In Re: Maria Magdalena Perez
| Decision Date | 12 July 2010 |
| Docket Number | No. 7-10-11417 JA,7-10-11417 JA |
| Parties | In re: MARIA MAGDALENA PEREZ, Debtor. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico |
THIS MATTER is before the Court on the Debtor's Application for Approval of Reaffirmation Agreement with DT Credit Co. LLC. See Docket No. 15. The Debtor, Maria Magdalene Perez, is represented by counsel, Donald Provencio, who signed Part C: Certification by Debtor's Attorney but crossed out the second certification concerning whether the agreement imposes an undue hardship on the Debtor or a dependent of the Debtor. The Court held a final hearing on June 10, 2010 to consider the reaffirmation agreement. The Debtor appeared in person and testified under oath. Counsel for the Debtor did not appear, nor did the creditor, DT Credit Co. LLC ("DT Credit" or "Creditor"). The Court took the reaffirmation agreement under advisement to determine the following: 1) whether the agreement is enforceable absent Court approval or disapproval, and, if enforceable, whether the agreement should be disapproved; 2) if the agreement is unenforceable absent Court approval, whether the Court may render the agreement enforceable by approving it; and 3) whether the Debtor may retain the collateral and pay the debt according to the pre-bankruptcy contract terms if the reaffirmation agreement is unenforceable.
After consideration of the reaffirmation agreement in light of the applicable Bankruptcy Code sections and review of relevant case law, and after determining that the Debtor was represented by counsel in the course of negotiating the agreement, the Court has determined that the reaffirmation agreement is unenforceable. A reaffirmation agreement is not enforceableunless all of the enforceability requirements of 11 U.S.C. § 524(c) are satisfied. For a represented Debtor, court approval of the agreement is not one of those requirements; the Bankruptcy Code does not require court approval as a condition to enforceability of the agreement, nor does it permit a court to render enforceable an otherwise unenforceable agreement by approving it. The court's only role is to render unenforceable an otherwise enforceable agreement by disapproving it, and that role is limited to agreements where the creditor is not a credit union. The reaffirmation agreement before the Court is unenforceable because it fails to satisfy one of the enforceability requirements of 11 U.S.C. § 524(c) applicable to represented debtors. Debtor's counsel did not make the required no undue hardship certification under Part C of the agreement. Accordingly, the Court need not have held a hearing on the agreement. Finally, the Court has determined that, by signing a statement of intention to reaffirm the debt, timely filing the statement in her case, and thereafter timely entering into the reaffirmation agreement, the Debtor has complied with the requirements of 11 U.S.C. § 521(a)(6) and 11 U.S.C. § 362(h). Consequently, the Court concludes that the Creditor may not exercise remedies under 11 U.S.C. § 521(d) or 11 U.S.C. § 362(h).
Debtor, Maria Magdalena Perez, filed a voluntary petition under Chapter 7 of the Bankruptcy Code on March 23, 2010. She is represented by counsel, Donald Provencio. Debtor filed the Chapter 7 Individual Debtor's Statement of Intention ("Statement of Intention") on the same date. See Docket No. 8. The Statement of Intention reflects that the Debtor intends to retain a 2005 Chevrolet Equinox ("Vehicle") and reaffirm the debt to Creditor secured by the Vehicle. Id.
On May 13, 2010, a reaffirmation agreement between DT Credit and the Debtor concerning the Vehicle was filed in the Debtor's bankruptcy case. See Docket No. 15. The reaffirmation agreement includes the required Reaffirmation Cover Sheet.1 Id. Both the Debtor and DT Credit signed the reaffirmation agreement. The reaffirmation agreement reflects that the Debtor has agreed to reaffirm a debt in the amount of $11,471.30, that the interest rate on the reaffirmed debt is 25.917%, and that the original purchase price of the Vehicle was $13,104.29. The payments due under the reaffirmation agreement are $186.77, payable biweekly. See Reaffirmation Agreement, Part A. Debtor's Schedule D reflects that the Vehicle has a value of $10,775.00. See Docket No. 1. Debtor's Schedules I and J reflect monthly income in the amount of $1,478.00 and monthly expenses in the amount of $2,582.00, leaving a net monthly deficit of $1,104.00. See Docket No. 1. The Reaffirmation Cover Sheet, as well as Part D of the Agreement, reflects the Debtor presently has monthly income in the amount of $1,400 and monthly expenses including the car payment in the exact same amount. Debtor has one dependent. The meeting of creditors was held and concluded on April 23, 2010. See Docket entry No. 13.
