In re Kasper

• Decision Date: 27 April 2004
• Docket Number: No. 02-01791.,02-01791.
• Citation: 309 B.R. 82
• Parties: In re Donald B. KASPER, Debtor.
• Court: U.S. District Court — District of Columbia

Page 82

309 B.R. 82

In re Donald B. KASPER, Debtor.

No. 02-01791.

United States District Court, District of Columbia.

April 27, 2004.

COPYRIGHT MATERIAL OMITTED

Michael Klima, Baltimore, MD, for Ford Motor Credit Co.

Steven Weinberg, Washington, DC, for Donald B. Kasper.

DECISION RE MOTION TO COMPEL DEBTOR'S COMPLIANCE WITH 11 U.S.C. § 521(2)

S. MARTIN TEEL, JR., Bankruptcy Judge.

The court will deny the motion filed by Ford Motor Credit Company ("Ford") to compel the debtor, Donald B. Kasper, to comply with 11 U.S.C. § 521(2).

I PROCEDURAL POSTURE OF CASE

Kasper filed his voluntary bankruptcy petition under chapter 7 of the Bankruptcy Code (11 U.S.C.)¹ on September 11, 2002, and owned at that time an automobile. Kasper scheduled Ford as holding a lien on that car, securing a claim in excess of the car's scheduled value. Kasper did not claim the car as exempt. Since the filing of the case, the automatic stay of § 362(a) has stayed Ford from enforcing its lien, but Ford has not filed a motion for relief from the automatic stay. Nor has Ford alleged that a default exists that would permit enforcement of its lien if the automatic stay were not in effect.

On October 10, 2002, Kasper filed his Statement of Intention under § 521(2), utilizing Official Form 8. Kasper, who was current on his payments to Ford, simply indicated "retain possession" on his Statement of Intention without checking any of the three options appearing on the form: "Property is claimed as exempt;" "Property will be redeemed pursuant to 11 U.S.C. § 722;" or "Debt will be reaffirmed pursuant to 11 U.S.C. § 524(c)."²

The chapter 7 trustee has filed a Report of No Distribution stating that "there is no property available for distribution" and certifying pursuant to F.R. Bankr.P. 5009 that "the estate ... has been fully administered." More than 30 days have passed since he filed that report, and, but for Ford's outstanding motion the case is ready to be closed under Rule 5009. Upon closing of the estate, the estate's property will be abandoned to Kasper by operation of § 554(c).³ Kasper has already received a discharge and, accordingly, upon such abandonment, the automatic stay of § 362(a) will no longer bar Ford from enforcing its lien to the extent authorized by nonbankruptcy law.⁴

Ford's motion takes the position that § 521(2) requires a debtor to file a statement stating that the debtor intends to do one of three things: (1) surrender the property; (2) redeem the property; or (3) reaffirm the debt. Ford seeks to compel Kasper to choose one of these options. Kasper takes the position that he complied with § 521(2) by simply stating that he intends to retain possession.

II

THE GOVERNING STATUTE

Section 521(2) provides, in relevant part, that:

(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 ..., 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.

The "surrender" option under § 521(2), which does not specify what "surrender" encompasses, must be read in the context of a companion provision, § 521(4), which requires that the debtor shall —

(4) if a trustee is serving in the case, surrender to the trustee all property of the estate ....

The statute does not specify any consequences of, or remedies for, a debtor's failure to comply with § 521(2), except that a chapter 7 trustee is required under § 704(3) to "ensure that the debtor shall perform his intention as specified in section 521(2)(B) of this title."⁵

III THE DIVIDED CASE LAW AND A SUMMARY OF THIS COURT'S APPROACH

Most courts appear to assume that the surrender option entails a surrender to the lienholder, not to the trustee, and then frame the issue as whether § 521(2) permits a debtor to state a naked intention to retain (without stating an intention to exempt, redeem, or reaffirm) and thereby comply with the statute. The Courts of Appeals for the Second, Fourth, Ninth, and Tenth Circuits adopt what may be called the "non-exclusive approach," holding that § 521(2) does not preclude the debtor from simply stating that she intends to retain without indicating an intention to exempt, redeem, or reaffirm. See McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668, 673 (9th Cir.), cert. denied, 525 U.S. 1041, 119 S.Ct. 592, 142 L.Ed.2d 535 (1998); Capital Communications Fed. Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43, 53 (2d Cir.1997), cert. denied, 522 U.S. 1117, 118 S.Ct. 1055, 140 L.Ed.2d 118 (1998); Home Owners Funding Corp. of Am. v. Belanger (In re Belanger), 962 F.2d 345, 347-49 (4th Cir.1992); Lowry Fed. Credit Union v. West, 882 F.2d 1543, 1547 (10th Cir.1989).

