Filed: Feb. 15, 2000
Latest Update: Mar. 02, 2020
Summary: UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 99-10062 _ In The Matter of: STEPHEN DALE SMITH, ET AL., Debtors. _ CREDITOR’S BANKRUPTCY SERVICE, ET AL., Appellants, VERSUS STEPHEN DALE SMITH, ET AL., Appellees. _ Appeal from the United States District Court for the Northern District of Texas (5:98-CV-243) _ February 11, 2000 Before POLITZ and DAVIS, Circuit Judges and RESTANI.* PER CURIAM:** Paul Mason & Associates, Inc. d/b/a/ Creditors Bankruptcy Service (“CBS”) and Bank One Priva
Summary: UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 99-10062 _ In The Matter of: STEPHEN DALE SMITH, ET AL., Debtors. _ CREDITOR’S BANKRUPTCY SERVICE, ET AL., Appellants, VERSUS STEPHEN DALE SMITH, ET AL., Appellees. _ Appeal from the United States District Court for the Northern District of Texas (5:98-CV-243) _ February 11, 2000 Before POLITZ and DAVIS, Circuit Judges and RESTANI.* PER CURIAM:** Paul Mason & Associates, Inc. d/b/a/ Creditors Bankruptcy Service (“CBS”) and Bank One Privat..
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UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
________________________________
No. 99-10062
________________________________
In The Matter of: STEPHEN DALE SMITH, ET AL.,
Debtors.
_______________________________
CREDITOR’S BANKRUPTCY SERVICE, ET AL.,
Appellants,
VERSUS
STEPHEN DALE SMITH, ET AL.,
Appellees.
_____________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
(5:98-CV-243)
_____________________________________________________
February 11, 2000
Before POLITZ and DAVIS, Circuit Judges and RESTANI.*
PER CURIAM:**
Paul Mason & Associates, Inc. d/b/a/ Creditors Bankruptcy
Service (“CBS”) and Bank One Private Label Credit Services, Inc.
d/b/a/ Service Merchandise (“Service” or collectively “Appellants”)
appeal the district court’s order affirming the bankruptcy court’s
order denying reaffirmation and enjoining appellant from enforcing
*
The Honorable Jane A. Restani, Judge, U.S. Court of
International Trade, sitting by designation.
**
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
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its secured claim. Appellants’ principal argument on appeal is
that because appellees failed to present a reaffirmation agreement
to the court, the existence of Appellants’ lien was not an issue
properly before the court. We conclude that no reaffirmation
agreement was presented to the bankruptcy court and it had no
authority to enter an order denying reaffirmation. We therefore
vacate the district court’s judgment.
I.
Debtors-appellees Stephen and Sherryl Smith (“Debtors”) filed
a chapter 7 petition under the Bankruptcy Code. This case was a
no-asset1 liquidation and the official notice sent to all listed
creditors expressly instructed the creditors not to file proofs of
claim. Because of this order, Appellants did not file a proof of
claim. In their schedules, Debtors listed Service as an unsecured
creditor. Pursuant to a written contract with Service, CBS acted
as Service’s collection agent.
Several months after the chapter 7 petition was filed, CBS
wrote a letter to Debtors’ counsel asserting that Debtors owed
Service $1,720.78 and that the agreement for the account provided
Service with a purchase money security interest (“PMSI”) in durable
goods purchased. The letter further inquired whether Debtors, in
1
“In no-asset chapter 7 liquidation cases, the filing of a
proof of claim serves no practical purpose since there will be no
distribution from the estate in which to participate.” 4 Collier
on Bankruptcy ¶ 501.01[3] (15th ed. rev. 1999).
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their Statement of Intentions2, planned on reaffirming the debt, or
whether the collateral would be redeemed or surrendered. In
response, Debtors’ counsel responded to CBS acknowledging receipt
of a “Reaffirmation Agreement” and indicating that the
“Reaffirmation Agreement” would be forwarded to Debtors if proof of
a purchase money security interest was sent within twenty days.
CBS did not respond to this request and had no further activity in
the bankruptcy case until after discharge.
At Debtors’ discharge hearing, Debtors’ counsel represented to
the bankruptcy court that Service, acting through CBS, “requested
reaffirmation agreements” and did not provide “the proper security
documents.” Without Appellants’ knowledge, Debtors’ counsel filed
the Letter and then asked the court to enter the “standard order”
denying reaffirmation. The bankruptcy court granted Debtors’
request and entered the order.
According to the terms of the order, the bankruptcy court: 1)
denied the Reaffirmation Agreement ‘proposed’ by Appellants; 2)
determined that Appellants’ claim was unsecured; and, 3) enjoined
Appellants from interfering with the Debtors in the possession of
their property.
