In re Stephens

In re: JEFFREY L. and SANDRA L. STEPHENS, Debtors.

Case No. 09-62630

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF NEW YORK

Dated: March 28, 2013

Chapter 7

APPEARANCES:

STEPHEN R. DOLSON, ESQ.

Attorney for Debtor

The Law Offices of Steven R. Dolson, PLLC

THOMAS PAUL HUGHES, ESQ.

Chapter 7 Trustee

TRACY HOPE DAVIS

United States Trustee for Region 2

GUY A. VAN BAALEN, ESQ.

Honorable Diane Davis, United States Bankruptcy Judge

MEMORANDUM-DECISION AND ORDER

Before the Court is a Motion for Turnover of Non-Bankruptcy Estate Funds ("Motion," ECF No. 45) filed by Debtors Jeffrey L. and Sandra L. Stephens ("Debtors") on March 17, 2011. Debtors seek to have Chapter 7 Trustee Thomas Paul Hughes ("Trustee") turnover surplus proceeds resulting from the post-discharge auction sale of non-exempt personal property, which Debtors elected to surrender pursuant to 11 U.S.C. § 521(a)(2).¹ The question presented is whether the non-exemptproceeds belong to Debtors by operation of § 362(h) or, alternatively, whether they remain property of the estate for the benefit of creditors.

JURISDICTION

The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§157(a), (b)(1), and (b)(2)(A), (G), and (O), and 1334(a) and (b). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Bankruptcy Rule 7052.

BACKGROUND

Debtors filed a voluntary petition ("Petition," ECF No. 1) under chapter 7 of the Code on September 18, 2006. Along with the Petition, they filed their required statement of intention ("SOI"), stating therein an intent to surrender a 2003 Starcraft Trailer ("Trailer"). Debtors disclosed the Trailer on Schedule B titled "Personal Property" as having a value of $3,150.00, and on Schedule D titled "Creditors Holding Secured Claims" as being encumbered by a lien held by M&T Bank ("M&T") in the amount of $398.00. Debtors did not claim the Trailer as exempt in Schedule C titled "Property Claimed as Exempt." Pursuant to § 341(a), the Trustee held the first meeting of creditors ("§ 341 Meeting" or "Meeting of Creditors") on October 28, 2009. The next day, the Trustee filed an Application for Appointment of Counsel for Trustee ("Application," ECF No.16) to address the "[d]isposition of personal property not claimed or allowed as exempt property." He did not seek a determination pursuant to § 362(h)(2). The Court granted the Trustee's Application by Order dated November 9, 2009 (ECF No. 17), and on December 23, 2009, the Trustee filed a Notice of Asset Case under § 726 (ECF No. 25). On March 12, 2010, Debtors received their Discharge (ECF No.39). After the Discharge issued and pursuant to its state law rights, M&T repossessed the Trailer and sold it at auction. M&T's sale of the Trailer resulted in a surplus of $1,637.33, which M&T remitted to the Trustee on or about June 7, 2010. On March 7, 2011, Debtors filed the instant Motion. The Trustee filed a response to the Motion (ECF No. 48) on March 24, 2011. On April 14, 2011, the Court heard oral arguments and then provided the parties with an opportunity to submit memoranda of law in support of their respective positions. At the adjourned hearing on May 12, 2011, the Court heard additional arguments before taking the matter under advisement. The Trustee is presently holding approximately $8,500.00, which sum includes the non-exempt proceeds from the sale of the Trailer.

ARGUMENTS

Debtors contend that although they timely filed their SOI with their Petition, they failed to surrender the Trailer to M&T as required under § 521(a)(2). Debtors suggest that they failed to "perform" as contemplated by § 521(a)(2) because they did not deliver the Trailer to M&T. Debtors argue their failure to perform, coupled with the fact that the Trustee did not bring a motion under § 362(h)(2) to preserve the asset for the estate, caused the automatic stay under § 362(a) to terminate by operation of § 362(h)(1). Therefore, they contend that the Trailer was no longer property of the estate when M&T repossessed and sold it pursuant to its state law rights. Debtors argue that the Trustee effectively abandoned the Trailer and therefore ask this Court to find that the non-exempt proceeds now belong to them.

