BEN BARRY, Bankruptcy Judge.
This is a case about reaffirmation agreements; specifically, a reaffirmation agreement entered into between the debtors and Wells Fargo Bank, N.A. [Wells Fargo] that was filed with the Court over three years ago. After Wells Fargo attempted to collect the reaffirmed debt, the debtors reviewed the reaffirmation agreement they had voluntarily entered into to determine whether it complied with 11 U.S.C. § 524(c), the reaffirmation provisions of the bankruptcy code. On November 14, 2011, the debtors filed their Complaint Seeking Injunctive Relief Declaring Reaffirmation Agreement Null and Void and Seeking Damages For Violation of the Discharge Injunction. On December 14, 2011, Wells Fargo filed its answer. The Court heard the case on April 18, 2012, and then allowed both parties until May 15, 2012, to file simultaneous post-trial briefs. After considering the evidence presented and the parties' briefs, the Court denies the relief requested by the debtors.
The Court has jurisdiction over this matter under 28 U.S.C. § 1334 and 28 U.S.C. § 157, and it is a core proceeding under 28 U.S.C. § 157(b)(2)(O). The following opinion constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
The debtors filed their chapter 7 voluntary petition on May 30, 2008, and included in their schedules a debt owed to Wells Fargo in the amount of $50,000, secured by a second mortgage on their residence located in Springdale, Arkansas. On their Statement of Intention, the debtors stated their intention to reaffirm the debt to Wells Fargo pursuant to § 524(c). On August 20, 2008, Wells Fargo filed an executed reaffirmation agreement on Official Form 240A relating to the subject debt; the reaffirmation agreement was signed by both debtors on July 21, 2008, the debtors' counsel at the time on August 4, 2008, and a representative of Wells Fargo on August 20, 2008. The debtors received their discharge on September 15, 2008, approximately one month later.
According to the debtors' complaint and Wells Fargo's answer to the complaint, Wells Fargo brought suit against the debtors in state court in May 2010 for a money judgment on the debt allegedly owed to Wells Fargo.
The debtors presented three arguments related to the reaffirmation agreement. Their first argument is that the reaffirmation agreement between the debtors and
Additionally, the debtors believe that the reaffirmation agreement contains a high level of ambiguity.
The debtors' second argument is that the reaffirmation agreement is deceptive as to Martha Gomez because the agreement does not disclose on its face that Martha Gomez was being asked to reaffirm "an unsecured loan." According to the debtors, "Wells Fargo would have known that preparing the Agreement in this manner would cause an unsecured debtor to reasonably believe that the loan was secured by her property."
Finally, the debtors argue that because the reaffirmation agreement fails to meet the requirements of § 524(c), it is without effect and the underlying debt was properly discharged. As a result, the post-discharge collection activity by Wells Fargo is a violation of the discharge injunction under § 524(a).
The reaffirmation agreement that was filed with the Court and is the subject matter of this lawsuit was presented on the official form promulgated by the Administrative Office of the United States Courts — Form 240A — Reaffirmation Agreement (1/07). In April 2010, the Administrative Office promulgated an additional official reaffirmation agreement form. The new form is titled Form B240A; the original form, which was used by Wells Fargo, is now titled Form 240A/B ALT. The original form strictly complies with the provisions of § 524(c)(2) and (k); the new form only generally complies with the provisions of § 524(c)(2) and (k) but appears to be written to make it easier to understand. The introduction in 2010 of the new Official Form B240A belies an argument that the statutory requirements for disclosure under § 524(k) are to be strictly construed. According to a leading bankruptcy treatise, "[i]ndeed, the Reaffirmation Form promulgated by the Administrative Office of the United States Courts deviates somewhat from the language in the statute. Presumably, a creditor properly using this form would face little risk of litigation." 4 Collier on Bankruptcy ¶ 524.04[1], at 524-44-45 (16th ed.)(2011).
Under this subsection, the debtors argue that Wells Fargo was required to disclose separately the amount of debt being reaffirmed and the total fees and costs being reaffirmed in the reaffirmation agreement. Section 524(k)(3)(C) relates to the total amount of debt being reaffirmed and states:
11 U.S.C. § 524(k)(3)(C). According to this subsection, the "Amount Reaffirmed" includes the total amount of debt the debtor agrees to reaffirm and the total of any fees and costs as of the date of the reaffirmation agreement. The statute does not include a requirement that the amount of debt and the fees and costs be segregated. The next subsection, § 524(k)(3)(D), requires two additional statements, the first of which is "The amount of debt you have agreed to reaffirm." The Wells Fargo reaffirmation agreement consists of a completed Official Form 240A (now Form 240A/B ALT). The phrase "Amount Reaffirmed" appears on the first page in bolded, underlined, and capitalized letters, and is followed by the required phrase: "The amount of debt you have agreed to reaffirm," and lists the amount of $50,964.84. Beneath that line, in bolded and italicized lettering, appears the phrase: "The amount of debt you have agreed to reaffirm includes all fees and costs (if any) that have accrued as of the date of this disclosure." The statute requires no more and the Court finds that Wells Fargo complied with the requirements of § 524(k)(3)(C).
