In re Turner, Bankruptcy No. 97-90016

• Decision Date: 07 May 1997
• Docket Number: 97-90025,97-90126,97-90029,and 97-90127.,97-90123,Bankruptcy No. 97-90016
• Parties: In re Chad E. TURNER, Debtor. In re Charles R. JONES, Debtor. In re Ralph MOERY and Betty Moery, Debtors. In re David M. KIRCHBERG, Debtor. In re Ronald A. ORR and Margaret K. Orr, Debtors. In re Michael T. KLEPPIN and Molly D. Kleppin, Debtors.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Central District of Illinois

208 B.R. 434 (1997)

In re Chad E. TURNER, Debtor.

In re Charles R. JONES, Debtor.

In re Ralph MOERY and Betty Moery, Debtors.

In re David M. KIRCHBERG, Debtor.

In re Ronald A. ORR and Margaret K. Orr, Debtors.

In re Michael T. KLEPPIN and Molly D. Kleppin, Debtors.

Bankruptcy Nos. 97-90016, 97-90025, 97-90029, 97-90123, 97-90126, and 97-90127.

United States Bankruptcy Court, C.D. Illinois, Danville Division.

May 7, 1997.

Peter Francis Geraci, Atty. at Law, Chicago, IL, for debtors.

U.S. Trustee, Peoria, IL, trustee.

OPINION

GERALD D. FINES, Bankruptcy Judge.

Attorney Peter Francis Geraci is the head of a Chicago law firm that employs approximately 20 lawyers and specializes in filing Chapter 7 bankruptcy cases. This firm filed a total of 6,200 bankruptcy cases in Federal Courts in Illinois, Indiana, and Wisconsin in 1996. In 1996, the Geraci firm began to increase the number of bankruptcy cases filed by it in the Central District of Illinois. The firm has now filed several hundred cases in this District and problems have developed because of the firm's practices.

The Geraci firm files hundreds of reaffirmation agreements with the Court whereby his clients, the debtors, enter into written agreements with their creditors to retain certain property and make agreed-to payments to the creditors for the retention of the property. Recently, in an apparent effort to reduce the amount of work on the part of the firm, the Geraci firm began to file numerous documents entitled "Reaffirmation Agreement," but without the signature of the creditor or any indication of creditor approval or even notice to the creditor.

Review of the six above-captioned cases has revealed that in each case a reaffirmation agreement was filed which did not bear the signature of anyone representing the creditor with which Debtors sought to reaffirm various debts. On April 3, 1997, a Notice was sent requiring the Debtors and their attorney to appear at hearing on April 24, 1997, for the purpose of determining the validity of the reaffirmation agreements in question. A hearing was held on April 24, 1997, at which time all six cases above were heard together, and the matter was taken under advisement. For the purpose of this Opinion, the above-captioned cases will be consolidated in that the issue involved in each case is the same.

The issue before the Court is whether a document entitled "Reaffirmation Agreement" bearing only the signature of the Debtor or Debtors can be held as a valid enforceable reaffirmation agreement pursuant to the provisions of 11 U.S.C. § 524. In reviewing the reaffirmation agreements before the Court in these matters, the Court found that, not only were the reaffirmation agreements in question not signed by the creditors who were affected, but there was also no indication of any kind that the creditors in question had even been served with a copy of the agreement so as to advise them of the Debtors' desire to reaffirm. At hearing on April 24, 1997, Debtors' counsel, Mr. Driscoll, indicated that these agreements were binding and that the creditors were free to object to them at any time. However, there is no evidence, such as a certificate of service, that the creditors in question even knew that these purported reaffirmation agreements had been filed. Debtors' counsel told the Court that he told the debtors in these cases that the creditors "very often" do agree to these reaffirmations. But, counsel was unable to tell the Court that the creditors in the cases here agreed to the reaffirmation, because he didn't know. Mr. Driscoll attempted to persuade the Court to allow him to continue to file reaffirmations unsigned by the creditor by stating:

We have never had a problem with any of the reaffirmation agreements in any Court except for these six cases. This is the first we are hearing this.

The claim by Mr. Driscoll that this is the first time the Geraci firm has had a problem with attempting to file unsigned reaffirmation agreements is untrue.¹ The Geraci firm has had problems with this practice in the Northern, Central, and Southern Districts of Illinois. The following events had already taken place prior to this hearing:

1. The Court reminded Mr. Driscoll that a Decatur creditor\'s attorney had objected to a reaffirmation agreement submitted by the Geraci firm weeks ago.

2. An objecting creditor\'s attorney in one of the six cases here, John Maloney, told the Court at the hearing that he had written Mr. Driscoll and cautioned him about the problems caused by this practice to the debtors and the creditors and that the Geraci firm is involved in a similar case in the Northern District of Illinois before Bankruptcy Judge Schwartz. (See attached letter from Maloney to Driscoll dated March 21, 1997.)

