December 21, 2010, Decided
COUNSEL: For Barry R Clark, Debtor: Gregory Messer, Law Offices of GregoryMesser, PLLC, Brooklyn, NY.
For Dianne Clark, Joint Debtor: Gregory Messer, Law Offices of Gregory Messer,PLLC, Brooklyn, NY.
Trustee: Kenneth Kirschenbaum, Kirschenbaum & Kirschenbaum, Garden City, NY.
JUDGES: Robert E. Grossman, U.S. Bankruptcy Judge.
OPINION BY: Robert E. Grossman
Before the Court is a motion (the "Motion") by the Debtors to reopen theirChapter 7 bankruptcy case, vacate the discharge as to Ford Motor Corporation("Ford"), and allow the Debtors to reaffirm a debt owed to Ford under theprovisions of Section 524 of the Bankruptcy Code. The Motion is not opposed,however the Court questioned, sua sponte, its authority to grant the requestedrelief.
Debts that are subject to discharge in bankruptcy may not be reaffirmedunless a debtor strictly complies with all of the requirements of Section 524 ofthe Code. Both the statute and case law mandate a process that requires strictcompliance by the debtor. This process has been established to protect debtorsfrom the pressure that could otherwise be exerted by overly aggressive creditorsto pay discharged debts. In the matter before the Court the Debtors haveadmittedly failed to comply with the reaffirmation requirements of the Code.They nevertheless ask this Court to allow them to waive the protection of theCode and permit them to vacate their discharge. The Court does not believe thereis any basis under the Code to grant this relief. While sympathetic to the needsof these Debtors the potential consequence of permitting a debtor to avoidcomplying with the statutory scheme established by the Code is to encouragecreditors to force debtors to waive the very protections afforded them at a timewhen they are most vulnerable. The Court believes such a result would not be inthe best interest of these Debtors and would undermine the integrity of thebankruptcy process. The Debtors' Motion, therefore, is denied.
The Debtors filed a joint petition for relief under Chapter 7 of theBankruptcy Code on May 17, 2010. They scheduled a $32,000 debt to Ford securedby a 2008 Ford Expedition (the "Vehicle") valued at $19,750. The Debtors'Statement of Intention, which ordinarily would give notice as to a debtor'sintention with respect to secured collateral -- e.g., to surrender, redeem (Section 722) or reaffirm (Section 524) -- did not list any debts secured byproperty of the estate. The Debtors also scheduled $82,734.47 in unsecurednon-priority debt which appears to be mostly credit card obligations. TheChapter 7 Trustee (the "Trustee") filed a no-asset report on June 25, 2010 andthe Debtors received their discharge on August 24, 2010. On that same day, thebankruptcy case was closed.
According to the Debtors, Ford initially repossessed the Vehicle on September2, 2010. The Debtors filed the instant Motion on September 7, 2010. The Debtorsoriginally asked the Court to reopen the bankruptcy case and vacate thedischarge solely as it relates to Ford, so that they could enter into areaffirmation agreement and immediately re-close their bankruptcy case. Insupport of the Motion, the Debtor states that Ford never forwarded areaffirmation agreement to Debtors' counsel but they need the Vehicle for workand want to enter into a reaffirmation agreement (the "Reaffirmation Agreement")to assure that they can retain possession of the Vehicle.
At a hearing held on October 18, 2010, the Debtors' counsel informed theCourt that subsequent to Ford repossessing the Vehicle, the Debtors becamecurrent on their obligation and Ford returned the Vehicle to them. Despite theDebtors currently having possession of the Vehicle, they fear that Ford may inthe future attempt to repossess the Vehicle because their debt has beenpreviously discharged. The Debtors' counsel cited 11 U.S.C. Â§ 727(10) asstatutory support for the theory that the Debtors may, post-discharge, waivetheir discharge with respect to Ford. At a subsequent hearing, held on November15, 2010, when asked by the Court as to whether Section 727(a)(10) applied tosingular debts as opposed to the entire discharge, Debtors' counsel informed theCourt that the Debtors are willing to vacate their discharge in toto in order toreaffirm their obligation to Ford. The Court gave the Debtors the opportunity tosubmit a supplemental brief on the issue of whether a debtor has the right tovacate a binding and enforceable discharge in toto.
