In re Pendlebury

• Decision Date: 02 December 1988
• Docket Number: 3-88-01861 and 3-88-02044.,Bankruptcy No. 3-88-01528,3-88-01544
• Citation: 94 BR 120
• Parties: In re Linda Faye PENDLEBURY, a/k/a Linda Faye Stevens, Debtor. In re Pamela Elaine ARNETT, a/k/a Pamela Elaine Nidiffer and Pamela Elaine Buckles, Debtor. In re Wayne Richard WILLIAMS and Wanda Williams, Debtors. In re James Weston LIVERMAN and Donna Jean Robinson Liverman, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

94 B.R. 120 (1988)

In re Linda Faye PENDLEBURY, a/k/a Linda Faye Stevens, Debtor In re Pamela Elaine ARNETT, a/k/a Pamela Elaine Nidiffer and Pamela Elaine Buckles, Debtor In re Wayne Richard WILLIAMS and Wanda Williams, Debtors In re James Weston LIVERMAN and Donna Jean Robinson Liverman, Debtors.

Bankruptcy Nos. 3-88-01528, 3-88-01544, 3-88-01861 and 3-88-02044.

United States Bankruptcy Court, E.D. Tennessee.

December 2, 1988.

Dugger & Cole, Mark S. Dugger, Elizabethton, Tenn., for debtors, Linda Faye Pendlebury and Pamela Elaine Arnett.

Hampton & Hampton, Bill Hampton, Elizabethton, Tenn., for joint debtors, James Weston Liverman and Donna Jean Robinson Liverman, and Wayne Richard Williams and Wanda Williams.

McKinnon, Fowler, Fox & Taylor, John S. Taylor, Johnson City, Tenn., for Leader Federal Sav. and Loan Ass'n.

MEMORANDUM ON MOTION OF DEBTORS TO STRIKE PROVISION IN REAFFIRMATION AGREEMENTS

RICHARD S. STAIR, Jr., Bankruptcy Judge.

The debtors in these four Chapter 7 cases each filed a motion requesting an order striking a provision in a proposed reaffirmation agreement with Leader Federal Savings and Loan Association (Leader Federal). The reaffirmation agreements at issue purport to make the respective debtors, individually or jointly, as the case may be, responsible for the payment of attorney's fees in the amount of $250.00.¹ By the execution of reaffirmation agreements, the debtors desire to retain possession of mobile homes financed through Leader Federal. The debtors do not, however, acquiesce in Leader Federal's insistence that each reaffirmation agreement contain the provision requiring payment of a $250.00 attorney's fee.

The trustee in each case has abandoned the mobile home as a burdensome asset of the estate. The court has withheld granting the discharges of the respective debtors pending resolution of the issues raised by their motions.

These are core proceedings. 28 U.S.C.A. § 157(b)(2)(O) (West Supp.1988).

I

The Bankruptcy Code sanctions two methods by which debtors may retain possession of secured property: redemption or reaffirmation.² Redemption, authorized under 11 U.S.C.A. § 722 (West 1979), permits the debtor to redeem tangible secured personal property from a lien securing a consumer debt upon a lump-sum payment to the creditor of the fair market value of the property or the amount of the claim, whichever is less. See General Motors Acceptance Corporation v. Bell (In re Bell), 700 F.2d 1053, 1055-56 (6th Cir.1983). Redemption may be voluntary where the debtor and secured creditor stipulate the redemption value of the secured property. Redemption can also be involuntary.³ Reaffirmation contemplates a voluntary post-petition agreement between the debtor and creditor. It is authorized by 11 U.S.C.A. § 524(c) (West Supp.1988) which provides in material part:

(c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law, whether or not discharge of such debt is waived, only if —

(1) such agreement was made before the granting of the discharge under section 727, 1141, 1228, or 1328 of this title;

(2) such agreement contains a clear and conspicuous statement which advises the debtor that the agreement may be rescinded at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later, by giving notice of rescission to the holder of such claim;

(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 debtor during the course of negotiating an agreement under this subsection, which states that such agreement —

(A) represents a fully informed and voluntary agreement by the debtor; and

(B) does not impose an undue hardship on the debtor or a dependent of the debtor;

(4) the debtor has not rescinded such agreement at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later, by giving notice of rescission to the holder of such claim;

(5) the provisions of subsection (d) of this section have been complied with; and

(6)(A) in a case concerning an individual who was not represented by an attorney during the course of negotiating an agreement under this subsection, the court approves such agreement as —

(i) not imposing an undue hardship on the debtor or a dependent of the debtor; and

(ii) in the best interest of the debtor.

(B) Subparagraph (A) shall not apply to the extent that such debt is a consumer debt secured by real property.

