BAPCPA Does Away With Chapter 7 Debtor's Option of Retaining Vehicle by Making Monthly Payments Without Reaffirming, Post-Discharge Repo is OK

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

Dumont v. Ford Motor Credit Company (In re Dumont)
9th Circuit Court of Appeals Case No. 08-60002
September 15, 2009

One of the most controversial pre-BAPCPA consumer bankruptcy law issues was whether a debtor could keep possession of her vehicle (or other personal property collateral) as long as she kept current on the regular monthly payments, even without reaffirming the debt. The circuit courts were split five to four, with the Ninth Circuit and four others permitting this "ride-through" option, four others not. The rest of the courts and legal commentators reflected similar disagreement. "Because of confusing and contradictory statutory text, courts have struggled for decades to discern congressional intent on the answer to that simple question."

The post-BAPCPA conundrum, in the eyes of the dissenting opinion here: "When faced with confusing and contradictory amendments to already confusing and contradictory statutory text, what should we do?" The heart of the dispute between the majority and dissenting opinions here was whether through BAPCPA Congress intended to RESOLVE the judiciary's split on this issue or instead to PERPETUATE it. The majority here went with what appears to becoming the prevailing view, that BAPCPA eliminated the "ride-through" option. The amendments to the Bankruptcy Code language at issue, effectively overturned the Ninth Circuit's contrary precedent, McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668 (9th Cir. 1998).

The Essential Facts

Ford Motor Credit Company repossessed a Chapter 7 debtor's vehicle, without any warning, about three months after discharge, when she was current on her post-petition monthly payments. (The record is unclear whether she had ever defaulted on payments pre-petition.) The balance on the loan exceeded the value of the vehicle. The contract contained an "ipso facto" clause, stating that debtor's filing of a bankruptcy case would be in itself constitute a default of the contract. Her Statement of Intentions had stated that she would "retain the collateral and continue to make regular payments" The creditor sent a proposed reaffirmation agreement and then its attorney sent an email to debtor's attorney requesting reaffirmation, but debtor's attorney "declined the offer." (The terms of the reaffirmation offer were not clear from the record.) After the repossession, Debtor reopened the case and claimed that Ford Motor Credit had violated the discharge injunction. The bankruptcy court for the Southern District of California denied the motion, and the BAP (with Judge Randall Dunn on the panel but not the author of its opinion) affirmed without dissent.

The Majority Opinion
In essence, Judge Diarmuid O`Scannlain held that "BAPCPA wrought several changes in the Code" which now undercut and in some respects contradicted the rationale for Parker, the Ninth Circuit's pre-BAPCPA precedent. In an opinion with 28 footnotes, including some on every single page, he laid out a detailed analysis of the relevant statutory changes.

Statutory Changes with BAPCPA
First, § 521(a)(2)(C) now explicitly says that the debtor's rights about his or her property under the Statement of Intention subsection are not altered, "except as provided by section 362(h)." The new subsection referred to there says that the automatic stay is cut off and the property is no longer property of the estate if debtor does not timely file a Statement of Intention or fails to act timely as indicated in the Statement. (Note: all references here to Bankruptcy Code sections are as they were re-numbered after BAPCPA.)

Second, under the new § 521(a)(6) a debtor

shall . . . not retain possession of personal property as to which a creditor has an allowed claim for the purchase price secured in whole or in part by an interest in such personal property unless the debtor, not later than 45 days after the first meeting of creditors . . .

A) enters into [a reaffirmation] agreement . . .; or

B) redeems such property . . . .

If the debtor fails to act within the 45-day period . . . the stay under section 362(a) is terminated with respect to the personal property of the estate or of the debtor which is affected, such property is no longer property of the estate, and the creditor may take whatever action as to such property as is permitted by applicable nonbankruptcy law . . . .

Third, under the new § 521(d), if a debtor fails to reaffirm or redeem as stated in § 521(a)(6) or to file the Statement of Intent or to act on it timely, then

nothing in this title shall prevent or limit the operation of a provision in the underlying lease or agreement that has the effect of placing the debtor in default under such lease or agreement by reason of the occurrence, pendency, or existence of a proceeding under this title or the insolvency of the debtor. Nothing in this subsection shall be deemed to justify limiting such a provision in any other circumstance.

