In re Lee

Decision Date30 October 2006
Docket NumberNo. 06-155.,06-155.
Citation356 B.R. 177
CourtU.S. Bankruptcy Court — Northern District of West Virginia
PartiesIn re Kenneth R. LEE, and Peggy A. Lee, Debtors.

James T. Kratovil, Kratovil and Amore PLLC, Charles Town, WV, for Debtors.


PATRICK M. FLATLEY, Bankruptcy Judge.

Kenneth and Peggy Lee (the "Debtors") seek to reopen their discharged Chapter 7 bankruptcy case to file two "amended" reaffirmation agreements to replace ones that the court declared to be defective and unenforceable. The Debtors' motion is unopposed, but the court set the motion for a telephonic hearing on September 5, 2006, in Wheeling, West Virginia, to determine whether grounds exist under 11 U.S.C. § 350(b) to reopen a case for the purpose of filing reaffirmation agreements after the entry of the Debtors' discharge.

For the reasons stated herein, the court will deny the Debtors' motion to reopen their case because any reaffirmation agreement they might file will be unenforceable pursuant to 11 U.S.C. § 524(c).


When the Debtors filed their March 10, 2006 Chapter 7 bankruptcy case, they owned real property in Hegesville, West Virginia, having a stated value of $180,000, and they owned a 2000 Oldsmobile Bravada having a stated value of $7,000. JP Morgan Chase Bank, NA ("Chase") held a first deed of trust on the residence for approximately $77,000. The Bank of Charlestown has a perfected lien in the amount of $7,500 in the Debtors' Bravada. Including these secured debt installment payments, the Debtors allege that their monthly expenses are $4,152, and that their combined net monthly income is $3,452, leaving a monthly shortfall of $700. At the time the Debtors filed their bankruptcy case, they were current on their payments to Chase and the Bank of Charlestown.

On April 28, 2006, the Debtors filed a reaffirmation agreement that was prepared by Chase. The Bankruptcy Clerk's Office observed that the agreement was deficient in that it was not on the Revised Director's Procedural Form B-240 — it lacked the information required by 11 U.S.C. § 524(k) and (m). The Clerk then issued a Notice of Deficient Filing on May 11, 2006, notifying the Debtors that the agreement's deficiency may cause the agreement to be administratively dismissed if not corrected within twenty days. By June 23, 2006, the agreement's deficiency had not been cured, and the court signed an order that declared the reaffirmation agreement to be defective and unenforceable.

On May 1, 2006, the Debtors filed a reaffirmation agreement prepared by the Bank of Charlestown. That agreement was deficient for the same reasons as the one submitted by Chase, and after following an identical procedure, the court declared the agreement to be defective and unenforceable on June 23, 2006.

On July 28, 2006, the Debtors received their discharge, and the case was closed on the same day. On August 15, 2006, the Debtors filed this motion to reopen their case for the purpose of submitting "amended" reaffirmation agreements that conform to the Revised Director's Procedural Form B-240, and consequently, § 524(k) and (m). In addition to the motion to reopen, the Debtors wrote a letter to the court explaining that "[i]t was never [their] intention to include [their] home or cars in the filing." They further explain that their attorney had advised them not to sign the reaffirmation agreements, but they were attempting to refinance their real property and payoff the existing debts on their home and car, which would result in lowering their payments about $400 per month. The Debtors allege that they cannot obtain the desired refinancing, however, because their personal credit report shows a $0 balance being owed by them on their real property due to the fact that it is "included" in their bankruptcy case. The Debtors' refinancing company is refusing to refinance a $0 balance. According to the Debtors' letter:

JP MORGAN CHASE instructed me to make the case "active" and send them a new reaffirmation agreement. Once they receive the signed agreement we will go back in good standing with them and this note will be taken off the credit report.

(Doc. No. 31).