On December 7, 2010, the Debtors' counsel filed a memorandum of law inresponse to the Court's inquiry. The Debtors argue that the case should bereopened pursuant to Section 350(b) of the Code, and the discharge should bevacated pursuant to Section 105 and Federal Rule of Civil Procedure 60(b), madeapplicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure9024. The memorandum of law does not discuss Section 727(a)(10). The Debtorsconcede that the bulk of the case law does not favor granting the requestedrelief. However, they cite to the following cases in support of the Court'sauthority to grant this relief under "special circumstances." Diaz v. ChryslerFin. Co., LLC (In re Diaz), No. 00-4397, 2001 U.S. Dist LEXIS 1139 (E.D. Pa.Feb. 5, 2001); In re Edwards, 236 B.R. 124 (Bankr. D. N.H. 1999); In reEccleston, 70 B.R. 210 (Bankr. N.D.N.Y. 1986); In re Long, 22 B.R. 152 (Bankr.D. Me. 1982). The Debtors' primary argument is that the facts of this casepresent "special circumstances" because these Debtors rely on the Vehicle to getto work and they would not be able to obtain a replacement if the Vehicle wererepossessed. Without the Vehicle they will not be able to continue to earnincome. As a result, they argue that they will be severely prejudiced by theCourt's failure to grant the requested relief and there will be no prejudice toany other party if the Court were to grant the Motion.
Standard to reopen
Section 350(b) of the Code states that a bankruptcy case may be reopened "toadminister assets, to accord relief to the debtor, or for other cause." 11U.S.C. Â§ 350(b). The Bankruptcy Code does not define "cause," In re Cruz, 254B.R. 801, 804 (Bankr. S.D.N.Y. 2000), and the decision to reopen the case iswithin the Court's discretion. Id. (citing In re Chalasani, 92 F.3d 1300, 1307(2d Cir. 1996) (stating that the decision to reopen invokes the bankruptcycourt's equitable powers, "which is dependent on the facts and circumstances ofeach case")). The party moving to reopen the case bears the burden of proof. Inre Suber, No. 06-20369 NLW, 2007 WL 2325229, at *1 (Bankr. D.N.J. Aug. 13,2007). However, a case should not be reopened if the ultimate relief the movantseeks is inappropriate. Several courts have held that the filing of anunenforceable reaffirmation agreement does not constitute "cause" to reopen acase. See, e.g., In re Suber, 2007 WL 2325229 at *1; In re Lee, 356 B.R. 177,180 (Bankr. N.D.W. Va. 2006) (citing In re Pettet, 271 B.R. 855 (Bankr. S.D.Ind. 2002)); In re Rigal, 254 B.R. 145 (Bankr. S.D. Tex. 2000); In re Brinkman,123 B.R. 611 (Bankr. N.D. Ind. 1991). For the reasons that follow, this Courtagrees with these decisions.
Retaining personal property which secures a discharged debt
Pursuant to Section 521(a)(2) of the Code a debtor must state its intentionwith respect to debts which are secured by property of the estate in a timelymanner. A debtor must state whether it intends to surrender or retain theproperty, and if it is the intent to retain, must state whether it will redeemthe collateral pursuant to Section 722 or reaffirm the debt pursuant to Section524. Specifically, the Code provides that:
(A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, the debtor shall file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property;
(B) within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day period fixes, the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; and
(C) nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h) . . . .
11 U.S.C. Â§521(a)(2) (emphasis added).
If a debtor does not timely comply with the requirements of Section 521(a)(2), the Section 362 stay will no longer apply to that property and it will nolonger be deemed property of the estate. See 11 U.S.C. Â§521(a)(6); 362(h). Thesecured creditor will then be free to exercise its rights to foreclose on thecollateral. The creditor may at its option enter into an agreement with thedebtor that permits the debtor to retain the collateral in return for the debtorcontinuing to make payments to the creditor. See 11 U.S.C. Â§524(f) (nothing inthe reaffirmation requirements "prevents a debtor from voluntarily repaying anydebt"); In re Leiter, 109 B.R. 922, 926 (Bankr. N.D. Ind. 1990) (stating,without holding, that when a debtor has not properly reaffirmed the debt, thedebtor can still make voluntary payments to the creditor pursuant to Â§524(f) andpossibly enter into a novation agreement); see also In re Rigal, 254 B.R. 145,147 (Bankr. S.D. Tex. 2000) (stating that "there is no statutory prohibition (infact there is express statutory authority [in current Â§ 524(f)]) for the debtorto pay a debt that has been discharged").
