In re Parker

• Decision Date: 23 June 1992
• Docket Number: Bankruptcy No. 91-11139M.
• Citation: 142 BR 327
• Parties: In re Michael PARKER and Cheryl Parker, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Arkansas

142 B.R. 327 (1992)

In re Michael PARKER and Cheryl Parker, Debtors.

Bankruptcy No. 91-11139M.

United States Bankruptcy Court, W.D. Arkansas, El Dorado Division.

June 23, 1992.

Martha Jett McAlister, Little Rock, Ark., for Green Tree Acceptance, Inc.

Jimmy D. Eaton, Little Rock, Ark., for debtors.

William Randal Wright, Hope, Ark., trustee.

ORDER

JAMES G. MIXON, Bankruptcy Judge.

On June 10, 1991, Michael and Cheryl Parker (debtors) filed a voluntary petition for relief under the provisions of chapter 7 of the United States Bankruptcy Code. William Randal Wright, Esq., was appointed trustee. The debtors' assets include a 1989 Sunrizon Ranger mobile home that they claim as exempt property under the homestead exemption statutes. Green Tree Acceptance, Inc. (Green Tree) holds a validly perfected security interest in the mobile home to secure the repayment of the sum of $16,900.00. The schedules included the debtors' statement of intentions that reflected that the debtors "intend to keep the mobile home and make arrangements with creditor." The parties stipulated that the debtors are current on their payments to Green Tree.

On September 3, 1991, Green Tree filed a motion for an order requiring the debtors to either redeem, reaffirm, or surrender the mobile home. The debtors oppose the motion and argue that they should be allowed to retain the mobile home and continue to make the monthly payments without reaffirming the debt. A hearing was held on November 15, 1991, at which time the parties stipulated the facts and submitted the matter on briefs.

The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), and the Court has jurisdiction to enter a final judgment in the case.

DISCUSSION

11 U.S.C. § 521 describes some of the duties a debtor has upon the filing of a bankruptcy petition, such as the duty to file a list of creditors and a schedule of assets and liabilities. 11 U.S.C. § 521(2)(A), (B), and (C) provides in relevant part as follows:¹

(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 ... 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 ... 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.

Green Tree argues that subparagraphs (2)(A), (B) and (C) restrict the debtors to only three alternatives with respect to their mobile home: (1) to surrender the property, (2) to redeem the property, or (3) to reaffirm the underlying debt. The debtors argue that they are not limited to these three alternatives and should be allowed to retain and pay for the mobile home without being required to reaffirm the underlying debt.

11 U.S.C. § 521 is not easy to discern because the section is poorly drafted and ambiguous. The language of section 521 supports at least two reasonable interpretations. The debtors' construction of section 521 is more consistent with the plain language and legislative history than Green Tree's interpretation. The legislative history of 11 U.S.C. § 521 is explained by Judge Small in In re Belanger, 118 B.R. 368 (Bankr.E.D.N.C.1990), aff'd sub nom. Home Owners Funding Corp. of Am. v. Belanger, 128 B.R. 142 (E.D.N.C.1990), aff'd, 962 F.2d 345 (4th Cir.1992):

The idea for § 521(2)(A) came from a proposal submitted by a coalition of bankers, credit unions, finance companies, oil companies and retailers. The proposal was called the "Proposed Consumer Bankruptcy Improvements Act of 1981" and was described in hearings before the Senate\'s Subcommittee on Courts of the Committee on the Judiciary, On April 3 and 6, 1981. Hearings Before the Subcomm. on Courts of the Sen. Comm. on the Judiciary, 97th Cong., 1st Sess. J-97-11 (1981). Several witnesses appearing on behalf of the coalition and on behalf of the American Bankers Association explained how secured creditors in consumer chapter 7 cases often had no information concerning their collateral. The automatic stay prohibits contact with the debtor and typically the secured creditor would know nothing about the fate of its collateral. The complaint was that the secured creditor would often incur the expense of filing an adversary proceeding to lift the stay only to learn that the debtor all along intended to surrender the property without a contest. The solution to the problem was to require an early disclosure of the debtor\'s intention with respect to the property and early performance. If the creditor were to know what the debtor intended to do with the collateral, it would know how to proceed, such as by entering into a reaffirmation agreement, picking up the collateral, or seeking to modify the stay.