Debtor's counsel executed Part C of the reaffirmation agreement, certifying that "this agreement represents a fully informed and voluntary agreement by the debtor" and that he "fully advised the debtor of the legal effect and consequences of this agreement and any default under this agreement." Counsel for the Debtor crossed out the second certification contained in Part C: that the agreement does not impose an undue hardship on the debtor or a dependent of the debtor. Counsel for the Debtor did not check the box on Part C stating that a presumption of unduehardship has been established but that, in counsel's opinion, the Debtor is able to make the payment.
At the final hearing to consider whether to disapprove the reaffirmation agreement, the Debtor testified that she is current on the payments, that the Vehicle is insured, that she needs the car to get to work, and that she can keep up with the payments. She did not know the current value of the Vehicle, but estimated that it could be worth around $10,000.00. To date, the discharge has not been granted in the Debtor's bankruptcy case.
A reaffirmation agreement allows a debtor to reaffirm a debt, the unsecured portion of which would otherwise be dischargeable in bankruptcy, provided certain requirements are met. 11 U.S.C. § 524(c). Reaffirmation agreements are enforceable only if all applicable requirements of 11 U.S.C. § 524(c) are satisfied. Section 524(c) provides that "An agreement... is enforceable only to the extent enforceable under applicable nonbankruptcy law... only if " and then enumerates six requirements in subsections (1) through (6). 11 U.S.C. § 524(c) (emphasis added). One of the requirements for an enforceable reaffirmation agreement, § 524(c)(3), 2 applies only to debtors represented by counsel in the course of negotiating the agreement, and two of those requirements, § 524(c)(5) and (6), 3 apply only to debtors who are not represented by counsel in the course of negotiating the agreement.
Because the requirements for an enforceable reaffirmation agreement differ depending on whether the Debtor was represented by an attorney in the course of negotiating the agreement, the Court must first determine whether the Debtor was so represented before determining whether the reaffirmation agreement is enforceable and the Court's role with respect to approval or disapproval of the agreement. The Reaffirmation Agreement Cover Sheet for the reaffirmation agreement before the Court does not specify whether the Debtor was represented by counsel during the course of negotiating the Agreement. Part C of the agreement, entitled "Certification by Debtor's Attorney (if Any)," is executed by Debtor's counsel. The Court will presume that the Debtor was represented by counsel during the course of negotiating the agreement.4
Exclusion of such representation by bankruptcy counsel for a chapter 7 individual debtor in a consumer case would be an impermissible limitation on counsel's representation of the debtor. "[T]he decision to reaffirm an otherwise dischargeable debt plays a critical role in the bankruptcy process-so critical, that assistance with the decision must be counted among the necessary services that make up competent representation of a Chapter 7 debtor." In re Minardi, 399 B.R. 841, 848 (Bankr. N.D. Okla. 2009). The decision to reaffirm an otherwise dischargeable debt affects the debtor's fresh start and ordinarily is one of the most important decisions to be made by an individual debtor in a chapter 7 consumer case. Debtor's counsel plays a critical role in protecting the interests of the debtor in making this important decision. Attorneys appearing before this Court typically are bound by the New Mexico Rules of Professional Conduct. Rule 16-101.C provides: "A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent." For the reasons set forth above and in Minardi, exclusion by Debtor's bankruptcy counsel in representing the Debtor in this case in the course of negotiating a reaffirmation agreement would not be a reasonable limitation on the scope of services. See Minardi, 399 B.R. at 848-56.5
The four requirements for an enforceable reaffirmation agreement applicable to debtors represented by counsel in the course of negotiating the agreement are:
(1) such agreement was made before the granting of the discharge under section 717, 1141, 1228 or 1328 of this title;
(2) the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the agreement;
(3) such agreement has been filed with the court and, if applicable, accompanied by a declaration or an affidavit of the attorney that represented the debtorduring the course of...
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