Reaffirmation under Section 524
One of the ways in which a debtor can retain secured collateral is toreaffirm the underlying debt by complying with the requirements of Section524(c). These requirements are strictly construed and are not subject to waiver.In re Lee, 356 B.R. at 182 (citing cases). In pertinent part, Section 524(c)(1)provides,
An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law, whether or not discharge of such debt is waived, only if--
(1) such agreement was made before the granting of the discharge under section 727, 1141, 1228, or 1328 of this title;
11 U.S.C. Â§ 524(c)(1) (emphasis added).
Both the statute and case law make it clear that a reaffirmation agreementwill be unenforceable if it is not made before the granting of the discharge. Inre Suber, 2007 WL 2325229 at *2; see also In re Rafferty, No. 08-30950 (LMW),2008 WL 5545266, at *1 (Bankr. D. Conn. Dec. 23, 2008); In re Collins, 243 B.R.217 (Bankr. D. Conn. 2000). The Code and the Federal Rules of BankruptcyProcedure give debtors ample opportunity to delay the entry of the discharge inorder to accomplish a reaffirmation. See 11 U.S.C. Â§521(a)(2)(B) (allowing thecourt to grant additional time for the debtor to reaffirm); Fed. R. Bankr. P.4004(c)(1)(J) (court may not enter discharge if "a motion to enlarge time tofile a reaffirmation agreement under Rule 4008(a) is pending"); Fed. R. Bankr.P. 4004(c)(2) ("[O]n motion of the debtor, the court may defer the entry of anorder granting a discharge for 30 days and, on motion within that [sic], thecourt may defer entry of the order to a date certain."); Fed. R. Bankr. P.4008(a) ("The court may, at any time and in its discretion, enlarge the time tofile a reaffirmation agreement.").
It is the Court's conclusion that the facts as presented demonstrate that thereaffirmation agreement in this case was not entered into prior to the entry ofthe Debtors' discharge. Therefore as mandated by the Code the reaffirmationagreement is unenforceable and the Court will not reopen the case.
Vacatur of discharge order
The Debtors do not dispute that the reaffirmation agreement was entered intopost-discharge. Rather, they ask the Court to disregard the statute and turnback the clock, so to speak, and allow them to achieve their stated objective ofreaffirming the debt to Ford by vacating their discharge in toto. Vacatur of theentire discharge in this case would reinstate the Debtors' personal liabilityfor over $80,000 in unsecured debt. The Debtors argue that the relief theyrequest is permitted under either Rule 60(b) or Section 105, or both. Althoughthe Debtors cited some cases in support of their argument, the overwhelmingmajority of cases holds that it is inappropriate to reopen a case in order tovacate a discharge and approve a reaffirmation agreement whether it be underRule 60(b) or Section 105. See, e.g., In re Suber, 2007 WL 2325229 at *3(stating, "[t]he majority of courts hold that a reaffirmation agreement madepost-discharge is unenforceable" and finding that even under the more lenientÂ§105 or Rule 60(b) standard the debtor's motion to reopen her case for thepurpose of entering a reaffirmation agreement was denied); In re Huffman, No.07-50139, 2007 WL 1856770, at *1-2 (Bankr. M.D.N.C. June 25, 2007) (refusing toinvoke Â§105(a) and finding that the requirements under Â§524(c) are clear andmust be strictly construed); In re Stewart, 355 B.R. 636, 638-39 (Bankr. N.D.Ohio 2006) (refusing to use its equitable powers under Â§ 105 to vacate adischarge order to allow debtor to enter into a reaffirmation agreement); In reRigal, 254 B.R. 145, 148 (Bankr. S.D. Tex. 2000) (rejecting Federal Rule ofBankruptcy Procedure 9024 as authority for the court to revoke a discharge forthe purpose of entering into a reaffirmation agreement). Federal Rule of CivilProcedure 60(b) provides that the Court may relieve a party from a finaljudgment or order for several reasons, including "mistake, inadvertence,surprise, or excusable neglect" or "any other reason that justifies relief." Onthis point, this Court agrees with the reasoning of the Court in In re Rigal,254 B.R. at 147, that the cited rule is inapplicable. In the instant case, therewas no mistake or error about the entry of the discharge. Id. "The Debtors and[Ford] are simply not happy with the results of entry of the discharge." Id. Asexplained in In re Rigal, the provisions of Section 524(c) and (d) are"meaningless if there is the simple expedient of vacating the discharge andreentering it to allow a Debtor to enter into a reaffirmation agreement." Id.
