In re Sweeney, Bankruptcy No. 80-00528

• Decision Date: 22 December 1980
• Docket Number: 80-0267,80-01325,80-0301 and 80-0390.,80-01925 and 80-01942. Adv. No. 80-324,80-01707,80-0248,Bankruptcy No. 80-00528
• Citation: 7 BR 814
• Parties: In re Allan and Pauline SWEENEY, Willis R. Gifford and Jacqueline M. Gifford, Donald Dean Pfeffer, Sr. and Barbara Louise Pfeffer, Mark Anthony Price and Evelyn Mae Price, and Charles Jaeger, Debtors. Allan SWEENEY and Pauline Sweeney, Plaintiffs, v. PACIFIC FINANCE COMPANY n/k/a Transamerica Financial Services, Defendant. Willis R. GIFFORD and Jacqueline M. Gifford, Plaintiffs, v. THORP FINANCE CORPORATION, Defendant. Donald Dean PFEFFER, Sr. and Barbara Louise Pfeffer, Plaintiffs, v. TRANSAMERICA/PACIFIC FINANCE CORPORATION, Defendant. Mark Anthony PRICE and Evelyn Mae Price, Plaintiffs, v. THORP FINANCE CORPORATION, Defendant. Charles JAEGER, Plaintiff, v. THORP FINANCE CORPORATION, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

7 B.R. 814 (1980)

In re Allan and Pauline SWEENEY, Willis R. Gifford and Jacqueline M. Gifford, Donald Dean Pfeffer, Sr. and Barbara Louise Pfeffer, Mark Anthony Price and Evelyn Mae Price, and Charles Jaeger, Debtors.

Allan SWEENEY and Pauline Sweeney, Plaintiffs, v. PACIFIC FINANCE COMPANY n/k/a Transamerica Financial Services, Defendant.

Willis R. GIFFORD and Jacqueline M. Gifford, Plaintiffs, v. THORP FINANCE CORPORATION, Defendant.

Donald Dean PFEFFER, Sr. and Barbara Louise Pfeffer, Plaintiffs, v. TRANSAMERICA/PACIFIC FINANCE CORPORATION, Defendant.

Mark Anthony PRICE and Evelyn Mae Price, Plaintiffs, v. THORP FINANCE CORPORATION, Defendant.

Charles JAEGER, Plaintiff, v. THORP FINANCE CORPORATION, Defendant.

Bankruptcy Nos. 80-00528, 80-01325, 80-01707, 80-01925 and 80-01942.

Adv. Nos. 80-324, 80-0248, 80-0267, 80-0301 and 80-0390.

United States Bankruptcy Court, E.D. Wisconsin.

December 22, 1980.

Hugh A. Ross, Jr., Milwaukee, Wis., for plaintiff debtors in Sweeney Case No. 80-00528.

Jeffrey S. Schuster, Milwaukee, Wis., for defendant in Sweeney Case No. 80-00528, Price Case No. 80-01925 and Jaeger Case No. 80-01942.

Michael J. Lund, Milwaukee, Wis., for plaintiff debtors in Gifford Case No. 80-01325.

Herbert Levine, Milwaukee, Wis., for defendant in Gifford Case No. 80-01325.

Michael J. Rynes, Milwaukee, Wis., for plaintiff debtors in Pfeffer Case No. 80-01707 and Price Case No. 80-01925.

Robert A. Kagen, Milwaukee, Wis., for defendant in Pfeffer Case No. 80-01707.

John L. Castellani, Milwaukee, Wis., for plaintiff debtor in Jaeger Case No. 80-01942.

Before HILGENDORF, IHLENFELDT and CLEVERT, Bankruptcy Judges.

DALE E. IHLENFELDT, Bankruptcy Judge.

In each of these cases, the plaintiff debtors seek to avoid nonpossessory, nonpurchase-money security interests in personal property, pursuant to § 522(f) of the Bankruptcy Code,¹ and the defendant creditors assert that § 522(f) is unconstitutional as applied to them, in that it violates the Fifth Amendment by depriving them of valuable and substantial property rights without due process of law. Because of the importance of the issue, these cases have been consolidated for the purpose of obtaining a uniformity of decision in this district.

The Bankruptcy Reform Act of 1978, of which § 522(f) is a part, was enacted on November 6, 1978 and given an effective date of October 1, 1979, with all bankruptcy cases filed after the latter date to be governed by the new law. The dates of the respective security agreements and the property here in issue are as follows:

                     Gifford:  October 4, 1978.          1 25" Sylvania TV Set Color
                                                         1 5 × 7 Lamb Rug, 1 Maytag Dryer
                                                         1 Maytag Washer, 1 19" Sony-TV Set
                                                         1 Ampex Model 354 Tape recorder
                                                         1 pecan 7 × 7 Bookcase
                                                         1 Ranch Oak Poker (table)
                     Sweeney:  June 29, 1979.            Household goods and furnishings
                     Price:    July 16, 1979.            Color television, rocker, 3 tables,
                                                         sewing machine, 3 lamps, footstools,
                                                         shotgun
                     Pfeffer:  August 7, 1979.           3 tables, 2 lamps, 1 television set,
                                                         2 dressers, 1 sewing machine,
                                                         1 vacuum cleaner, 1 washer, 1 dryer,
                                                         1 air conditioner.
                     Jaeger:   June 27, 1980.            1 RCA color TV set w/antenna
                                                        *1 Harmon Kurdon 330B Receiver
                                                        *1 Bic turntable
                                                        *1 Sony Reel to reel tape recorder
                                                        *2 Unilinear floor speakers
                                                        *2 Homemade speakers
                                                         1 Ethan Allen 5-drawer dresser
                                                         1 Ethan Allen 7-drawer dresser
                                                         1 Ethan Allen large mirror
                                                         2 Ethan Allen 1 drawer lamp tables
                                                         1 Gold dressing chair
                

