In re Elkouby

561 B.R. 551

In re: Abraham A. Elkouby, Debtor.

CASE NO. 14–23934–BKC–LMI

United States Bankruptcy Court, S.D. Florida.

Signed February 29, 2016

Matis H. Abarbanel, Ft. Lauderdale, FL, for Debtor.

ORDER DENYING MOTION OF THEIA LLC TO COMPEL DEBTOR TO SURRENDER AND DENYING THE DEBTOR'S MOTION TO STAY

Laurel M. Isicoff, Judge, United States Bankruptcy Court

This matter came before me on November 2, 2015 on the motion of Theia LLC ("Theia") to Reopen Bankruptcy Case and Compel Debtor to Surrender (ECF # 28)("Motion to Reopen") and the Motion of the Debtor, Abraham A. Elkouby (the "Debtor"), incorporated in the Debtor's Response to the Motion to Reopen (ECF # 34), to stay any ruling on the matter, pending resolution of an appeal of a similar legal argument currently pending before the district court. For the reasons more fully outlined below, the Motion to Compel is DENIED and the Motion to Stay is DENIED.

Section 521(a)(2) of the Bankruptcy Code¹ requires individual chapter 7 debtors to file a statement of intention advising whether, with respect to property securing debt, the debtor intends to retain or surrender such property, whether the property is exempt, and whether, if the debtor intends to retain the property, the debtor intends to redeem such property or reaffirm the debt encumbering such property. This case is the latest in an ongoing debate about the meaning of "surrender" and what the consequences of surrender are. The answer depends on what chapter the debtor has filed under, the nature of the property involved, and when the issue is brought before the court.

FACTS

There are no material facts in dispute. The Debtor filed a chapter 7 voluntary petition on June 18, 2014 (ECF # 1). At the time the Debtor filed for bankruptcy, he was involved in a foreclosure action brought by Newbury Place REO IBL, LLC, a predecessor-in-interest to the note and mortgage held by Theia (the "foreclosure action"). The bankruptcy petition included a statement of intention that indicated the Debtor planned to surrender the property involved in the foreclosure action, located at 210 174 th Street # 906, Sunny Isles Beach, Florida 33160 (the "Property"). The Debtor did not claim the Property as exempt on Schedule C, nor did the Debtor list the debt as disputed.² Furthermore, the Debtor did not oppose Theia's Motion for Relief from Stay (ECF # 11).

The Debtor received his bankruptcy discharge on September 26, 2014 (ECF # 25) and the case was administratively closed shortly thereafter (ECF # 27). Although the Debtor stated his intention to surrender the Property during the bankruptcy case, he never turned over the Property to Theia.³ Moreover, the Debtor continued to defend the foreclosure action, including the filing of an answer and affirmative defenses and issuing discovery requests.

In response to the Debtor's ongoing state court efforts, Theia filed the Motion to Reopen, arguing that the Debtor's defense of the foreclosure action is barred by the Debtor's stated intention to surrender. In support of its motion Theia has cited to several cases decided by other bankruptcy courts in Florida, including the Southern District of Florida, that have held that a debtor's election to surrender property in his or her statement of intention bars the debtor's defense of any foreclosure action. The Debtor argues that "surrender" only required the Chapter 7 Debtor to "surrender to the trustee," and that the Bankruptcy Code clearly provides that since the trustee did not administer the surrendered Property, the Property was abandoned back to the Debtor when the bankruptcy case was closed. Consequently, the Debtor argues, he should not be precluded from defending the foreclosure action.

ANALYSIS

As always, we start with the statute itself. "[W]e begin with the understanding that Congress says in a statute what it means and means in a statute what it says there.... [W]hen the statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms." Gordon v. NovaStar Mortgage, Inc. (In re Hedrick), 524 F.3d 1175, 1186 (11th Cir.2008) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) ).

Section 521 of the Bankruptcy Code outlines various obligations of all debtors seeking protection under any chapter of the Bankruptcy Code. Within section 521 there are various provisions that apply only to individual debtors and some that only apply to individuals in a chapter 7 case. Section 521(a)(2) sets forth the obligations of an individual debtor in a chapter 7 case with respect to debts secured by property of the estate. The individual debtor must advise in a statement of intention⁴ whether he or she intends to keep the property of the estate or surrender the property and whether the debtor claims the property is exempt. If the debtor is going to keep the property then the debtor must advise whether he will be redeeming the property or reaffirming the debt secured by the property.