Appellants filed a joint motion for rehearing, challenging the
propriety of the bankruptcy court’s entry of the Order. On the
date of the rehearing, the bankruptcy court, without hearing
2
The debtor must announce in its Statement of Intentions
whether it will reaffirm a secured debt, redeem the collateral, or
surrender the collateral. In re Johnson, 89 F.3d 249, 252 (5th
Cir. 1996).
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evidence, denied the motion for rehearing because Appellants did
not produce proof of the PMSI. CBS and Service appeal.
II.
Because the notice of the meeting of creditors ordered that no
claims be filed, Appellants’ purported security interest was not
subject to the claims allowance process, under 11 U.S.C. § 501 et
seq. Nor was an adversary proceeding commenced pursuant to
Bankruptcy Rule 7001 to determine the validity of appellants’
claimed lien. The bankruptcy court nevertheless ruled that
Appellant had no security interest in Debtors’ durable goods when
it denied the reaffirmation. We first consider therefore whether
the bankruptcy court was authorized to adjudicate the status of
Appellants’ lien as part of the reaffirmation process.
Under § 524 of the bankruptcy code a debtor in a Chapter 7
proceeding may reaffirm a pre-petition debt that would otherwise be
discharged. 11 U.S.C. § 524(c). “Because section 524 permits the
debtor to reassume debts of which he would otherwise be relieved,
it is in tension with the fresh start that the discharge of
indebtedness is intended to give the debtor.” In re Turner, 156
F.3d 713, 718 (7th cir. 1998)(citing In re Duke,
79 F.3d 43, 44
(7th Cir. 1996)). As a result, § 524 provides that a court may not
approve a reaffirmation, unless the following conditions, inter
alia, are met:
• the agreement must be filed with the court;
• the agreement itself must contain “a clear
and conspicuous statement” advising the debtor
that he may rescind the agreement within sixty
days after it is filed or at any time prior to
discharge;
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• if an attorney represented the debtor during
negotiation of the agreement, the filed copy
of the agreement must include a declaration by
counsel that the agreement is “fully informed”
and “voluntary,” that it does not impose an
“undue hardship” on the debtor or his
dependants, and that counsel advised the
debtor of the legal effect and consequences of
both the agreement and any default under that
agreement ....
Id.; 11 U.S.C. § 524(c).
In Turner, the issue before the Seventh Circuit was whether a
debtor’s unilateral reaffirmation of a pre-petition debt
constituted a valid reaffirmation agreement under § 524(c). In re
Turner, 156 F.3d at 714. Debtor’s counsel, who filed thousands of
bankruptcy cases annually and therefore had incentives to minimize
the amount of time spent on any one case, began to file form
unilateral reaffirmations drafted and executed without the consent
of creditors.
Id. at 715. The court of appeals, noted that § 524©
made repeated references to an ‘agreement’ and held that unilateral
statements of intent to reaffirm did not constitute a reaffirmation
agreement under § 524.
Id. at 718. The court emphasized that,
“[f]iled without notice, a unilateral reaffirmation may well give
rise to eleventh-hour (not to mention post-discharge) disputes when
an unwilling creditor learns that a reaffirmation has been
attempted without its prior consent.”
Id. at 720-21.
We agree with Turner that the Code plainly does not
contemplate that a bankruptcy court will enter an order permitting
or denying reaffirmation unless and until an agreement between the
debtor and creditor to reaffirm has been filed with the bankruptcy
court. In the instant case, the letter the Debtors’ counsel
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presented to the bankruptcy court was not such an agreement.
In the letter, the creditor simply inquired how Debtors would
treat the Appellants’ secured claims in the Statement of
Intentions. Counsel’s response indicated that Appellants’
“Reaffirmation Agreement” had been received and counsel would be
“glad to forward the Reaffirmation Agreement to [Debtors]” if
Appellants provided proof of their PMSI. No further communication
took place between the parties.
Notwithstanding counsel’s characterization of the letter as a
“Reaffirmation Agreement”, it is evident that this exchange of
letters did not constitute an agreement by the Debtors to reaffirm
the debt.
Assuming, without deciding, that in a proper case a bankruptcy
court can adjudicate the existence of a lien ancillary to its order
denying reaffirmation, the court plainly cannot do so unless it is
presented with a valid reaffirmation agreement. In the instant
case, no colorable reaffirmation agreement was presented for the
bankruptcy court to approve or disapprove. As such, the bankruptcy
court had no authority to enter the order.
III.
For the foregoing reasons, we VACATE the district court’s
judgment affirming the bankruptcy court’s order enjoining appellant
from enforcing its secured claim.
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