In Re Lee
MEMORANDUM OPINION
Kenneth and Peggy Lee (the “Debtors”) seek to reopen their discharged Chapter 7 bankruptcy case to file two “amended” reaffirmation agreements to replace ones that the court declared to be defective and unenforceable. The Debtors’ motion is unopposed, but the court set the motion for a telephonic hearing on September 5, 2006, in Wheeling, West Virginia, to determine whether grounds exist under 11 U.S.C. § 350(b) to reopen a case for the purpose of filing reaffirmation agreements after the entry of the Debtors’ discharge.
For the reasons stated herein, the court will deny the Debtors’ motion to reopen their case because any reaffirmation agreement they might file will be unenforceable pursuant to 11 U.S.C. § 524(c).
When the Debtors filed their March 10, 2006 Chapter 7 bankruptcy case, they owned real property in Hegesville, West Virginia, having a stated value of $180,000, and they owned a 2000 Oldsmobile Bravada having a stated value of $7,000. JP Morgan Chase Bank, NA (“Chase”) held a first deed of trust on the residence for approximately $77,000. The Bank of Charlestown has a perfected lien in the amount of $7,500 in the Debtors’ Bravada. Including these secured debt installment payments, the Debtors allege that their monthly expenses are $4,152, and that their combined net monthly income is $3,452, leaving a monthly shortfall of $700. At the time the Debtors filed their bankruptcy ease, they were current on their payments to Chase and the Bank of Charlestown.
On April 28, 2006, the Debtors filed a reaffirmation agreement that was prepared by Chase. The Bankruptcy Clerk’s Office observed that the agreement was deficient in that it was not on the Revised Director’s Procedural Form B-240 — it lacked the information required by 11 U.S.C. § 524(k) and (m). The Clerk then issued a Notice of Deficient Filing on May 11, 2006, notifying the Debtors that the agreement’s deficiency may cause the agreement to be administratively dismissed if not corrected within twenty days. By June 23, 2006, the agreement’s deficiency had not been cured, and the court signed an order that declared the reaffirmation agreement to be defective and unenforceable.
On May 1, 2006, the Debtors filed a reaffirmation agreement prepared by the Bank of Charlestown. That agreement was deficient for the same reasons as the one submitted by Chase, and after following an identical procedure, the court declared the agreement to be defective and unenforceable on June 23, 2006.
On July 28, 2006, the Debtors received their discharge, and the case was closed on the same day. On August 15, 2006, the Debtors filed this motion to reopen their case for the purpose of submitting “amended” reaffirmation agreements that conform to the Revised Director’s Procedural Form B-240, and consequently, § 524(k) and (m). In addition to the motion to reopen, the Debtors wrote a letter to the court explaining that “[i]t was never [their] intention to include [their] home or cars in the filing.” They further explain that their attorney had advised them not to sign the reaffirmation agreements, but they were attempting to refinance their real property and payoff the existing debts on their home and car, which would result in lowering their payments about $400 per month. The Debtors allege that they cannot obtain the desired refinancing, however, because their personal credit report shows a $0 balance being owed by them on their real property due to the fact that it is “included” in their bankruptcy case. The Debtors’ refinancing company is refusing to refinance a $0 balance. According to the Debtors’ letter:
JP MORGAN CHASE instructed me to make the case “active” and send them a new reaffirmation agreement. Once they receive the signed agreement we will go back in good standing with them and this note will be taken off the credit report.
(Doc. No. 31).
The Debtors believe that they can obtain the desired refinancing once they have personal liability on their real property debt. 1
The Debtors’ counsel argues that cause exists to reopen the Debtors’ bankruptcy case for the purpose of filing post-discharge reaffirmation agreements on the basis that the Debtors attempted to comply with the law; the original, albeit defective and unenforceable, reaffirmation agreements were executed before the Debtors’ discharge; and Fed. R. Bankr.P. 4008 allows the court thirty days after the entry of a discharge to approve reaffirmation agreements. 2
Bankruptcy court cases are reopened pursuant to § 350(b) of the Bankruptcy Code, which allows a bankruptcy court to reopen a case “to administer assets, to accord relief to the debtor, or for other cause.” 11 U.S.C. § 350(b). The decision to reopen a case is within the bankruptcy court’s discretion.
Eg., Apex Oil Co. v. Sparks (In re Apex Oil Co.),
Cause does not exist to reopen a case for the purpose of filing an unenforceable reaffirmation agreement.
In re Pettet,
The purpose of filing a bankruptcy petition is to “give[ ] the honest but unfortunate debtor ... a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.”
Local Loan Co. v.
Not all debts, however, are subject to the discharge injunction. For example, Congress expressly chose to impair a debt- or’s fresh start by excepting certain debts from discharge based on the particular nature of the debt or based on a debtor’s wrongful conduct. § 523. Also, under certain circumstances, Congress allows a debtor to voluntarily eschew the benefits of a bankruptcy discharge in regard to a single creditor by allowing the debtor and that creditor to enter into a new, enforceable agreement — the consideration for which is based on an otherwise dischargeable debt. § 524(c). To prevent creditor abuse of § 524(c), and to prevent the use of that section from enervating the underlying purpose of the Bankruptcy Code, Congress provided that any “reaffirmation” agreements must meet certain, specified requirements. In short, the agreement must meet six criteria, at least two of which are unsatisfied in this case: (1) it must be made before the granting of a discharge; and (2) the debtor must have received the disclosures required by § 524(k) of the Bankruptcy Code. 11 U.S.C. § 524(c) (1-2).
