In re Smith, Bankruptcy No. 38102281.
| Decision Date | 06 December 1983 |
| Docket Number | Bankruptcy No. 38102281. |
| Parties | In re Sandra Ruth SMITH, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Kentucky |
Michael R. Gosnell, Louisville, Ky., counsel for Union Investment.
David M. Cantor, Louisville, Ky., for debtor.
William S. Bornstein, Louisville, Ky., for Irvin Kahn & Son, Inc.
In the course of conducting discharge hearings in this court, we had heretofore thought no proposition so clear as that a reaffirmation agreement concerning mortgaged real estate is binding on the debtor, regardless of whether the judge gives such a contract his official approval in open court. The present controversy draws into question that basic assumption.
By way of background, 11 U.S.C. § 524 requires that a discharge hearing must be held at which debtors are given what amounts to a short judicial seminar on the meaning and effect of the discharge to be given and on the rights and duties of debtors as they leave the bankruptcy womb, financially reborn, for the harsh real world of binding contracts.
Because of the sheer numbers of debtors involved and the resulting need to conduct such docket activity with dispatch, the "discharge hearings" have evolved, in this district at least, into purely pro forma proceedings having only ritual significance, if any.
At such hearings we have foregone any detailed consideration of real estate reaffirmation agreements in the belief that no formal court approval—or, for that matter, disapproval—would alter the binding effect of such a contract, voluntarily undertaken. We are, in each case, aware of such real estate reaffirmation agreements as they appear in the file, and we tell debtors that those contracts are binding on them simply because they have signed them. But we have withheld formal approval, interpreting 11 U.S.C. § 524 quite literally as requiring court approval of reaffirmation agreements only "to the extent that such debt is a consumer debt that is not secured by real property of the debtor . . ." 11 U.S.C. § 524(c)(4) and 524(d)(2).
Consumer debts and real estate mortgages are the only types of contract obligations specifically mentioned in Section 524, and the latter, alone among contracts, is excepted from the general requirement for judicial inspection and approval. The exception juts out of the statutory landscape like a promontory of free will, exercisable by the individual alone without any paternalistic overview whatsoever. The congressional purpose in excluding such debts from our scrutiny was to facilitate the felt need of debtors to keep their homes as...
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