Rebecca B. Connelly, U.S. Bankruptcy Judge.
The question in this case is whether Ford Motor Credit Company LLC ("Ford") may enforce an ipso facto clause to repossess a vehicle when there is no payment or other contractual default and the bankruptcy court did not review a reaffirmation agreement prior to the debtor's discharge. For the reasons explained herein, the Court concludes that the ipso facto clause is unenforceable and Ford violated the discharge injunction.
The facts are undisputed. The debtor, Carol Botkin Nuckoles ("Nuckoles" or "debtor"), filed her chapter 7 petition for relief on September 23, 2015. On her Schedule D, Nuckoles disclosed Ford as a creditor secured by a title lien on her 2012 Ford Fusion sedan. The contract securing the loan contained an ipso facto provision, also known as a bankruptcy-default clause.
Soon after the debtor's petition date, Ford prepared a reaffirmation agreement ("Agreement") and delivered it to counsel for Nuckoles. The Agreement carried a presumption of undue hardship pursuant to section 524(m) due to the debtor's negative budget.
After he reviewed the Agreement, counsels for Ford informed counsel for Nuckoles that the debtor's accompanying disclosures pursuant to section 524(k) were incomplete. ECF Doc. No 19-1 at 1. Counsel for Nuckoles responded with an email outlining his reasons for not completing the disclosures and requested that counsel for Ford sign and return the Agreement to him for filing if counsel for Ford was unwilling to file the Agreement with the Court.
In the end, Ford never endorsed the Agreement and did not return the Agreement to Nuckoles to file herself. Nuckoles received her chapter 7 discharge on January 12, 2016. The automatic stay
Within a week of the repossession, Nuckoles moved to reopen her case to initiate an action against Ford for violating the discharge injunction. The Court granted the debtor's motion to reopen her case. Nuckoles filed two actions: (1) a request to direct Ford to return her vehicle and (2) an action seeking sanctions for violations of the discharge injunction.
On February 17, 2016, the Court held a hearing on Nuckoles's demand that Ford return her vehicle. Nuckoles argued that Ford's repossession of her car violated the discharge injunction. Nuckoles relied on the language of the Bankruptcy Code and the holding of In re Husain, 364 B.R. 211 (Bankr.E.D.Va.2007) in support of her position. Nuckoles asserted that because she timely agreed to reaffirm her debt to Ford, she had complied with her statutory obligations pursuant to sections 362(h) and 521(a), rendering Ford's ipso facto clause unenforceable.
In response, Ford insisted that the automatic stay had terminated as to the vehicle. As a result, Ford stated that its repossession was solely an in rem action authorized by the security agreement and not an attempt to collect upon a discharged debt.
Nuckoles has maintained insurance on the vehicle and has never missed a payment to Ford—she was current pre-petition and remained current throughout the pendency of her bankruptcy case and post-discharge.
The Court has jurisdiction over Nuckoles's bankruptcy case by virtue of the provisions of 28 U.S.C. §§ 1334(a) and 157(a), the delegation made to this Court by Order of Reference from the District Court entered on December 6, 1994, and Rule 3 of the Local Rules of the United States District Court for the Western District of Virginia. Through her motion, Nuckoles asserts a violation of the section 524 discharge injunction and seeks an order directing Ford to return her vehicle. Both an allegation of a violation of the discharge injunction and whether section 521(d) allows Ford to enforce the contractual ipso facto clause involve "substantial questions of bankruptcy law" that impact
In the instant case, Ford repossessed the vehicle after Nuckoles received her chapter 7 discharge and the Court closed her case. The parties agree that Nuckoles timely filed her intent to reaffirm and timely entered into the Agreement, but that the Agreement was never filed with the Court. Ford further acknowledges that Nuckoles was current on all her contractual obligations and that its sole basis for repossessing her vehicle is the ipso facto clause. See Tr. at 19, ECF Doc. No. 23 ("[T]here is an ipso facto clause in the contract that Ford was relying upon."). What this case boils down to is this: did Nuckoles comply with sections 362(h) and 521(a) to void Ford's ipso facto clause even though the Agreement was never filed with the Court? If she did not, Nuckoles concedes that Ford's ipso facto clause remains enforceable.
Section 521(d) of the Bankruptcy Code "permits creditors to enforce ipso facto clauses in consumer loan agreements secured by personal property if the debtor fails to comply with the provisions of §§ 521(a)(6) or 362(h)." DaimlerChrysler Fin. Servs. Ams., LLC v. Jones (In re Jones), 591 F.3d 308, 312 (4th Cir.2010). The key point is that "[s]ection 521(d) gives Ford no substantive right to take action against the collateral. . . . Rather it removes the last remaining impediment under federal bankruptcy law to enforcement of an ipso facto clause that already exists." Dumont v. Ford Motor Credit Co. (In re Dumont), 581 F.3d 1104, 1115 (9th Cir.2009). By enacting section 521(d), Congress required debtors to do more than simply state their intent to retain and continue to make payments on their personal property.
Sections 362(h) and 521(a) mandate that the debtor must timely file her statement of intention and timely enter into a reaffirmation agreement. This is what the statute requires. Whether a court approves or disapproves of a reaffirmation agreement has no bearing on whether a debtor has "fully complied with all the pertinent requirements of Sections 362(h) and 521." Chim, 381 B.R. at 198; accord Husain, 364 B.R. at 219 ("The consequences arising from § 521(d) of the Bankruptcy Code are triggered upon a debtor's failure to enter into the appropriate agreement, not by the court's disapproval of the agreement or by its determination that the agreement is unenforceable."). The result is that a debtor's satisfaction of her duties voids the ipso facto clause. Chim, 381 B.R. at 198; Husain, 364 B.R. at 219; see also 11 U.S.C. § 521(d) (allowing creditor to enforce ipso facto clause only "[i]f the debtor fails timely to take the action specified in subsection (a)(6) of this section or in paragraphs (1) and (2) of section 362(h)").