In re Parker Effectively Overturned by These Amendments
Judge O'Scannlain observed that Parker had relied on the lack of any mandatory act for the debtor in § 521(a) beyond filing the Statement of Intention. But now these new provisions mean that the debtor is now not only required to file a Statement of Intention "but also [to] follow through with his expressed intent." Parker had also relied on the lack of ambiguity in § 521(a)(2)(C) in not altering debtor's rights "with regard to such property under this title." But now the phrase "except as provided in section 362(h)" immediately after makes "this conclusion . . . not only obsolete but actively contradicted."

When the debtor failed to reaffirm timely as required under the new provisions, the automatic stay expired and the vehicle was no longer the property of the estate. But, Judge O'Scannlain continued, that did not in itself authorize Ford Motor Credit to repossess, it "merely lifted one obstacle to its doing so." He acknowledged another obstacle: "§ 365(e)(1)(B) generally renders unenforceable any contractual term which purports to create a default solely based on the commencement of a bankruptcy case." The contract here had such a "ipso facto" clause, but § 365(e)(1)(B) seemed to block its use. However, the judge reasoned that § 521(d) provided a new way around that. As a consequence of the debtor not doing what that provision required--reaffirm or redeem, "nothing in [the Code] prevent[ed] or limit[ed] the operation of [the ipso facto] provision in the underlying [contract]." Thus, "our decision in Parker has been superseded by BAPCPA. Accordingly, Ford did not violate the discharge injunction in repossessing Dumont's vehicle."

Dissent
In contrast, Judge Susan Graber reasoned that BAPCPA's "changes to the [statutory] text indicate an intent to perpetuate the extant circuit split, not resolve it." [Italicized in original.] The heart of the dispute, § 521(a)(2)(A), "remains entirely unchanged." The new § 362(h) addition to the automatic stay statute, on which the majority opinion relies so much, "suggests that, if anything, Congress intended no change to the existing circuit split." (Emphasis in original.] She focuses on the concluding phrase in that new subsection, which requires a debtor to follow of one of three options laid out in the Statement of Intention, "as applicable," She equates that to the "if applicable" phrase in § 521(2)(A) upon which Parker had focused in its rationale that reaffirmation was not mandatory in order to retain a vehicle.

The dissent cited this rule of statutory interpretation: " 'Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change.' " In spite of the notoriety of the circuit split, "Congress did not amend § 521(a)(2)(A) or the critical phrase 'if applicable.' " Indeed, it "carried forward the important qualifier 'applicable'." So, "we should continue to read the statute as we did pre-BAPCPA." "Congress decided to do nothing--neither increasing nor decreasing access to ride-through," "thus perpetuating the circuit split."

After appealing to the "overarching guiding principle of statutory interpretation . . . [that] '[t]he principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor'," Judge Graber concluded that "we have already answered the question at hand [in] In re Parker. . . . Because the BAPCPA amendments add only confusion, I would not overrule In re Parker.

Limitations on the Holding
The majority opinion acknowledged some courts have allowed post-BAPCPA ride-through, but asserted that "in each of these cases there was 'substantial compliance with § 521(a)(2), § 521(a)(6), and § 362(h)'." In these cases the bankruptcy courts had not approved the reaffirmation agreements even though the debtors had sought for them to do so. Judge O'Scannlain also acknowledged not ruling on this creates uncertainty, but said the issue was not before the court.

NOTE: Both Judge O'Scannlain and Judge Graber are based out of the Portland branch of the Ninth Circuit Court of Appeals in Pioneer Courthouse, and both formerly practiced law in Portland. Judge Graber also had been on the Oregon Court of Appeals and then the Oregon Supreme Court, before starting at the Ninth Circuit in 1998. Judge O'Scannlain has been at the Ninth Circuit since 1986.

New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at Andy@BLSforAttorneys.com IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.

by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

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