Wednesday, September 17, 2008

9th Cir BAP Says BAPCPA Takes Away Ch.7 Vehicle Ride-Through Option: If Debtor Doesn't Reaffirm Timely, Creditor Can Repossess During Bankruptcy Case

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

In re Dumont v. Ford Motor Credit Co.
, 383 BR 481 (9th Cir. BAP 2008)

February 6, 2008

The 9th Circuit BAP earlier this year joined more than 15 bankruptcy courts across the country which had unanimously held that BAPCPA eliminated the "ride-through" option for debtors with secured debt,: if a debtor wants to keep collateral, such as a vehicle, the debtor must timely either reaffirm or redeem the debt, or else risk repossession even if current on the debt. But this BAP opinion comes with two important caveats. The Court makes clear that the creditor's right to repossess is still subject to 1) the debtor's failure to comply with deadlines to file and act on the statement of intent, and 2) the creditor's compliance with state law, which may well independently bar repossession when payments are current.

(Note that one of the bankruptcy court opinions referred to by the BAP is one from our own court in Oregon--In re Bower, Case No. 07-60126-fra7, 2007 WL 2163472 (Bankr. D. Or. July 26, 2007)--but this opinion is not on the bankruptcy court's website and so presumably was not published.)

In coming to its holding the BAP directly addressed the 9th Circuit opinion which had cemented the ride-through option under pre-BAPCPA law, McClellan Fed. Credit Union v. Parker (In re Parker),139 F.3d 668 (9th Cir. 1998). The BAP somewhat unusually "overturned" this 9th Circuit opinion by showing how McClellan's rationale had been completely undermined by the statutory changes of BAPCPA. The details of that statutory construction are beyond the scope of this Bulletin, but it primarily focused on a new section 362(h) , which terminated the automatic stay as to personal property securing a claim if the debtor either 1) failed to file timely a statement of intent indicating whether the property would be surrendered or retained, and if retained whether reaffirmed or redeemed; or 2) failed to perform its stated intent timely. The BAP also referred to the new section 521(d) which allows ipso facto default default clauses--those ubiquitous contractual clauses that make the filing of bankruptcy in and of itself one of the occasions of contractual default--contrary to prior Code restrictions of them. Indeed section 521(d) expressly incorporates section 362(h) making it clear that a debtor who fails to timely file or perform on a notice of intent is subject to the ipso facto default clause and to repossession the minute those deadlines pass.

The BAP made clear that debtors who comply with the statement of intent deadlines will not lose the automatic stay under section 362(h) nor will their ipso facto default clauses be enforceable under section 521(a). The Court also emphasized that repossession may well not be permitted to occur EVEN IF the debtor's failure to comply with the statement of intent requirements results in loss of the automatic stay and re-imposition of the ipso facto default clause, BECAUSE the creditor must still comply with state law. "Some state consumer protection statutes prevent a creditor from repossessing when there is no payment default. These statutes have the potential to make the aforementioned BAPCPA provisions meaningless if repossession is barred by state law when a debtor's payments are current."

Under the facts of this case the BAP agreed with the bankruptcy court that it did not have jurisdiction to address the appropriateness of the repossession under state law, but had to leave that to the state court. The standard is whether the state law dispute was "related to" the bankruptcy case, meaning whether its outcome "could conceivably have any effect on the estate being administered in bankruptcy." With the repossession having occurred after the discharge, the Court said that no claim arising from it would benefit the estate.

FINAL CAVEAT: This BAP opinion has been appealed to the 9th Circuit (Appeal No. 06-00980-JM7), although one wonders about how likely it is that the 9th Circuit would reverse this BAP opinion and the underlying bankruptcy court's opinion in light of the unanimous opinion of 15 or so other earlier bankruptcy courts.

by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys

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