In re Weir
| Decision Date | 18 October 1994 |
| Docket Number | Bankruptcy No. 94-20727-C-7. |
| Parties | In re Timothy Michael WEIR and Ann Elizabeth Weir, Debtors. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Eastern District of California |
John D. Bessey, Law Offices of John D. Bessey, Sacramento, CA, for debtors.
Edward Russell, Law Offices of James G. Schwartz, Pleasanton, CA, for Sears, Roebuck and Co.
Is there any bite in the Bankruptcy Code's toothless tiger, 11 U.S.C. § 521(2)? Consumer debtors who are not in default on secured consumer debts sometimes flout the mandate in section 521(2) that they state (and perform) an intention to reaffirm the debt, surrender the collateral, or redeem the collateral by paying its value. Instead, debtors who are not otherwise in default say they will "remain current" on payments without reaffirming. Here, a secured creditor contests that tactic as not authorized by the statute; and the question becomes what to do.
Four courts of appeals are evenly divided on the permissibility of a nondefaulting debtor remaining current without reaffirming. Dozens of lower courts are similarly deadlocked. Ten years of inconclusive and not-very-helpful debate suggests that it is time to approach the problem from a different perspective and ask whether the answer matters.
The better question to ask is "what difference does it make?" This question looks beyond the point that has been debated, assumes that the debtor's strategy is impermissible, and focuses on the remedies available to the creditor of a nondefaulting debtor who fails to reaffirm the underlying obligation.
I conclude: (1) the primary bankruptcy remedy is relief from the automatic stay; (2) bankruptcy law provides no other practicable remedy against a nondefaulting debtor who elects to remain current and disobeys the command to reaffirm, redeem, or surrender; and (3) the parties must look to nonbankruptcy law for other remedies. In the absence of a default under nonbankruptcy law, relief from the automatic stay will be small solace to a secured creditor. In other words, much ado about nothing.
The debtors use a charge account with Sears to purchase typical consumer goods.1 Sears has carefully drafted its credit agreements and sales documents to retain a purchase money security interest in goods purchased on the account, but has not defined default to include bankruptcy.
The debtors have always made their required monthly payments. They filed Official Form No. 8, Chapter 7 Individual Debtor's Statement of Intention ("statement of intention"), selected none of the alternatives listed on the form, and instead stated that they intended to remain current on the Sears account. They still decline to reaffirm the debt or surrender or redeem the collateral.
Sears objects and asks the court to fashion a remedy to make up for the absence of any specific remedy in the Bankruptcy Code. Its only suggestion is that the case should be "dismissed as to Sears only."
Sears concedes that it would be futile to grant relief from the automatic stay because it can do nothing to proceed against the collateral under applicable nonbankruptcy (California) law so long as the debtors remain current on their payments.
I
Analysis begins with positing the statutory language that created the debtors' obligation to file a statement of intention and make good on that intention and then comparing it with the language that was rejected before setting forth its involuted legislative history.
Section 521(2) was added to the law in 1984 as part of legislation that cleared a six-year congressional logjam following enactment of the Bankruptcy Code. It provided:
11 U.S.C. § 521(2).2
Juxtaposing what was rejected against what was enacted is revealing. The Senate twice passed a version of the statement of intention that was far less opaque:
Proposed § 521(a)(4) if the debtor\'s schedule of assets and liabilities includes consumer debts which are secured by property of the estate, the debtor shall file and serve, within thirty days after the filing of a petition under chapter 7 of this title but no later than five days before the first meeting of creditors, upon each creditor holding such security and the trustee, a statement expressing the debtor\'s intention with respect to retention or surrender of the collateral and, if applicable, specifying that the collateral is claimed as exempt, that the debtor intends to redeem the collateral, or that the debtor intends to reaffirm debts secured by the collateral; Proposed § 521(b) At or before the conclusion of the meeting of creditors provided for by section 341 of this title, or upon such other date as the court in a specific case and in the exercise of its equitable powers may fix, the debtor shall perform his intention with regard to secured creditors, as specified by paragraph (3) of subsection (a), by surrendering such property to the creditor or the trustee; redeeming such property by paying the redemption price, or confirming his intention to pay such price pursuant to section 722(b); or by reaffirming the debt. If the debtor has not fully performed his obligations under paragraph 4 of subsection (a) and this subsection at or before the meeting of creditors, the stay imposed by section 362(a) of this title shall terminate with respect to the enforcement of liens against such property, unless the court orders otherwise.
S. 445, 98th Cong., 1st Sess. § 207 (1983) ().3
It is evident that section 521(2) bears scars from crippling wounds suffered in hardfought battles. Its text is so enigmatic, particularly in light of the rejected version, that the most that can be said in its defense is that the Congress settled upon a calculated ambiguity to resolve an intractable difference of opinion.
Now, some history. The years between 1978 and 1984 witnessed intense lobbying for amendments by, and an epic stiff-arm of, the consumer credit industry, which thought itself sandbagged in the closing moments of the 95th Congress when an obscure, hasty, but exquisitely-timed procedural maneuver was used to enact the Bankruptcy Reform Act of 1978 without running the gauntlet of the usual House-Senate conference.
The consumer credit industry prepared substantive amendments to add to the technical corrections bill that was supposed to be presented early in 1979 to clean up the Bankruptcy Reform Act's numerous errors of haste4 — spelling, grammar, punctuation, and minor technical points — or to add to any other bankruptcy legislation that had a possibility of being enacted.
House Judiciary Committee leaders, who opposed the consumer credit amendments and other special interest provisions, bottled up essentially all bankruptcy legislation for years rather than risk having amendments added to some other bankruptcy bill that might clear the committee.5
The logjam was momentous, and the proposed consumer credit amendments, including the statement of intention, were at center stage. They had powerful supporters and a well-financed lobby behind them. And there were powerful, equally-determined enemies within the Congress. Impasse ensued.
Ultimately, two Supreme Court decisions forced the hand of the opponents. First, in 1982, the Court held that the 1978 Code unconstitutionally allocated jurisdiction over certain bankruptcy matters to judges who lacked Article III status. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). The ensuing disagreement about whether bankruptcy judges should become Article III judges only intensified the logjam. Meanwhile, the bankruptcy system gimped along under the so-called Emergency Rule that was cobbled together to avert chaos until the Congress could resolve the matter.
The time for bankruptcy amendments finally arrived in February 1984, when the Court held that collective bargaining agreements could be rejected in reorganization cases. NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984). Organized labor immediately entered the fray, and the balance of politics shifted decisively.
After Bildisco, the demand for bankruptcy amendments could no longer be resisted. In any such legislation, the various interest groups that had been vying for amendments could no longer be denied.
The consumer credit amendments that were ultimately enacted were not the same as in Senate Bill 445 or other similar measures that had passed the Senate. Rather, they were introduced by the House Judiciary Committee leadership as House Resolution 5174, a rearguard action in the face of the inevitable that was designed to minimize the damage and that purported to reflect a compromise with the consumer credit...
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