Section 521(a)(4) of the Bankruptcy Code directs any debtor to surrender all property of the estate to the trustee, if a trustee has been appointed. While chapters 11, 12, and 13 specifically excuse the individual debtor from this obligation,⁵ there is no exception for a chapter 7 debtor other than, implicitly, the property that the debtor seeks to retain whether by reaffirmation, redemption, or exemption.⁶

If an individual chapter 7 debtor⁷ fails to timely file a statement of intention or fails to perform his or her intention within 45 days after the first meeting of creditors, and only with respect to personal property, the personal property loses its character as property of the estate⁸ and the automatic stay is lifted so that a lienholder may pursue its non-bankruptcy remedies.⁹ Moreover, if a chapter 7 individual debtor fails to perform his or her statement of intention within 30 days after the first meeting of creditors, the debtor may "not retain possession of personal property" (emphasis added) as to which a creditor has an allowed claim for the purchase price of such personal property.¹⁰

The Bankruptcy Code directs a chapter 7 trustee to distribute property of the estate pursuant to the priority scheme of 11 U.S.C. § 726 but, notwithstanding section 726, 11 U.S.C. § 725 directs the chapter 7 trustee to "dispose of any property in which an entity other than the estate has an interest, such as a lien, and that has not been disposed of under another section of this title." Thus, assuming the debtor is not retaining the property, and, assuming the debtor has not successfully claimed the property as exempt, and the lienholder has not already obtained stay relief or the trustee has not already abandoned the property to the lienholder,¹¹ a chapter 7 trustee "shall" dispose of the property, in some way, to the lienholder.¹² However, to the extent that any trustee has not administered property scheduled by the debtor under 11 U.S.C. § 521(a)(1) prior to the closing of a bankruptcy case, that property is "abandoned to the debtor."¹³

In sum, the Bankruptcy Code unambiguously provides that with respect to property of the estate securing a debt, the individual debtor must choose to retain or surrender. Retention requires a choice—redeem, reaffirm or exempt.^{14 ,15} If the property is personal property and if the debtor does not timely state his or her intention or perform redemption or reaffirmation timely, the chapter 7 debtor cannot retain possession,¹⁶ and the stay is lifted, unless the trustee takes action to preserve the estate's interest in the personal property.¹⁷ However, there is no provision in the Bankruptcy Code that provides similar relief with respect to real property. The Bankruptcy Code requires that the holder of a claim secured by real property take affirmative steps to obtain relief if the debtor has not performed his statement of intention. Whether or not the property of the estate is real property or personal property, in chapter 7, surrender is to the trustee,¹⁸ who may or may not choose to administer the property during the course of the bankruptcy case. If the property is not administered, it goes back to the debtor at the closing of the case, subject of course to any non-bankruptcy rights reserved to a lienholder, including the right to foreclose its security interest if appropriate.

What the Bankruptcy Code does not state, anywhere, is that real property surrendered by an individual chapter 7 debtor is ever surrendered to the lienholder.¹⁹ See ?In re Kasper, 309 B.R. 82, 89 (Bankr.D.D.C.2004). Another basic rule of statutory construction is "[w]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion." Russello v. U.S., 464 U.S. 16, 23, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983) (citation omitted); U.S. v. White, 466 F.3d 1241, 1246 (11th Cir.2006). The Bankruptcy Code specifically deals with surrender of personal property to the holder of a purchase money security interest if an individual debtor does not perform his statement of intention. The Bankruptcy Code gives the holder of a lien on personal property automatic stay relief if the chapter 7 debtor doesn't timely perform his statement of intention. The Bankruptcy Code also specifically excuses surrender by a chapter 11, 12, or 13 debtor to a trustee, but specifically requires that if such debtor is not retaining the collateral, either the lienholder gets the collateral or it gets paid the value of the collateral.²⁰ If Congress, which amended several provisions of section 521 when it enacted BAPCPA, wanted to require a chapter 7 debtor to surrender property to a lienholder instead of, or subsequent to, surrender to a chapter 7 trustee, Congress knew how to draft such a...