3. The Court in this case also holds Court in the Southern District of Illinois and is aware that the Geraci firm has unsuccessfully attempted to file reaffirmation agreements there that are unsigned by the creditors. (See attached correspondence between the Bankruptcy Clerk and the Geraci law firm.)

In considering the question of the necessity of a creditor's signature on reaffirmation agreements, this Court finds that the creditor's signature on a reaffirmation agreement serves two essential functions necessary in order for the agreement to comply with the provisions of 11 U.S.C. § 524. First, the creditor's signature provides notice to the Court and to anyone that might read the reaffirmation agreement that the creditor is aware of the agreement. Unsigned agreements have no indicia of awareness by the creditor that the agreement even exists, let alone that the creditor has assented to the agreement and agrees to be bound by its terms. The second function served by a creditor's signature on the reaffirmation agreement is that it provides clear and conspicuous proof that there is a binding agreement which both the creditor and the debtor have assented to and to which both agree to be bound. In the cases before the Court where the creditor has not signed the agreement, the Court finds that it is necessary to go outside of the document and rely on some unknown oral communication between the parties in order to determine whether the creditor intended to be bound by the agreement in question. In most cases, the reaffirmation agreements contain terms which could not form a valid contract on an oral basis as they would be in violation of the Statute of Frauds. 740 ILCS 80/0.01, et seq.

The need for a creditor's signature on a reaffirmation agreement is evidenced by the significant amount of litigation and legislative inquiry concerning the reaffirmation process. In the 1984 Amendments to the Bankruptcy Code, as clarified by Amendments in 1994, the process for obtaining a valid reaffirmation agreement between debtor and creditor under 11 U.S.C. § 524 has been streamlined with the onus of protecting the rights of the debtor being shifted to debtor's counsel by virtue of the fact that hearings on reaffirmation agreements are now held where debtor's counsel signs an affidavit indicating that the debtor has been advised of all of the debtor's rights as required under 11 U.S.C. § 524, that the agreement in question is binding, and that the debtor is bound on the debt being reaffirmed as if the debtor never filed for bankruptcy. Additionally, the debtor's counsel must signify that the debtor's entry into the reaffirmation agreement in question does not pose an undue hardship on the debtor. Unfortunately, as a result of the streamlining of the reaffirmation process, problems have occurred in this District and elsewhere, including the filing of unsecured reaffirmation agreements where the debtors received nothing in return, the filing of reaffirmation agreements without creditors' signatures, and the filing of reaffirmation agreements purportedly in settlement of non-dischargeability proceedings where the potential exists for debtors to be strong-armed into an agreement that will not be reviewed by the Court. See: In re Izzo, 197 B.R. 11 (Bankr.D.R.I. 1996), and In re Hovestadt, 193 B.R. 382 (Bankr.D.Mass.1996), wherein those Courts determined that the review of all reaffirmation agreements was necessary in order to ensure that the Congressional intent with regard to its legislative shifting of oversight of reaffirmation agreements to debtors' counsel was upheld. Support for the position taken by the Courts in Rhode Island and Massachusetts is found in the legislative history of § 524 of the Bankruptcy Code wherein it was stated that:

Court review will constitute more than a rubber stamp of the agreement. The key consideration should be ensuring that the debtor will not suffer an undue hardship by the execution of any reaffirmation agreements. In short, the debtor\'s fresh start should not be impaired by any such agreements. See: 124 Cong. Rec. H 11096 (Sept. 28, 1978); S. 17413 (Oct. 6, 1978).

In the Bankruptcy Reform Act of 1994, Congress clarified that a separate hearing on reaffirmation agreements is not mandatory in order to reaffirm a debt where the debtor is adequately represented by counsel. H.R. Rep. 103-834, 103 Cong. 2nd Sess. 3 (Oct. 4, 1994); 140 Cong. Rec. H 10764 (Oct. 4, 1994). In exchange for this clarification of the process, Congress mandated that, in addition to the existing requirements, an attorney's affidavit must indicate that the debtor was fully advised of the ramifications of a reaffirmation agreement and any default thereunder.

Reaffirmation agreements are unlike any other contractual agreement under the law, and no where else is the requirement that both parties sign the agreement more critical. Reaffirmation agreements are not binding unless all of the provisions of 11 U.S.C. § 524 are followed. In re Hovestadt, supra, at 386, citing In re Noble, 182 B.R. 854 (Bankr.W.D.Wash.1995). The Court, in Noble, stated:

The reaffirmation rules are intended to protect debtors from compromising their

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