In discussing reaffirmation under § 524(c), the Court of Appeals for the Sixth Circuit has stated:

Section 524(c) authorizes a Chapter 7 debtor to seek renegotiation of the terms of the security agreement with the creditor thereby creating an alternative method pursuant to which a debtor may attempt to retain possession of secured collateral. Such an alternative, obviously attractive to the debtor financially unable to redeem the secured collateral through a lump-sum payment, is the equitable complement to § 722. Simply, a debtor incapable or unwilling to tender a lump-sum redemption and redeem the secured collateral for its fair market value may reaffirm with the creditor; contrawise, a debtor confronted with a creditor unwilling to execute a renegotiation may retain the secured collateral by redeeming it for its fair market value, which value may be substantially less than the contractual indebtedness. However, 524(c) facially contemplates that the creditor, for whatever reason, may reject any and all tendered reaffirmation offers; § 524(c) envisions execution of an "agreement" which, by definition, is a voluntary undertaking. . . .

In re Bell, 700 F.2d at 1056. (citations omitted) (emphasis added).⁴

Section 524(c) does not mandate reaffirmation of any debt. See Vinson v. Farmer's Home Administration (In the Matter of Vinson), 5 B.R. 32 (Bankr.N.D.Ga.1980) (Debtor may not unilaterally propose an agreement or order to require the creditor to reaffirm.); Schmidt v. American Fletcher National Bank and Trust Co. (In re Schmidt), 64 B.R. 226 (Bankr.S.D. Ind.1986) (Reaffirmation requires voluntary consent of both parties); In re Whatley, 16 B.R. 394 (Bankr.N.D.Ohio 1982) (Reaffirmation is a consensual action between parties). See also Howard v. Howard (In re Howard), 27 B.R. 894, 895 (Bankr.W.D.Ky.1983) ("Judicially coerced reaffirmation agreements are repugnant to the spirit of the Bankruptcy Code. . . ."). The voluntary nature of reaffirmation agreements is emphasized by the escape clause each agreement is required to contain pursuant to § 524(c)(2), supra.

Further, Code § 524(d) requires that a debtor desiring to reaffirm a debt must appear before the court at a hearing at which the court is required to inform the debtor that he or she is not required under the provisions of title 11 or under nonbankruptcy law to reaffirm any debt.⁵ See In re Churchill, 89 B.R. 878 (Bankr.Colo. 1988).

Section 524(c), as enacted under the 1984 Amendments, requires the attorney representing the debtor during the negotiation of a reaffirmation agreement to certify that the agreement "does not impose an undue hardship on the debtor or a dependent of the debtor." Further, the agreement must contain the rescission clause mandated by § 524(c)(2). Section 524(d) requires the court to inform a debtor desiring to reaffirm a debt of the voluntary nature of such an agreement and its implications. Neither § 524(c) nor (d) require the court to approve the agreement except where a pro se debtor seeks to reaffirm a debt.

Pursuant to the optional provisions of § 524(d), this court on May 11, 1988, entered General Order No. 88-2 which dispensed with discharge hearings and established procedures to be followed by debtors desiring to reaffirm debts. Procedurally, debtors in the Northern and Northeastern Divisions of this district are required to file reaffirmation agreements with the clerk prior to expiration of the bar date fixed in the order for meeting of creditors for filing complaints objecting to discharge under 11 U.S.C.A. § 727 (West 1979 & Supp.1988).⁶ At the reaffirmation hearings held pursuant to § 524(d), this court does not interject itself into the reaffirmation process other than is required under § 524(c)(5) and (6) and (d). The court recognizes that debtor's attorneys are in the best position to evaluate the effect of reaffirmation on their clients. Clearly, an attorney by affixing his signature to the declaration or affidavit required by § 524(c)(3) certifies that attorney's participation in the reaffirmation process and the accuracy of the representations contained therein to the best of the attorney's knowledge, information and belief. See Fed.R.Bankr. P. 9011.

Notwithstanding the relaxed provisions of § 524(c) under the 1984 Amendments respecting court approval, this court would in no way countenance overreaching by a secured creditor. The court would not hesitate in appropriate circumstances to utilize its equitable powers and interject itself into the reaffirmation process. Such a situation should, however, never occur where a debtor is represented by counsel. Congress' intent that the court rely upon the declaration and affidavit filed by counsel is made manifest under the 1984 Amendments by removal of the requirement of court approval except as to reaffirmation agreements entered into by pro se debtors.

In practice, reaffirmation hearings presently serve no useful purpose except for debtors filing pro se. Attorneys are rightly charged with the responsibility for advising their clients during the reaffirmation process. As is noted in the legislative history to the present § 524(c):

In all, the new section is designed to encourage the prompt execution and

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