In the Jaeger case, in addition to the constitutional defense, the defendant also contends that the purview of § 522(f) does not extend to the starred items.

The Bankruptcy Reform Act of 1978 has been in effect now for more than a year, long enough to have the constitutionality of § 522(f) discussed in numerous decisions by bankruptcy judges. They are fairly evenly divided in their views concerning the validity or invalidity of § 522(f). Citations to a number of them are given below.² We are unaware of any higher courts having reviewed any of these decisions on appeal. The principal bone of contention in these cases is the case of Louisville Joint Stock Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935) and its progeny. We believe it has been pretty thoroughly dissected and analyzed in the earlier cases listed below, and we express here our gratitude to those judges for their careful thought and effort of which we have had the benefit. It is not our intent to set forth our own warmed over discussion of that case's present significance vis-a-vis the power of Congress to establish bankruptcy laws. However, we do offer our view that while the Supreme Court has to some extent receded from or limited its holding in the Radford case, that case has never been directly overruled. We agree with Judge Anderson that "(T)he focus, therefore, is to the structure and terms of the particular statutes in question to rationalize their specific operation and effect and to determine whether they bear constitutional muster." In re Rutherford, 4 B.R. 510, 2 CBC2d 728, 730 (Bkrtcy.S.Ohio 1980).

In dealing with the issue of the constitutionality of legislation, we keep in mind certain guiding principles. While trial courts have the power to declare an act of Congress unconstitutional, they should proceed with caution and do so only in a clear case. It is a fundamental rule that there is a presumption in favor of the constitutionality of a legislative enactment, and in applying rules of statutory construction to legislation which is under attack, the courts should do so with a view to bringing the legislation into line with constitutional requirements, that is, favor that interpretation which gives it the greater chance of surviving the test of constitutionality. 16 Am.Jur.2d Constitutional Law §§ 159, 212, 219.

In the cases before us, we note that the security interest in the Gifford case was obtained prior to the enactment of the Bankruptcy Reform Act of 1978, three others were obtained in the interim period between the date of its enactment and its effective date, and finally, the security interest in the Jaeger case was obtained subsequent to the effective date of the Act. We turn first to the Gifford case.

In a number of cases discussing the constitutionality of § 522(f), the question was raised as to whether Congress intended it to have retroactive effect, and almost without exception, the courts have found that it was so intended. We do not understand the parties here to have contended to the contrary, but in any event, we would follow the reasoning in the earlier cases. We believe Congress intended that it apply to interests acquired prior to November 6, 1978, the date of enactment. The question then is whether it violates the defendant's constitutional rights when so applied.

Section 522(f) had its inception in Section 4-503(f) of the proposed bankruptcy statute contained in the Report of the Commission on the Bankruptcy Laws of the United States. Part II at page 126. The Commission said that "non-purchase-money security interests should not be enforceable as to items of property essential to a debtor's well-being, such as wearing apparel, which are of little or no value to a creditor, other than as a means of coercing payment", Part I, page 169, and that "nonpurchase money security be unenforceable as to wearing apparel, household goods, and health aids." Part I, page 170.

Congress accepted the views of the Commission, as is shown in the legislative history of § 522(f).

"In fact, were the creditor to carry through on his threat and foreclose on the property, he would receive little, for household goods have little resale value. They are far more valuable to the creditor in the debtor\'s hands, for they provide a credible basis for the threat, because the replacement costs of the goods are generally high. Thus, creditors rarely repossess, and debtors, ignorant of the creditors\' true intentions, are coerced into payments they simply cannot afford to make." H.Rep.No.95-595, 95th Cong., 2nd Sess. (1978) 127, U.S.Code Cong. & Admin.News, pp. 5787, 6088.

The problem Congress was attempting to redress is also described in the discussion on "redemption."

". . . the secured creditor is able to deprive a debtor of even the most insignificant household effects, including furniture, cooking utensils, and clothing, even though the items have little if any realizable market value. However, the goods do have a high replacement cost, and thus the creditor is able to use the threat of repossession, rarely carried out, to extract more than he would be able to if he did foreclose or repossess." H.Rep. No.95-595, 95th Cong., 2nd Sess. (1978) 127, U.S.Code Cong. & Admin.News, p. 6088.

From the foregoing, it seems to us that the legislative purpose is very clear. Congress specified that § 522(f) should apply to certain limited categories of personal property which are necessities of family life and have little if any resale value from the creditor's standpoint, but have a relatively high replacement cost so far as the debtor is concerned. Experience had shown that creditors were able to...