In re Taylor, Bankruptcy No. 91-10150-ALB.
| Citation | 138 BR 1018 |
| Decision Date | 20 March 1992 |
| Docket Number | Bankruptcy No. 91-10150-ALB. |
| Parties | In re Warren L. TAYLOR, Jr., SSN: XXX-XX-XXXX, Cathy L. Taylor, SSN: XXX-XX-XXXX, Debtors. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Georgia |
Henry C. Custer, Albany, Ga., for debtors.
K. Alan Dasher, Albany, Ga., for Albany Government Employees Federal Credit Union.
Warren and Cathy Taylor (hereinafter referred to as "Debtors") filed a petition under Chapter 7 of the Bankruptcy Code on February 20, 1991. Albany Government Employees Federal Credit Union (hereinafter referred to as "AGE") holds a first lien on two vehicles owned by the Debtors. In their Chapter 7 Statement of Intention accompanying the petition, Debtors stated their intent to retain the two vehicles, but failed to state whether they would reaffirm the debts on the vehicles or redeem the property. AGE filed a Motion to Compel Debtors to Comply with 11 U.S.C. Section 521 requesting that the Debtors indicate whether they intend to reaffirm the debt or redeem the collateral. Prior to the hearing scheduled for the motion, the parties agreed to stipulate to the facts and brief the legal issue of whether 11 U.S.C. § 521 requires Debtors who wish to retain collateral to indicate whether they will be reaffirming the debt or redeeming the collateral. Both parties submitted briefs to the court. The court, having considered the briefs, stipulation of facts and argument, now renders this memorandum opinion. For the reasons stated herein, the court finds that the Debtors cannot retain the collateral without either reaffirming the debt or redeeming the property.
The parties stipulated to the following facts. Debtors entered into two separate loan agreements with AGE. On May 16, 1990, Debtors entered into a loan agreement with AGE which is secured by a 1991 Chevrolet S-10 pickup truck. As of the date of filing, the principal amount owed on this loan was $7,928.63. The parties stipulated that the value of the vehicle securing the loan on the date of filing the bankruptcy petition was $8500.00. On September 9, 1990, Debtors entered into a second loan with AGE secured by a 1985 Chevrolet Caprice Classic. As of the date of filing, the principal amount owed on this loan was $2,172.11. The parties stipulated that the value of this vehicle securing the loan as of the date of filing was $3,100.00.
At the time of filing their Chapter 7 petition, Debtors were current on their monthly payments to AGE under the terms of both loan agreements. Debtors retain possession of both vehicles and continue to make the monthly payments called for under the contracts with AGE.
Debtors filed a Chapter 7 Statement of Intention with their petition wherein they indicated an intent to retain both vehicles securing AGE's loan. However, Debtors failed to indicate whether they intend to reaffirm the debts with AGE or to redeem the vehicles. At the § 341(a) first meeting of creditors, Debtors stated that they did not intend to sign a reaffirmation agreement with AGE on the two vehicles and did not intend to redeem the collateral. Debtors stated their intent was to retain the vehicles and continue making the monthly payments under the terms of the loan agreements. AGE is willing to enter into a reaffirmation agreement with the Debtors. Debtors refuse to execute that reaffirmation agreement or any other reaffirmation agreement with AGE.
11 U.S.C. § 521 provides, in part:
11 U.S.C. § 521.
Reaffirmation of a debt is the negotiation of a new agreement between the debtor and the holder of claim whereby the debtor assumes personal liability of the debt that would be discharged in the bankruptcy proceeding. 11 U.S.C. § 524(c) governs reaffirmation agreements between debtors and creditors.1 A debtor may redeem collateral by paying to the creditor the amount of the secured claim or the fair market value of the collateral, whichever is less. 11 U.S.C. § 722 governs redemption of collateral.2 Section 722 of the Bankruptcy Code applies in this case because the Chapter 7 Trustee filed a no-asset report and abandoned all scheduled property.
The issue presented to the court is whether the debtors may retain the vehicles securing AGE's loan and maintain current payments under the notes without reaffirming the debts or redeeming the collateral. AGE argues that § 521(2)(A) mandates these Debtors to choose among one of three options:
In this case, AGE argues that because the Taylors intend to retain the vehicles, they must choose to enter into a reaffirmation agreement or to redeem the vehicles. Debtors argue that § 521 does not limit them to the three options asserted by AGE. Debtors assert that because they are not in default under the loan documents, § 521 gives them a fourth option of retaining the collateral without reaffirming the debt or redeeming the property.
The court finds no binding authority from the Eleventh Circuit Court of Appeals on this court on this issue. Debtor and AGE cited persuasive authority to the court in support of their respective positions. Several courts, including the Seventh and Tenth Circuit Courts of Appeals, have addressed the issue and reached different conclusions.
The Tenth Circuit Court of Appeals in Lowry Federal Credit Union v. West, 882 F.2d 1543 (10th Cir.1989) held that the bankruptcy court, under the facts of the case, had discretion to permit a debtor to retain collateral without reaffirming or redeeming where the debtor remained current on the debt. The Tenth Circuit stated:
Although we regard as mandatory the provisions of Code § 521(b), we do not believe those provisions make redemption or reaffirmation the exclusive means by which a bankruptcy court can allow a debtor to retain secured property. When the state of the evidence indicates neither the debtor nor the creditor would be prejudiced, a bankruptcy court may allow retention conditioned upon performance of the duties of the security agreement as a condition of retention.
Id. at 1547. Thus, where the debtor is not in default under the contract, the debtor could retain the property without reaffirming or redeeming and the debtor's failure to make an election did not give the creditor an automatic right to repossess the collateral.
The Seventh Circuit Court of Appeals in Matter of Edwards, 901 F.2d 1383 (7th Cir.1990) declined to follow the reasoning set forth by the Tenth Circuit in Lowry. The Seventh Circuit, under a similar factual situation, held that the language of 11 U.S.C. § 521 is mandatory and "§ 521 requires a debtor to chose between the reaffirmation, redemption or surrender of property abandoned from the estate or exempted from discharge." Id. at 1387. In reaching its conclusion, the Seventh Circuit determined that the reasoning in Lowry was not consonant with the plain language of the Bankruptcy Code. Id. at 1386. The Edwards court found that the language of § 521 was mandatory and that the alternatives outlined in § 521 were to be performed within the period of time specified in the statute.
In Matter of Horne, 132 B.R. 661 (Bankr. N.D.Ga.1991), Judge Drake, in addressing this issue, stated:
This Court thinks that the better view, and one that is consistent with the wording of the statute, is that Debtors, if they intend on retaining the property, must choose one of the alternatives set forth in § 521(2)(A). . . . If Debtors intend on remaining current in their obligations under the contract, they may negotiate a reaffirmation agreement with the creditor. Allowing retention of the property without reaffirmation or redemption would be tantamount to forcing the creditor into a de facto reaffirmation agreement with no recourse against the debtor. . . . Furthermore, the debtors would have no incentive to keep the property in good condition or to continue making payments if the value of the collateral declined below the amount of the debt or was destroyed. Such an arrangement is contrary to the language of the Code.
Id. at 663 (citations omitted).
The court, having considered the facts of this case and the authority cited by both parties, finds that § 521 gives the Debtor only three options. The Debtor may surrender the collateral, retain the collateral and reaffirm the debt, or retain the collateral and redeem the property. The court does not believe that § 521(2)(A) gives debtors a fourth alternative of retaining the secured property when the debtor is not in default...
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