In re Lair

Decision Date21 June 1999
Docket NumberBankruptcy No. 96-12218.
PartiesIn re Charles R. LAIR, Sharon W. Lair, Debtors.
CourtU.S. Bankruptcy Court — Middle District of Louisiana



Michael J. Jefferson, Baton Rouge, LA, for debtors.

Stacy G. Butler, Kizer, Hood & Morgan, L.L.P., Baton Rouge, LA, for Hibernia National Bank.


LOUIS M. PHILLIPS, Bankruptcy Judge.

Should this court, after re-opening this case, approve the Lairs' home mortgage reaffirmation agreement with Hibernia National Bank ("Hibernia") where (i) the Lairs have maintained, and continue to maintain, current status on the loan; (ii) neither the note nor mortgage instrument contain bankruptcy default clauses; (iii) the Lairs' timely filed Statement of Intention indicates an intent to reaffirm; and, (iv) the reaffirmation agreement—confected post-discharge and after the case was closed—is not executed timely?1

The formulation of this question from the facts before us compels us to stumble, fumble, slide, stride, and/or plunge into, and hopefully navigate our way through, the precipices, tar-pits, rapids, and sloughs that comprise the span of jurisprudence about 11 U.S.C. § 521(2) (West 1993).2 For the reasons that follow (which supplement a previous oral ruling of the court), we conclude, in light of the particular facts of this proceeding, that approval of the reaffirmation agreement should be denied. Along the way to our ultimate ruling, we have attempted to weave a viable analysis of what § 521(2) both means to and requires of debtors within the Fifth Circuit, in light of Johnson v. Sun Fin. Co., Inc. (In re Johnson).3 While we, of course, are "guided" by a wealth of case law and writing, we find ourselves, at the end of our trip, rather alone in our analytic approach, probably because of its simple-mindedness.


We are here, poised on a particular factual situation, which yields up § 521(2) of the Code as the nut to be cracked.4 The debtors have at all times maintained current status on their home loan. The debtors (with help of counsel) and the lender (probably without the help of counsel) have been, it appears, consistent partners in an agreement that the home mortgage debt would be reaffirmed. However, the trustee administering the debtors' estate operated under a time-frame that resulted in the Lairs' case being closed upon the entry of discharge (the trustee having filed a Report of No Distribution, determining that there were not assets worthy of administration), before the reaffirmation agreement was executed.

So, the case was closed and there was no reaffirmation agreement, notwithstanding the parties' collective intent. We are not certain as to the factual particulars, but it appears as though the lender obtained a lawyer who advised that without a reaffirmation agreement, the debt might be in default, or that the entire obligation could not be enforced if there was a default down the road, or (maybe) that a large national lender was going to be unable to maintain the debt on its internal books as a discharged (therefore in rem) debt for purposes of enforcement of its lien rights in the event of future default so that the debtors' discharge was doubtless going to be violated by the lender in treating this home loan (post-discharge) just like any other home loan. Possibly, even, the lawyer advised the lender that the debtors' failure to comply with the debtors' own Statement of Intentions could be a ground for claiming default, but that the intelligent move would be to let the bankruptcy judge say so before going off to foreclose in state court.

Maybe some of this, maybe none. But we know that something was communicated to the Lairs' attorney, who subsequently moved this court to reopen the case for the purpose of allowing the belated reaffirmation agreement (negotiated with the attorney's assistance) to be filed, and therefore deemed approved, or ratified, or something.