The Court finds that relief under Section 105(a) is also inappropriate. Adebtor may waive the dischargeability of a specific debt if the waiver satisfiesthe reaffirmation requirements of Section 524(c). See Keyhoe v. Cole (In reCole), 226 B.R. 647, 653 (B.A.P. 9th Cir. 1998). When Congress specificallyincludes language in the Code, it is presumed to be intentional. Id. Theequitable powers of Section 105(a) may not be used to disregard unambiguousstatutory language. See In re Stewart, 355 B.R. at 638-39 (citing cases); seealso In re Pincus, 280 B.R. 303, 312 (Bankr. S.D.N.Y.,2002) (finding that wherea specific section of the Code specifically addresses the issue before thecourt, the court may not use its equitable powers to achieve a result notcontemplated by the Code) (citing cases); In re Duratech Industries, Inc., 241B.R. 283, 288 (E.D.N.Y. 1999) (stating that Â§105 "does not permit the bankruptcycourts to contravene the express provisions of the Bankruptcy Code") (citing 2Collier on Bankruptcy Â¶ 105.01 (15th ed.1996)). Therefore, because the Codeprovides a specific mechanism for reaffirmation of a debt, this Court will notpermit the Debtors to employ a circuitous route for waiver of dischargeabilityof a specific debt.
Although it is unclear whether the Debtors abandoned their argument that thedischarge should be vacated in toto pursuant to 11 U.S.C. Â§727(a)(10), the Courtalso finds that relief under that section is inappropriate. Section 727(a)(10)permits a debtor to waive the entire discharge by executing a post-petitionwritten agreement that is approved by the Court. See 11 U.S.C. Â§ 727(a)(10)("The court shall grant the debtor a discharge unless . . . the court approves awritten waiver of discharge executed by the debtor after the order for reliefunder this chapter"). See also In re Cole, 226 B.R. at 653; In re Kleinman, No.05-55211 (NLW), 2010 WL 1641085, at *2-3 (Bankr. D.N.J. Apr. 21, 2010); In reDuca, 2004 WL 2274968, at *4 (Bankr. D. Colo. Aug. 9, 2004); In re Kroen, 280B.R. 347, 353 n.7 (Bankr. D. N.J. 2002); In re Sheehan, 153 B.R. 384, 385(Bankr. D. R.I. 1993). Section 727(a)(10) should not be used to waive dischargeof individual debts. See In re Leiter, 109 B.R. at 926 (finding that Â§727(a)(10)is used to waive a discharge in toto and Â§524(c) is the proper mechanism towaive a discharge as to only one debt). But see In re Lichtenstein, 161 Fed.Appx. 461 (6th Cir. 2005) (finding that a stipulation discharging ex-wife'sclaims against debtor in debtor's prior bankruptcy constituted a waiver ofdischarge pursuant to Â§727(a)(10) in debtor's subsequent bankruptcy); In reMapother, 53 B.R. 433 (Bankr. W.D. Ky. 1985) (finding that a stipulation ofnondischargeability between a debtor and one creditor met the requirements forwaiver of discharge of that singular debt under Â§727(a)(10)). Further, a debtormust exercise a waiver of the discharge pursuant to Section 727(a)(10) prior toentry of the discharge order. In re Leiter, 109 B.R. at 926 (stating, "[e]ven ifthe [d]ebtor deserved to waive his general discharge, this must be done beforethe general discharge is entered"). Finally, it should also be noted thatrevocation of the discharge would not be appropriate under Section 727(d) on thefacts of this case, see 11 U.S.C. Â§ 727(d) (listing grounds generally involvingfraud on the part of the debtor), and the Debtors likely do not have standing torevoke their discharge under Section 727(d). See In re Rigal, 254 B.R. at 148(compiling cases that hold "there simply is no authority for the BankruptcyCourt to vacate an order of discharge at the request of a debtor"); In re Leiter, 109 B.R. at 925.
Finally, in addition to the statutory framework which prevents the reliefsought by the Debtors, the Court believes that it would not be in the bestinterests of the integrity of the bankruptcy process to permit the requestedrelief. While Congress intended to permit a debtor to make an informed decisionto waive a discharge when necessary, Congress clearly intended to protect thedebtor's fresh start from the overly aggressive creditor. See S. Rep. No. 98-65at 60 (1983) (stating, "[t]he key consideration should be ensuring that thedebtor will not suffer an undue hardship by the execution of any reaffirmationagreements. In short, the debtor's fresh start should not be impaired by anysuch agreements."); H.R. Rep. No. 95-595 at 366 (1977) (stating, "[t]he change .. . is intended to insure that once a debt is discharged, the debtor will not bepressured in any way to repay it"). If the process intended to protect thedebtor is not followed, the Court cannot permit a creditor's influence toachieve the same result.
For the forgoing reasons, the Debtors' Motion is denied. The case will not bereopened, the Debtors may not vacate their entire discharge nor vacate thedischarge with respect to Ford, and the Court will not approve the ReaffirmationAgreement. An order consistent with this Memorandum Decision shall be enteredforthwith.
Dated: Central Islip, New York
December 21, 2010
By: /s/ Robert E. Grossman
Robert E. Grossman
U.S. Bankruptcy Judge