Under this subsection, the debtors argue that the interest rate disclosed on the reaffirmation agreement must be disclosed in a specific manner with a clear distinction between Annual Percentage
11 U.S.C. § 524(k)(3)(E)(i). Wells Fargo testified that the SmartFit Home Equity Account Agreement entered into by the debtors was an open end credit plan consisting of two components — the primary loan on which the note was written (the account ending in 1998) and a sub-account containing a fixed-rate advance (the account ending in 1001). Because the debt is an extension of credit under the account ending in 1998 and is an open end line of credit, subsection 524(k)(3)(E)(i) applies. Under this subsection, the creditor is allowed to disclose the annual percentage rate of the reaffirmed debt either under subclause (I), subclause (II), or as a combination of both. Proceeding under subclause (I), Wells Fargo disclosed the annual percentage rate of the open end credit plan (the primary loan) as 7.87%. Wells Fargo then disclosed the simple interest rate of the fixed-rate advance account under subclause (II) as 11.00% and restated the annual percentage rate of the primary loan. These interest rates are the same rates that were disclosed on the May 31, 2008 statement the debtors received approximately one month prior to executing the reaffirmation agreement. (Defs.' Ex. 1.) Because the interest rate of the primary account and the sub-account were each disclosed, as required by the code, the Court finds that Wells Fargo complied with the requirements of § 524(k)(3)(E).
Under this subsection, the debtors argue that because the debt includes a variable rate and a fixed rate, the statement required
11 U.S.C. § 524(k)(3)(F). On page three of the Wells Fargo reaffirmation agreement, the following statement appears:
As explained above, the underlying debt transaction between Wells Fargo and the debtors consisted of a variable rate open end credit plan that included a sub-account with a fixed rate advance. Because there is no difference in the statement that appears on Wells Fargo's reaffirmation agreement and what is required under the code, the Court finds that Wells Fargo complied with the requirements of § 524(k)(3)(F).
Finally, under this subsection, the debtors argue that Wells Fargo was required to use one of three optional statements and disclose the amount of the monthly payment. Section 524(k)(3)(H) relates to repayment schedules and amounts and states:
11 U.S.C. § 524(k)(3)(H). As stated in the statute, subsection 524(k)(3)(H) is optional "at the election of the creditor." In fact, the Official Form used by Wells Fargo contains the following statement in italics: "Optional — At the election of the creditor, a repayment schedule using one or a combination of the following may be provided." The Official Form then sets forth three options separated individually by the word "or." The first option is the following statement: "Your first payment in the amount of $___ is due on ___ (date) but the future payment amount may be different.
Wells Fargo opted to include a reasonably specific description of the debtors' repayment obligations in its reaffirmation agreement, the third option described above. It stated specifically, under the heading Repayment Schedule, the following requirements:
Even though the disclosure of a repayment schedule appears to be optional under the code, Wells Fargo included a specific description of the debtors' obligations in its reaffirmation agreement, referring directly to the debtors' loans or line of credit agreements. The Court is not aware of a specific requirement in the code that the creditor disclose the amount of each monthly payment, although that is typically included in reaffirmation agreements.
Related to this subsection, the debtors also argue that without the disclosure
Based on the above findings, the Court concludes as a matter of law that the reaffirmation agreement that is the subject of the debtors' adversary proceeding complies with the statutory requirements of § 524(c) and (k) and the Court denies any relief under this claim.
The debtors' second argument is that the reaffirmation agreement was deceptive as to Martha Gomez because she was being asked to reaffirm "an unsecured loan." As stated earlier, the reaffirmation agreement that was filed with the Court was the official form promulgated by the Administrative Office of the United States Courts. This particular form includes all of the required provisions under § 524(c) and (k), including the required certification by the debtors' counsel that
11 U.S.C. § 524(c)(3). This certification by the debtors' counsel negates the debtors' argument that the reaffirmation agreement was deceptive as to Martha Gomez. Neither debtor was under an obligation to enter into the voluntary reaffirmation agreement and, according to their counsel's certification, they were advised of the legal effect of the reaffirmation agreement. Even though the deed to the subject property reflected only Marcelo Gomez as the Grantee, Martha Gomez was obligated on the debt that is the subject of the reaffirmation agreement and chose to reaffirm that obligation.
The debtors' third argument is that Wells Fargo violated the discharge injunction under § 524(a). This argument is premised upon the reaffirmation agreement being invalid because it failed to meet the requirements of § 524(c). Based on the Court's earlier conclusion that the reaffirmation agreement complies with § 524(c) as a matter of law, the debtors' third argument is moot and the Court denies any relief under this claim.
For the reasons stated above, the Court concludes as a matter of law that the reaffirmation agreement between Wells Fargo and the debtors that was filed in this case on August 20, 2008, complied with the requirements of § 524(c) and is a valid reaffirmation agreement. Accordingly, the debtors' Complaint Seeking Injunctive Relief Declaring Reaffirmation Agreement Null and Void and Seeking Damages For Violation of the Discharge Injunction is denied.
IT IS SO ORDERED
Four of the five cases refer generally to § 524(c) and (d), and only one of those was decided after the Administrative Office published the new official form reaffirmation agreement that generally — not strictly — complies with the disclosures required under § 524(k). That case, a recent decision out of Iowa, did not address the disclosure requirement under § 524(c)(2) and (k); rather, it discussed a court's authority to approve a reaffirmation agreement that was entered into after the debtors received their discharge. In re McKeever, No. 11-04187-als7, 2012 WL 1302621 (Bankr.S.D.Iowa April 16, 2012). The requirement for execution prior to discharge appears under § 524(c)(1). Because the court found that the debtors did not make their agreement prior to their discharge, the court held that the parties did not comply with § 524(c)(1) and the reaffirmation agreement was not valid.
The one case that addresses the disclosures required under § 524(c)(2) and (k) focuses on the lack of disclosures provided for in the parties' reaffirmation agreement, not the quality of those disclosures. See In re Lee, 356 B.R. 177 (Bankr.N.D.W.Va.2006). Even though the parties in that case each agreed to the reaffirmation of the debt, the court held that the reaffirmation agreements that were filed with the court were "pervasively defective" and lacked many of the required disclosures. Id. at 181.