The reaffirmation agreements that the debtor submitted on April 28, 2006 and May 1, 2006, are pervasively defective. For example, the reaffirmation agreement prepared by Chase is a two page document that fails to, inter alia, (1) disclose the terms “Amount Reaffirmed” and “Annual Percentage Rate” more conspicuously than other terms as required by § 524(k)(2) (in fact, the annual percentage rate was not disclosed at all); (2) contain the statement: “Part A: Before agreeing to reaffirm a debt, review these important disclosures:” as required by § 524(k)(3)(A); (3) contain a summary of the reaffirmation agreement as required by § 524(k)(3)(B); (4) contain the total of any fees and costs accrued as of the date of the disclosure statement as required by § 524(k)(3)(C)(3)(ii); and (5) contain a schedule of the Debtors’ income and expenses pursuant to § 524(m) along with a statement on how the Debtors are able to afford to make the reaffirmed payments. The reaffirmation agreement prepared by the Bank of Charlestown is defective for many of the same reasons. The disclosures required by § 524(k) are not advisory; § 524(c) states that a reaffirmation agreement “is enforceable only if ... the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the agreement.”
Because the Debtors did not receive the required disclosures, their reaffirmation agreements were not enforceable. The Clerk notified the Debtors of the deficiencies, and when no corrective action was timely taken, the court reviewed the Clerk’s determination and entered the order declaring them to be unenforceable.
The fact that the Debtors’ are submitting “amended” reaffirmation agreements does not cure the deficiencies. Section 524(c)(2) requires that the Debtors receive the disclosures set forth in subsection (k)
“at or before the time at which the debtor signed the agreement.”
(emphasis added). Giving effect to a signed reaffir
Sec. 203. Discouraging Abuse of Reaffirmation Agreement Practices. Section 203 of the Act effectuates a comprehensive overhaul of the law applicable to reaffirmation agreements. Subsection (a) amends section 524 of the Bankruptcy Code to mandate that certain specified disclosures be provided to a debtor at or before the time he or she signs a reaffirmation agreement. These specified disclosures, which are the only disclosures required in connection with a reaffirmation agreement, must be in writing and be made clearly and conspicuously. In addition, the disclosure must include certain advisories and explanations .... If the debtor is represented by counsel, section 203(a) mandates that the attorney file a certification stating that the agreement represents a fully informed and voluntary agreement by the debtor, that the agreement does not impose an undue hardship on the debtor or any dependent of the debtor, and that the attorney fully advised the debtor of the legal effect and consequences of such agreement as well as of any default thereunder. In those instances where the presumption of undue hardship applies, the attorney must also certify that the debtor is able to make the payments required under the reaffirmation agreement. Further, the debtor must submit a statement setting forth the debtor’s monthly income and actual current monthly expenditures....
Report of the Committee on the Judiciary, House of Representatives, to Accompany S. 256, H.R.Rep. No. 109-31, Pt. 1, p. 57-58, 109th Cong., 1st Sess. (2005), U.S.Code Cong. & Admin.News 2005, pp. 88, 127-28. See also id. at 2 (“S. 256 also includes various consumer protection reforms.... It strengthens the disclosure requirements for reaffirmation agreements (agreements by which debtors obligate themselves to repay otherwise dischargeable debts) so that debtors will be better informed about their rights and responsibilities.”).
It appears from the Debtors’ argument in this case that the Debtors would have executed the reaffirmation agreements with Chase and the Bank of Charlestown even if they had received the proper disclosures. Indeed, as a general rule, “[a] party may waive any provision, either of a contract or of a statute, intended for his benefit.”
Shutte v. Thompson,
The requirements necessary to reaffirm a debt in § 524(c), however, are strictly construed and are not subject to waiver by a debtor.
E.g., Arnhold v. Kyrus,
Finally, the Debtors argue that Fed. R. Bankr.P. 4008 allows approval of a reaffirmation agreement within 30 days of the entry of discharge, and they made their “amended” reaffirmation agreements within 21 days after their discharge. Rule 4008, however, does not help the Debtors.
Accordingly, the court does not find cause to reopen the Debtors’ bankruptcy case to file reaffirmation agreements after entry of the Debtors’ discharge because any agreement the Debtors’ might file would not be enforceable. 4
III. CONCLUSION
For the above-stated reasons, the court will deny the Debtors’ motion to reopen their bankruptcy case. A separate order is attached pursuant to Fed. R. Bankr.P. 9021.
Notes
. The effect of a discharge in Chapter 7 is to turn recourse debts into non-recourse debts;
. The Debtors also allege that they had a right to a hearing on the Clerk's determination that their timely filed reaffirmation agreements were deficient. The Clerk’s notice of deficient filing stated: "PLEASE TAKE NOTICE that failure to correct any deficiency checked below within 20 days from the date of filing may cause your reaffirmation agreement to be dismissed. This administrative determination is subject to judicial review.” The Debtors, however, never contested the Clerk's determination of deficiency; consequently, the court was not required to hold a hearing on whether or not a deficiency existed. Indeed, the Debtors concede that the agreements were deficient as determined by the Clerk.
. Contrary authority does exist. For example, in
Chrysler Financial Co., LLC v. Diaz (In re Diaz),
No. 00-4397,
. When a debtor is having difficulty executing a reaffirmation agreement before the entry of the debtor's discharge, the debtor may — pursuant to Fed. R. Bankr.P. 4004(c)(2) — request the entry of the debtor's discharge be delayed.
E.g., Graham,