The Trustee raises several arguments against the applicability of § 362(h)(1) in this case. First, the Trustee contends that the removal of personal property from a bankruptcy estate by operation of § 362(h)(1) cannot be considered abandonment because property of the estate can onlybe abandoned by a trustee pursuant to § 554. Because the Trustee did not seek a court order under § 554, and Debtors did not claim the subject property as exempt, he avers that the Trailer remained property of the estate as defined under § 541. Next, the Trustee argues that because § 362(h)(1) is written in the conjunctive, a plain reading of the statute requires a debtor's lack of compliance with both subsection (A) as well as subsection (B) for the automatic stay to terminate. Debtors, however, complied with subsection (A) by timely filing a proper SOI with the Petition. Therefore, he believes that the automatic stay did not terminate by operation of § 362(h)(1) because one of the two requisites of provision § 521(a)(2) was satisfied. Third, the Trustee asserts that Congress did not intend for § 362(h) to apply to the surrender or redeem electives. Rather, the Trustee argues that Congress added § 362(h) to the Code to terminate the automatic stay by operation of law in order to prevent debtors from being able to retain property without either redeeming it or reaffirming debt that it secures, which has commonly been referred to as a "ride through" or "fourth option" sanctioned pre-BAPCPA by several circuit courts of appeals. Thus, the Trustee asserts that the amendment was not intended to alter the respective positions of trustees or debtors. Finally, and in the alternative, the Trustee argues that § 362(h) does not apply in the case at hand because Debtors properly filed their SOI and acted in a manner consistent with their stated intention.

DISCUSSION

The present case involves the scope and operation of § 521(a)(2) and § 362(h) as enacted by BAPCPA. Because this case presents questions of statutory interpretation, the Court is required to start "where all such inquiries must begin: with the language of the statute itself." Ransom v. FIA Card Servs., N.A. (In re Ransom), 131 S. Ct. 716, 723-24 (2011) (quoting United States v. Ron Pair Enters. Inc., 489 U.S. 235, 241 (1989)). The Court begins with the "principle that a statute ought,upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant." Dumont v. Ford Motor Credit Co. (In re Dumont), 581 F.3d 1104, 1111 (9th Cir. 2009) (quoting TRW, Inc. v. Andrews, 534, U.S. 19, 31 (2008) (internal quotation marks omitted)). "Courts should decline to render any 'express exception . . . insignificant, if not wholly superfluous.'" Id. "However, according to the plain meaning rule, 'where the language of an enactment is clear [or, in modern parlance, plain], and construction according to its terms does not lead to absurd or impracticable consequences, the words employed are to be taken as the final expression of the meaning intended.'" Id. (quoting United States v. Mo. Pac. R.R., 278 B.R. 269, 278 (1929)); Samson v. Western Capital Partners, LLC, (In re Blixseth), 454 B.R. 92, 98-99 (B.A.P. 9th Cir. 2011) ("Where the language is plain and does not lead to absurd or impractical consequences, the words are taken as the final expression of the meaning intended.").

In considering the effect of pre-BAPCPA § 521(2), most courts held that it was primarily a notice statute that provided a secured creditor with information concerning a debtor's intention regarding certain personal property early in the case. Green Tree Fin. Serv. Corp. v. Theobold (In re Theobold), 218 B.R. 133, 136 (B.A.P. 10th Cir. 1998).² The statute was not designed to provide creditors with a mechanism to avoid obligations imposed by state law or to create substantive rights because pre-BAPCPA § 521(2)(c) clearly provided that subsections (A) and (B) did not alter adebtor's or trustee's rights with respect to certain property. In re Theobold, 218 B.R. at 135-36.³ In 2005, Congress revised § 521 to provide in pertinent part:

if an individual debtor's schedule of assets and liabilities includes debts which are secured by property of the estate -

(A) within thirty days after the date of the filing of a petition under chapter 7 of this title or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, the debtor shall file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property;

(B) within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day period fixes, perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; and

(c) nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h).

11 U.S.C. § 521(a)(2) (emphasis added).⁴ Post-BAPCPA, this provision contains an exception provided in § 362(h) that addresses what will happen when a debtor fails to comply with § 521(a)(2) directives. Although nothing in § 521(a)(2)(A) or (B) alters the debtor's or trustee's rights, subsection (c) connects § 521(a)(2) to § 362(h). The latter of which provides:

(1) In a case in which the debtor is an individual, the stay provided

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