The many consumer amendments proposed by the coalition of consumer lenders were the subject of considerable debate and consumer bankruptcy amendments were proposed by the Senate Judiciary Committee in 1982 and in 1983. In its report accompanying S. 200, the Senate Judiciary Committee stated that the amendments to § 521 "encourage the debtor and creditor to settle issues involving secured debt without judicial proceedings, but also enable the parties to identify disputed matters at an early stage so that they may be resolved at the meeting of creditors. This will avoid the time and expense of separate and delayed proceedings." S.Rep. No. 97-446, 97th Cong., 2d Sess. 41 (May 21, 1982).

There was no Senate or House Report which accompanied the Bankruptcy Amendments and Federal Judgeship Act of 1984 and the legislative history is "woefully inadequate." In re Barriger, 61 B.R. 506, 509 (Bankr.W.D.Tenn.1986), quoting In re Eagle, 51 B.R. 959, 961 (Bankr.N.D.Ohio 1985). The closest legislative statement interpreting § 521(2) is a statement made by Representative Rodino in response to a request by Representative Synar that he "explain what rights are reserved to the debtor and trustee under § 521(2)(C)." 130 Cong. Rec. H1810 (daily ed. Mar. 21, 1984). According to Chairman Rodino, the duty imposed under § 521(2) "does not affect the substantive provisions of the code which may grant the trustee or debtor rights with regard to such property." Id. It appears from that statement that the debtor\'s rights with respect to the property were to be left intact.

In re Belanger, 118 B.R. at 370-72 (footnotes omitted). Section 521 is "essentially a notice requirement adopted to permit secured creditors to ascertain the debtor's intentions early in the case." Id. at 370, citing H. Sommer, "The 1984 Changes in Consumer Bankruptcy Law," 31 Practical Lawyer 45, 55 (Jan. 1985). As Judge White stated in In re Eagle, 51 B.R. 959, 962 (Bankr.N.D.Ohio 1985):

legislative history also clearly shows that the notice and time limitations of section 521(2) are not intended to abrogate the debtors\' substantive rights under the Code.

Section 521(2)(C) provides that "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 substantive Code sections dealing with redemption and reaffirmation are permissive, not mandatory. 11 U.S.C. § 722 provides that a "debtor may ... redeem" personal property by paying the secured creditor the amount of the allowed secured claim. 11 U.S.C. § 722 (emphasis added). Similarly, 11 U.S.C. § 524 provides that a debtor may reaffirm a debt only if the reaffirmation agreement between the debtor and the holder of the claim "represents a fully informed and voluntary agreement by the debtor." 11 U.S.C. § 524(c)(3)(A). Therefore, interpreting § 521(2)(A) and (B) literally to limit a debtor's alternatives would, in effect, result in a tacit repeal of the permissive nature of the rights conferred upon a debtor by 11 U.S.C. §§ 524 and 722. There is no clear indication that Congress ever intended to repeal portions of sections 524 and 722.

The issue of whether 11 U.S.C. § 521 requires a debtor to choose either redemption, reaffirmation, or surrender has been decided by many courts and has resulted in a split of authority. The Seventh Circuit Court of Appeals has held that the provisions of 11 U.S.C. § 521 are mandatory and require a debtor to choose one of the three alternatives. In re Edwards, 901 F.2d 1383 (7th Cir.1990). The Fourth and Tenth Circuit Courts of Appeals have held that a debtor is not limited to the three alternatives set out in 11 U.S.C. § 521. Home Owners Funding Corp. v. Belanger (In re Belanger), 962 F.2d 345 (4th Cir.1992); Lowry Fed. Credit Union v. West, 882 F.2d 1543 (10th Cir.1989). See also In re Donley, 131 B.R. 193, 195 (Bankr.N.D.Fla. 1991); In re Hunter, 121 B.R. 609, 612-13 (Bankr.N.D.Ala.1990); In re Crouch, 104 B.R. 770 (Bankr.S.D.W.Va.1989); Century Bank at Broadway v. Peacock (In re Peacock), 87 B.R. 657, 660 (Bankr.D.Colo.1988). This latter view is also supported by a leading treatise on bankruptcy. Accord 3 Collier on Bankruptcy ¶ 521.09A2 (15th ed. 1991). The issue has not been decided by the Eighth Circuit Court of Appeals.

In Edwards, the Seventh Circuit based its decision on what it perceived was the legislative intent behind the enactment of 11 U.S.C. § 521. Judge Cudahy, writing for the Court, stated:

The 1984 Consumer Finance Amendments to the Bankruptcy Code were intended, inter alia, to protect creditors from the risks of quickly depreciating assets and to keep credit costs from escalating because of the too-ready

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