor's options as required by section 524. Id. at 188. Additional cases were cited which held that reaffirmation agreements are unenforceable for failure of a reaffirmation hearing to be held, and the requisite admonitions given. See In re Hitt, 137 B.R. 401, 404 (Bankr.D.Mont. 1992); In re Fisher, 113 B.R. 714, 716-717 (Bankr.W.D.Okla. 1990); In re Churchill, 89 B.R. 878, 879 (Bankr. D.Colo.1988).
The principal authority relied upon by the Creditor is In re Sweet, 954 F.2d 610 (10th Cir.1992). Similar to the case at bar, the debtors in Sweet executed and filed a written reaffirmation agreement prior to the entry of a discharge order when they were represented by counsel, and had received notice of the scheduled reaffirmation hearing. Id. at 611. In Sweet, as here, the debtors never attempted to rescind the reaffirmation agreement and continued to make payments thereafter for sometime, but defaulted. Id. The creditor repossessed and sold the collateral, and filed a subsequent state court action against the debtors for the deficiency. Id. Sweet noted that the sixty-day recision period ran before the scheduled reaffirmation hearing, so the debtors' attendance at the hearing would have been meaningless. Id. at 612-613. The court also noted that debtors have a duty under section 521(5) to attend scheduled reaffirmation hearings. Id. at 613. Such duty is imposed on debtors, not creditors. Thus, Sweet concluded the creditor was put in the position of not knowing whether to honor the agreement, foreclose on the collateral, and risk that the debtors would successfully defend any action. Id. Sweet concluded that by their failure to attend the reaffirmation hearing, the debtors waived their "rights" to attend, and could not thereby escape enforcement of an otherwise enforceable reaffirmation agreement. Id. The Debtor counters that Sweet should not be followed because it is the first case speaking to a debtor's waiver of his "right" (not obligation), to attend the reaffirmation hearing. The Debtor maintains that the case does not address the issue of what would have happened if a debtor had a "legitimate excuse" for not attending the hearing.
The Creditor distinguishes Roth on its facts as...
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