The Debtors believe that they can obtain the desired refinancing once they have personal liability on their real property debt.1


The Debtors' counsel argues that cause exists to reopen the Debtors' bankruptcy case for the purpose of filing post-discharge reaffirmation agreements on the basis that the Debtors attempted to comply with the law; the original, albeit defective and unenforceable, reaffirmation agreements were executed before the Debtors' discharge; and Fed. R. Bankr.P. 4008 allows the court thirty days after the entry of a discharge to approve reaffirmation agreements.2

Bankruptcy court cases are reopened pursuant to § 350(b) of the Bankruptcy Code, which allows a bankruptcy court to reopen a case "to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). The decision to reopen a case is within the bankruptcy court's discretion. E.g., Apex Oil Co. v. Sparks (In re Apex Oil Co.), 406 F.3d 538, 542 (8th Cir.2005); Hawkins v. Landmark Finance Company (In re Hawkins), 727 F.2d 324, 326 (4th Cir.1984). Before reopening a case, the court should make the threshold determination that one of the three grounds articulated in § 350(b) exists. See, e.g., In re Hendrix, No. 99-71718, 2005 Bankr.LEXIS 2159 at *2-3 (Bankr.N.D.Ga. Sept. 7, 2005) (holding that no cause existed to reopen the debtor's completed 60-month plan to address a post-petition default dispute); In re Root, 318 B.R. 851, 853-54 (Bankr. W.D.Mo.2004) (denying a motion to reopen a 13 year-old case for the purpose of attempting to discharge student loans because it would be too difficult to make the determination of undue hardship considering the passage of time); In re Houston, 310 B.R. 224, (Bankr.M.D.Ala.2004) (concluding that no cause existed to reopen a no asset Chapter 7 case to include a creditor). The party seeking to reopen the case has the burden of proof. In re Cloninger, 209 B.R. 125, 126 (Bankr.E.D.Ark.1997).

Cause does not exist to reopen a case for the purpose of filing an unenforceable reaffirmation agreement. In re Pettet, 271 B.R. 855, 857 (Bankr.S.D.Ind.2002) ("[T]he Court must conclude that the Debtor was required to file his agreement with Beneficial prior to receiving his discharge. His failure to do so cannot be cured by reopening the case now and submitting the agreement."). Here, however, the Debtors assert that cause does exist based on their timely filed, albeit defective and unenforceable, reaffirmation agreements, which the Debtors' now seek to amend to cure the stated deficiencies.

The purpose of filing a bankruptcy petition is to "give[] the honest but unfortunate debtor ... a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt." Local Loan Co. v Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 78 L.Ed. 1230 (1934). A debtor's discharge in bankruptcy, and the corresponding injunction provisions of the Bankruptcy Code are the two' primary elements that effectuate that financial fresh start. Chapman v. Bituminous Ins. Co. (In re Coho Res., Inc.), 345 F.3d 338, 342 (5th Cir.2003). More specifically, a discharge granted under the Bankruptcy Code "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover, or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived...." 11 U.S.C. § 524(a)(2).

Not all debts, however, are subject to the discharge injunction. For example, Congress expressly chose to impair a debtor's fresh start by excepting certain debts from discharge based on the particular nature of the debt or based on a debtor's wrongful conduct. § 523. Also, under certain circumstances, Congress allows a debtor to voluntarily eschew the benefits of a bankruptcy discharge in regard to a single creditor by allowing the debtor and that creditor to enter into a new, enforceable agreement — the consideration for which is based on an otherwise dischargeable debt. § 524(c). To prevent creditor abuse of § 524(c), and to prevent the use of that section from enervating the underlying purpose of the Bankruptcy Code, Congress provided that any "reaffirmation" agreements must meet certain, specified requirements. In short, the agreement must meet six criteria, at least two of which are unsatisfied in this case: (1) it must be made before the granting of a discharge; and (2) the debtor must have received the disclosures required by § 524(k)' of the Bankruptcy Code. 11 U.S.C. 524(c) (1-2).

The reaffirmation agreements that the debtor submitted on April 28, 2006 and May 1, 2006, are pervasively defective. For example, the reaffirmation agreement prepared by Chase is a two page document that fails to, inter alia, (1) disclose the terms "Amount Reaffirmed" and "Annual Percentage Rate" more conspicuously than other terms as required by § 524(k)(2) (in fact, the annual percentage rate was not disclosed at all); (2) contain the statement: "Part A: Before agreeing to reaffirm a debt, review these important disclosures:" as required by § 524(k)(3)(A); (3) contain a summary of the reaffirmation agreement as required by § 524(k)(3)(B); (4) contain the total of any fees and costs accrued as of the date of the disclosure statement as required by § 524(k)(3)(C)(3)(ii); and (5) contain a schedule of the Debtors' income and expenses pursuant to § 524(m) along with a statement on how the Debtors are able to afford to make the reaffirmed payments. The reaffirmation agreement prepared by the Bank of Charlestown is defective for many of the same reasons. The disclosures required by § 524(k) are not advisory; § 524(c) states that a reaffirmation agreement "is enforceable only if ... the debtor received the...

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