The Courts of Appeals for the First, Fifth, Seventh, and Eleventh Circuits adopt an "exclusive approach" by holding that § 521(2) sets forth exclusive options, precluding the debtor from indicating a naked intention to retain, even when such retention without exemption, redemption, or reaffirmation would not give rise to a right of lien enforcement under nonbankruptcy law. Bank of Boston v. Burr (In re Burr), 160 F.3d 843, 849 (1st Cir.1998); Johnson v. Sun Fin. Co. (In re Johnson), 89 F.3d 249, 250 (5th Cir.1996); Taylor v. AGE Fed. Credit Union (In re Taylor), 3 F.3d 1512, 1517 (11th Cir.1993); In re Edwards, 901 F.2d 1383, 1387 (7th Cir.1990).

A third approach is to hold that a debtor's stated intention to "surrender" under § 521(2)(A) entails nothing more than the debtor's complying with her obligation under § 521(4) to surrender the property to the processes of the trustee's administration of the estate, and eventually (in most cases) to the processes of nonbankruptcy law. See In re Lair, 235 B.R. 1 (Bankr.M.D.La.1999). See also BankBoston, N.A. v. Claflin (In re Claflin), 249 B.R. 840, 848 n. 6 (1st Cir. BAP 2000). Cf. Green Tree Financial Servicing Corp. v. Theobald (In re Theobald), 218 B.R. 133 (10th Cir. BAP 1998) (surrender option does not alter nonbankruptcy law to require a debtor to deliver her title to real property to lienholder).

I view § 521(2) as principally a notice statute, and not as one that alters the nonbankruptcy law rights of either the debtor or the lienholder. That view is supported by two alternative approaches.

The first approach is that a debtor's stated intention to "surrender" under § 521(2) does not require turnover to the lienholder. It serves instead as notice that the debtor will not exempt, redeem, or reaffirm, and that if the lienholder believes that its lien is enforceable, and wishes to enforce it, then the lienholder should proceed to take the necessary steps to do so (including obtaining relief from the automatic stay).

Alternatively, if a stated intention to "surrender" under § 521(2) does require turnover to the lienholder, then I view the courts that adopt the non-exclusive approach regarding retention as following the better rule, but with a qualification: under § 521(2) a debtor may state a naked intention to retain, but (contrary to some decisions) § 521(2) does not alter any nonbankruptcy law right in the lienholder to enforce its lien.

IV GIVEN THE LONG-STANDING PRINCIPLE THAT LIENS GENERALLY PASS THROUGH BANKRUPTCY UNAFFECTED, § 521(2) OUGHT NOT BE VIEWED AS ALTERING NONBANKRUPTCY LAW REGARDING LIEN ENFORCEMENT UNLESS SUCH AN INTENTION IS CLEARLY EXPRESSED

A lien generally remains unaffected by the bankruptcy process in a case under chapter 7 of the Bankruptcy Code, and this was true under chapter VII of the Bankruptcy Act as well. See Dewsnup v. Timm, 502 U.S. 410, 417, 419, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). The exceptions to this general rule are clear and unambiguous, and include the following: the trustee sells the property free and clear of liens under § 363; the lien is avoided under § 522(f), § 544, § 547, or § 548; the debtor redeems the property under § 722; and the lienholder's nonbankruptcy law rights are altered via a reaffirmation agreement under § 524(c). The Court in Dewsnup further observed that Congress does not "write `on a clean slate'" when it amends the bankruptcy laws, and that the Court —

has been reluctant to accept arguments that would interpret the Code, however vague the particular language under consideration might be, to effect a major change in pre-Code practice that is not the subject of at least some discussion in the legislative history.

Dewsnup, 502 U.S. at 419, 112 S.Ct. 773 (citations omitted).

Moreover, in Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979), the Court held that unless the bankruptcy statute provides for the alteration of state law rights, the bankruptcy statute is not to be applied in a manner that supplants state law rights and remedies based on courts' perceptions of what is equitable. It observed that "[p]roperty interests are created and defined by state law" (Butner, 440 U.S. at 55, 99 S.Ct. 914), and that "state laws are ... suspended only to the extent of actual conflict with the system provided by the Bankruptcy Act of Congress" (Butner, 440 U.S. at 54 n. 9, 99 S.Ct....