Matter of Horne
| Citation | 132 BR 661 |
| Decision Date | 29 October 1991 |
| Docket Number | Bankruptcy No. N91-00924-WHD. |
| Parties | In the Matter of James R. HORNE and Fredericka D. Horne, Debtors. BANK SOUTH, N.A., Movant, v. James R. HORNE and Fredericka D. Horne, Debtors, and James H. Bone, Chapter 7 Trustee, Respondents. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia |
Neil C. Gordon, Havely M. Allgood, Macey, Wilensky, Cohen, Wittner & Kessler, Atlanta, Ga., for Bank South, N.A.
John G. McCullough, Gregson T. Haan, Atlanta, Ga., for General Motors Acceptance Corp.
Richard E. Reiter, Jr., The Brantley Group, Fayetteville, Ga., for debtors.
This matter is before the Court on the Motion for Relief From Stay, filed by Bank South, N.A. ("Bank South") on June 12, 1991, against James R. Horne and Fredericka D. Horne ("Debtors"). A hearing was held on July 19, 1991, at which time the parties were ordered to submit written briefs. Additionally, an amicus curiae brief was filed by General Motors Acceptance Corporation (GMAC). This Court has jurisdiction over the matter pursuant to 28 U.S.C. § 157(b)(2). The following constitutes the Court's Findings of Fact and Conclusions of Law.
On April 1, 1991, Debtors filed a Chapter 7 petition in this Court. Bank South is a creditor of Debtors, holding a consumer note secured by an interest in Debtors' automobile. The parties have stipulated that the installment note payments are current and not in default. Debtors have also filed a Statement of Intention, as required by 11 U.S.C. § 521(2)(A), stating that the automobile was to be retained by Debtors, but not specifying whether Debtors intended to reaffirm the debt to Bank South, redeem the property, or claim the property as exempt. Shortly after the first meeting of creditors, Bank South requested that Debtors reaffirm their debt. Debtors' counsel rejected the request, stating that since Debtors were current on their installments under the note, they would not reaffirm the debt. However, a short time later, Debtors did offer to reaffirm the debt for an amount representing the fair market value of the automobile, which was less than the amount owed on the debt, with such amount being paid in installments over a thirty-one month period. This offer was rejected by Bank South. On June 12, 1991, Bank South filed the Motion for Relief from Stay now before the Court. Thereafter, on June 17, 1991, the Chapter 7 Trustee abandoned the automobile from the estate. As of that time, Debtors had still not stated their intention to either reaffirm the debt or redeem the property.
The first issue to be decided is whether the provisions of 11 U.S.C. § 521(2)(A), concerning the intention of the debtor as to secured property, are mandatory, requiring Debtors to either redeem the property or reaffirm the debt if they wish to retain the property.1 Debtors argue that since they are current in their obligation, Bank South's secured status is not impaired, and in the event they did default, Bank South would still retain the right to repossess the automobile. Therefore, Debtors argue that they should have the additional option, in lieu of reaffirmation or redemption, of continuing making payments on the contract as if the bankruptcy never occurred. Conversely, Bank South argues that § 521(2)(A) is clear on its face, and mandates that Debtors must either redeem the property or reaffirm the debt if they elect to retain the property. GMAC, in its amicus curiae brief, also takes this position and argues that allowing Debtors to keep the property, while extinguishing their personal liability through a chapter 7 discharge, would deprive creditors of their basic contractual protections, and would amount to a forced reorganization of the contract, which is not contemplated under chapter 7. Thus, Bank South and GMAC argue that the automatic stay should be lifted, and foreclosure allowed.
The second issue to be addressed is whether redemption pursuant to 11 U.S.C. § 722 may be made in installments, or whether it must be made in one lump sum payment. Debtors argue that the statute is silent on the method of payment, and thus periodic installment payments should be allowed. In contrast, Bank South and GMAC argue that a single, lump-sum payment is the only type of redemption contemplated by the Code, and that the weight of the case law supports such a position.
There is a split of authority as to the interpretation of 11 U.S.C. § 521(2)(A).2 The leading case espousing the view that a debtor, if he wishes to retain the property, is limited to either reaffirming the debt or redeeming the property is In re Edwards, 901 F.2d 1383 (7th Cir.1990). That case involved almost identical facts and issues as the case now before the Court, with the Seventh Circuit holding that the debtor had to choose one of the options listed in § 521(2)(A) if he wished to retain the property. Id. at 1386. The Edwards court held that the clear language of the statute requires that the debtor choose one of the listed options. Id. Moreover, the court stated, allowing the debtor to retain secured property without reaffirming the debt or redeeming the property, and with no personal liability, has the effect of forcing a new arrangement on the creditor, which is contrary to the voluntary nature of reaffirmation contemplated by the statute. Id. Additionally, since the debtor would be relieved of personal liability, he would have no incentive to maintain the value of the property. Id. Therefore, the court held that the debtor had to specify one of the alternatives listed in § 521(2)(A). Id.; accord In re Bell, 700 F.2d 1053 (6th Cir.1983); In re Goldsby, Case No. 188-00215, slip op. (Bankr.M.D.Ga. March 2, 1989). Bank South and GMAC argue that this Court should adopt the conclusion of the Seventh Circuit, and require Debtors to either reaffirm the debt or redeem the property.
Conversely, many courts have refused to limit the debtor to the choices listed in § 521(2)(A). The Tenth Circuit Court of Appeals has held that a debtor may retain secured property without making an election under § 521(2)(A) as long as the debtor is not otherwise in default, and no independent grounds exist for allowing repossession. Lowry Federal Credit Union v. West, 882 F.2d 1543 (10th Cir.1989). On facts similar to Edwards, the court held that while the requirements of § 521(2)(A) are mandatory, redemption and reaffirmation are not the exclusive methods under which a bankruptcy court may allow a debtor to keep secured property. Id. at 1547; see also In re McNeil, 128 B.R. 603 (Bankr.E.D.Pa.1991); In re Hunter, 121 B.R. 609 (Bankr.N.D.Ala.1990). The Tenth Circuit stated that where there has been no default, the debtor could retain the property without reaffirming or redeeming, and the failure to make such an election did not give the creditor an automatic right to repossess the collateral. Lowry, 882 F.2d at 1545; see also Hunter, 121 B.R. at 613; In re Donley, 131 B.R. 193 (Bankr.N.D.Fla. 1991); In re Berenguer, 77 B.R. 959 (Bankr.S.D.Fla.1987). Debtors urge the Court to adopt this line of cases and allow them to retain the property without making an election under § 521(2)(A), as long as they remain current in the contractual obligations.
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). Section 521(2)(A) clearly mandates that the debtor choose one of the options stated in the statute ("the debtor shall . . .") (emphasis added), and perform the intention within a specified period of time ("the debtor shall perform his intention . . .") (emphasis added). 901 F.2d at 1386; Bell, 700 F.2d at 1058. If Debtors intend on remaining...
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