In re Templin

OPINION

Before the Court is 21^st Mortgage Corporation's motion that the Court order Debtor to comply with his obligations under § 521(a)(2) and (6) of the Bankruptcy Code, and to delay entry of the bankruptcy discharge until he does. 21^st Mortgage made an identical request of this Court (Chief Judge Robert H. Jacobvitz) in 2015, which was denied. See In re Williamson, 540 B.R. 460 (Bankr. D.N.M. 2015). After reviewing the briefs, hearing the arguments of counsel, and researching the case law, the Court concludes that there is no reason to depart the Williamson holding. For the reasons set forth below, 21^st Mortgage's motion will be denied.

For the limited purpose of ruling on the motion, the Court will assume the accuracy of the following facts, none of which appear disputed:

Debtor owns a 2007 Solitaire mobile home. Debtor financed the purchase of the mobile home with a loan from 21^st Mortgage. The finance agreement (a retail installment contract) is dated December 13, 2006. It does not contain an ipso facto¹ clause.

Debtor filed this chapter 7 case on December 21, 2017. On the petition date, Debtor filed a statement of intent, which contains the following statement about the mobile home and 21^st

Page 2

Mortgage's purchase money loan:

[Debtor will] Retain the property and . . . will continue making payments to creditor without reaffirming.

Shortly after the petition date, 21^st Mortgage sent Debtor a reaffirmation agreement. Debtor did not sign it. The § 341(a) meeting in Debtor's bankruptcy case was held on January 16, 2018. The deadline for filing objections to discharge has now passed, with no objections filed. The case is ready for discharge.

Debtor does not intend to sign a reaffirmation agreement with 21^st Mortgage, nor to surrender the mobile home, nor to redeem it. Rather, Debtor intends to "retain and pay" for the mobile home, thereby keeping the home without reaffirming his personal liability for the 21^st Mortgage debt.

The Court temporarily delayed entry of the discharge order in Debtor's case, until it rules on 21^st Mortgage's motion.

A. Debtor's § 521(a)(2) and (a)(6) Duties.

1. Section 521(a)(2)(A). Section 521(a)(2)(A) requires a debtor, within 30 days after his petition date, to file

a statement of his intention with respect to the retention or surrender of such property [of the estate] and, if applicable, specifying that ... the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property . . . .

For cases filed after enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), this language is generally acknowledged to give a debtor three, and only three, options for encumbered property: surrender it, redeem it, or reaffirm the debt. See, e.g., In re Dumont, 581 F.3d 1104, 1113-14 (9^th Cir. 2009); In re Rowe, 342 B.R. 341, 351

Page 3

(Bankr. D. Kan. 2006) ("Congress by amending §§ 521 and 362 intended to and was successful in eliminating the 'fourth option,' under which a Chapter 7 individual debtor having possession of personal property subject to a purchase money lien by performing all obligations under the security agreement and note could retain the property and be protected by the stay without either redemption of the property or reaffirmation of the secured debt"); In re Mollison, 463 B.R. 169, 179 (Bankr. D. Mass. 2012) (citing and following Dumont); In re Williamson, 540 B.R. 460, 464 (Bankr. D.N.M. 2015) ("Section 521(a)(2) does not give a debtor the option to specify an intent to retain property without specifying an intent either to redeem or reaffirm"). See also Johnson v. Sun Fin. Co. (In re Johnson), 89 F.3d 249, 252 (5^th Cir. 1996) ("debtors are limited to the three options set forth in the statute"); Taylor v. AGE Fed. Credit Union (In re Taylor), 3 F.3d 1512, 1517 (11^th Cir. 1993) (debtor does not have the option to retain encumbered property without redeeming it or reaffirming the debt).

2. Section 521(a)(2)(B). This subsection requires the debtor, within 30 days after the first date set for the §341 meeting, to "perform his intention with respect to such property, as specified by subparagraph (A) . . . ." Thus, by the stated deadline the debtor must surrender the property, redeem the property, or sign a reaffirmation agreement.

3. Section 521(a)(6). Finally, § 521(a)(6) requires that the debtor "not retain" encumbered property securing a purchase money loan unless, within 45 days after the § 341 meeting, the debtor either redeems or reaffirms.

B. What Remedies are Available if the Debtor Violates § 521(a)(2) and (a)(6)?

Here, Debtor chose to violate § 521(a)(2) and (6). What remedies are available to 21^st Mortgage?

Page 4

1. Remedies before BAPCPA. Before BAPCPA, the Code did not contain specific remedies for a debtor's violation of § 521(a)(2).² Several general remedies were potentially available, however, including dismissal or conversion of the case for "cause" under §§ 707(a), 1112(b), 1208(c), or 1307(c). See, e.g., In re McCray, 578 B.R. 403, 413-14 (Bankr. E.D. Mich. 2017) (a debtor's failure to perform their § 521 duties may constitute cause for dismissal under § 707(b)); In re Mathis, 548 B.R. 465, 470-71 (Bankr. E.D. Mich. 2016) (discussing dismissal or conversion as potential remedies for noncompliance with § 521(a)); In re Plummer, 513 B.R. 135, 144, n. 39 (Bankr. M.D. Fla. 2014) (courts have employed § 707(a) dismissal as a remedy for failing to comply with a stated § 521(a) intention)); In re Sullivan-Anderson, 307 B.R. 726, 729 (Bankr. M.D. Fla. 2003) ("in some cases, dismissal may be appropriate . . . when a debtor deliberately ignores his or her obligations under § 521(a)(2)").³

2. Remedies Added by BAPCPA. BAPCPA added three specific remedies for a debtor's failure to comply with § 521(a)(2) and (a)(6).

a. Section § 362(h). § 362(h), added by BAPCPA, provides:

In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim . . . and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2)—
(A) to file any statement of intention required under section 521(a)(2) with respect to such personal property, or to indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant to section 722, enter into an agreement of the kind specified in section 524(c) applicable to the debt secured by such personal property . . . as applicable; and
(B) to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action, unless such statement specifies the debtor's intention to reaffirm such debt on the original contract terms and the creditor refuses to agree to the reaffirmation on such terms.

Page 5

Section 362(h) makes clear that if a debtor violates § 521(a)(2), the automatic stay will be lifted and the subject personal property will be abandoned from the bankruptcy estate.

b. The "Hanging Paragraph." A second provision added by BAPCPA comes after § 521(a)(7), but is not numbered, lettered, or labeled. This so-called "hanging paragraph" provides in relevant part:

If the debtor fails to so act within the 45-day period referred to in paragraph (6), the stay under section 362(a) is terminated with respect to the personal property ..., such property shall no longer be property of the estate, and the creditor may take whatever action as to such property as is permitted by applicable nonbankruptcy law . . . .

The hanging paragraph and § 362(h)(1) have several differences. First, the hanging paragraph applies to a debtor's § 521(a)(6) obligation (surrender the property if the debtor does not redeem or reaffirm), while § 362(h)(1) applies to his § 521(a)(2) obligations (file a statement of intention, and then surrender, redeem, or reaffirm). Second, the hanging paragraph applies when the property is encumbered by a purchase money security interest, whereas § 362(h)(1) applies to any personal property securing a debt. Third, the two provisions have different compliance deadlines (45 days versus 30 days). In both cases, however, the result of a violation is the same—the automatic stay is modified, and the property is abandoned from the bankruptcy estate.

c. Section 521(d). A third relevant provision, also added in 2005 by BAPCPA, provides in relevant part:

If the debtor fails timely to take the action specified in subsection (a)(6) of