It was at such a hearing that the evidence established: (i) as of the commencement of this case the debtors were current with the mortgage company; (ii) the debtors have been paying and the lender has been accepting the monthly payments post-petition so that at hearing the mortgage debt was current; and (iii) that the mortgage loan documents (both debt and security) contained no bankruptcy default clause5 (the Lairs personify the First Circuit's "extraordinarily rare debtor").6 In light of these facts, and our understanding of the law applicable, this court concluded that the agreement would not be approved or ratified.7 We have determined that because of the confluence of the case being closed (and therefore the property subject to the home loan mortgage having been abandoned by operation of law8), the debtors paying and creditor accepting payments during the course of the bankruptcy case, and the absence of a bankruptcy default clause within either mortgage or note, there is no basis in the law of the state of Louisiana upon which the creditor can rely to enforce the security interest in, to, and upon the property. Because this personal obligation has been discharged, and because we cannot figure any basis under state law that would cause the Lairs to lose their home in a mortgage enforcement proceeding, it is not in the best interest of the debtors to reaffirm. Ultimate debt-free ownership of the property appears possible if the note is paid off according to its terms. Subsequent default under the note will trigger the right of the creditor to enforce the security interest upon the property but will not subject the debtors to personal liability.

To get to the question of whether state law provided a basis for post-discharge enforcement of rights absent a bankruptcy default clause, assuming the maintenance of current status, we had to answer the following question: Does bankruptcy law give an independent basis for enforcement of security rights post-discharge and post-abandonment of the property to the debtors by § 554(c), though the debt in this case is not reaffirmed? Through the following opinion, we offer our answer: "No."

We wish to make as clear as we can, that in so concluding, we must also ask whether bankruptcy law provides a preemptive right to "retain" or to "reinstate" the loan. To this question we also answer, "No." We do not propose that the debtors have a federal right to "retain" property because of a provision of the Code or a federal rule of equity "designed" to actualize the conceptual and policy underpinnings of the bankruptcy process. Our conclusion is grounded in our interpretation of § 521(2), and our understanding of the relative places of state law and federal law within the bankruptcy process. The Lairs have by inaction chosen to rely upon (or simply have found themselves relying upon) state law rights as opposed to the express Bankruptcy Code alternatives offered by § 521(2), because of the full administration of the property (by non-administration), which resulted in the return of the property to them pursuant to § 554(c) of the Code. We conclude that this is where the Lairs find themselves because their state law rights under the contracts (note and mortgage) and their ownership interest in the property have passed through bankruptcy unaffected. Note: We do not say that it was necessary for their state law rights under these contracts to so pass through; only, that in this case, they have.

To get to the conclusion that the debtors have retained their pre-bankruptcy state law rights in the agreements and to the property, we must address the question whether, by failing to perform their stated intention, the debtors have in fact "surrendered" the property (as the term is used in § 521(2)(A)), and whether "surrender" of the property operates to provide the creditor with rights in addition to those provided under the state law governing the contracts at issue. The debtors have not used any of the bankruptcy alternatives proposed by the words of § 521(2). They have not sought to avoid the mortgage lien under § 522 (which was not available under the provisions of § 522); they have not attempted to redeem the property under § 722 (which was not available under the provisions of § 722); and they did not properly effectuate reaffirmation under § 524(c). Though we will get into this later in some detail, we mention here that the three delineated alternatives are the only express statutory alternatives referred to in § 521(2), available to individual debtors within the bankruptcy process, as methods of "retaining" property that is collateral for consumer debt. For the moment we put aside discussion of the statutory alternatives available to parties other than the debtor—for example, the trustee and the creditor—though mention should (we guess) be made here that they are numerous (stay relief under § 362, disposition under § 725, sale or lease under § 363, abandonment under § 554(b) if the creditor can act quickly enough). It suffices on this score to point out that neither the creditor nor the trustee utilized any Bankruptcy Code right or power, while the property burdened by the security interest was property of the bankruptcy estate. The only Bankruptcy Code rights that ultimately came into effect, then, as regards the Lairs' home and the creditor's lien rights, were the automatic stay (which served no purpose as the debtors ignored the stay as it applied to this debt and this property) and abandonment by operation of law under § 554(c), (which, through express federal statutory provision effectuates the abandonment or transfer of the property from the bankruptcy estate back to the debtors).9

We put a few words into the creditor's mouth at this point. "What about `surrender'? That word is used in § 521(2)! Because the debtors did not use any of the expressly provided bankruptcy means of `retaining' property, should not the creditor be entitled to some rights under the ...

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