"[W]hether the contract is enforceable is not within the debtor's control." Coastal Fed. Credit Union v. Hardiman, 398 B.R. 161, 182 (E.D.N.C.2008) (collecting cases). It is axiomatic that a debtor has no more control over a court's approval of her reaffirmation agreement than she has over her creditor's willingness to sign it or her counsel's reluctance to certify the reaffirmation agreement does not impose an undue hardship. See In re Hinson, 352 B.R. 48, 52 (E.D.N.C.2006) (enjoining repossession when debtor attempted to reaffirm on original terms but creditor refused to sign reaffirmation agreement because it wanted additional fees). Nothing in the text of sections 362(h) and 521(a) is contingent upon court approval of a reaffirmation agreement. See Husain, 364 B.R. at 219 ("The Court's approval or disapproval of the Agreements is immaterial in determining compliance with the `performance' requirements.").
After depriving Nuckoles of the chance to file the Agreement with the Court, Ford cannot turn around and claim that she failed to comply with sections 362(h) and 521(a). See In re Perkins, 418 B.R. 680, 681-82 (Bankr.M.D.N.C.2009) (voiding ipso facto clause when debtor "timely complied with the requirements of section 524(c) and 521(a)(2), and in all respects agreed to reaffirm the debt on the original terms of the contract," but creditor failed to timely file reaffirmation agreement). What is more, when a debtor has tried to reaffirm the underlying debt but was unable to secure court approval of the reaffirmation agreement, courts have unanimously declared ipso facto provisions void and unenforceable.
Cases reaching a contrary outcome are readily distinguishable. In every instance, the debtor either failed to file a statement of intention or did not attempt to reaffirm the debt. See Jones, 591 F.3d at 312 (affirming enforcement of ipso facto clause because debtor neither stated intent to reaffirm nor signed a reaffirmation agreement); Dumont, 581 F.3d at 1107, 1114
The remaining question is whether Ford's repossession of the debtor's car infringed the discharge injunction. The bankruptcy discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor." 11 U.S.C. § 524(a)(2). "Once the discharge is granted, the creditors may not repossess the vehicles without violating the discharge injunction unless there is a subsequent payment or insurance default" when a debtor complied with sections 362(h) and 521(a). Husain, 364 B.R. at 219; accord Baker, 390 B.R. at 526, 532; Chim, 381 B.R. at 199. The Court holds that Ford violated the discharge injunction by attempting to enforce an ipso facto clause that had been invalidated by bankruptcy law.
To the extent Ford argues that it could not have violated the discharge injunction by pursuing its in rem remedy against the debtor's vehicle,
For the foregoing reasons, the Court holds that Ford violated the discharge injunction by repossessing Nuckoles's vehicle after she did everything in her capacity to reaffirm her debt and was current on all her contractual obligations to Ford. In this case, because the debtor entered into an agreement to reaffirm her debt but the creditor prevented her from timely bringing the Agreement before the Court, the Court finds that Nuckoles complied with sections 362(h) and 521(a) and Ford's ipso facto clause is void.
The Court will contemporaneously issue an Order consistent with the findings and ruling of this Memorandum Decision.
The Clerk is directed to send electronic notification of the entry of this Memorandum Decision to counsel of record for Nuckoles and counsel of record for Ford.
In the present case, counsel for Nuckoles stated that his client was prepared to explain how she would strive to overcome her budget shortfall.
Tr. at 28. Even if the Court found the debtor's good-faith explanation ineffective to overcome the presumption of undue hardship, it would have been sufficient to void the ipso facto clause. See Chim, 381 B.R. at 192-93 (pointing out that while "one of the Debtor's primary reasons for entering into the Reaffirmation Agreement" was her fear creditor would enforce the ipso facto clause, she also attempted to explain how she would be able to afford her car payment); Husain, 364 B.R. at 291 (concluding debtors attempted to reaffirm in good faith and prohibiting repossession despite unenforceability of reaffirmation agreements). Determining if a debtor has entered into a reaffirmation agreement in good faith is a decision that must be made by a court and is not contingent upon a creditor's satisfaction with the sufficiency of the debtor's disclosures.
The Court takes a moment to note that a debtor is not required to overcome the presumption of undue hardship in writing. Section 524(m) allows a debtor to rebut the presumption in writing, but she is not limited to this option. See 11 U.S.C. § 524(m)(1) ("The presumption may be rebutted in writing. . . ."); see also In re Henderson, 492 B.R. 537, 541 (Bankr.D.Nev.2013) ("The debtor may rebut the presumption by identifying additional sources of funds to make the payments."). When the debtor's written explanation is insufficient, as it often is, a court must schedule a hearing to determine if the debtor is able to rebut the presumption "to the satisfaction of the court." 11 U.S.C. § 524(m)(1). Only after holding such a hearing may a court approve or disapprove of the proposed reaffirmation agreement. See id. ("[T]he court may disapprove such agreement. No agreement [that meets the requirements of section 524(c)] shall be disapproved without notice and a hearing to the debtor and creditor.").
