In Re Parker
ORDER
On Junе 10, 1991, Michael and Cheryl Parker (debtors) filed a voluntary petition for relief under the provisions of chapter 7 of the United States Bankruptcy Code. William Randal Wright, Esq., was appointed trustee. The debtors’ assets include a 1989 Sunrizon Ranger mobile home that they clаim as exempt property under the homestead exemption statutes. Green Tree Acceptance, Inc. (Green Tree) holds a validly perfected security interest in the mobile home to secure the repayment of the sum of $16,900.00. The schedulеs included the debtors’ statement of intentions that reflected that the debtors “intend to keep [the mobile home] and make arrangements with creditor.” The parties stipulated that the debtors are current on their payments to Green Tree.
On September 3,1991, Green Tree filed a motion for an order requiring the debtors to either redeem, reaffirm, or surrender the mobile home. The debtors oppose the motion and argue that they should be allowed to retain the mobile home and continue to make the monthly payments without reaffirming the debt. A hearing was held on November 15, 1991, at which time the parties stipulated the facts and submitted the matter on briefs.
The proceeding before the Court is a core proceeding pursuant to
(2) if an individual debtor’s schedule of assets and liabilities includes consumеr debts which are secured by property of the estate—
(A) within thirty days ... 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 forty-five days after the filing of a notice of intent ... the debtor shall perform his intention with respect to such property, as specified by subpar-agraph (A) of this paragraph; and
(C) nothing in subparagraphs (A) and (B) of this paragraph shall alter the debt- or’s or the trustee’s rights with regard to such property under this title.
Green Tree argues that subparagraphs (2)(A), (B) and (C) restrict the debtors to only three alternatives with respect to their mobile home: (1) to surrender the property, (2) to redeem the property, or (3) to reaffirm the underlying debt. The debtors argue that they are not limited to these three alternatives and should be allowed to retain and pay for the mobile home without being required to reaffirm the underlying debt.
The idea for§ 521(2)(A) came from a proposal submitted by a coalition of bankers, credit unions, finance companies, oil companies and retailers. The proposal was called the “Proposed Consumer Bankruptcy Improvements Act of 1981” and was described in hearings before the Senate’s Subcommittee on Courts of the Committee on the Judiciary, On April 3 and 6, 1981. Hearings Before the Subcomm. on Courts of the Sen. Comm, on the Judiciary, 97th Cong., 1st Sess. J-97-11 (1981). Several witnesses appearing on behalf of the coalition and on behalf of the American Bankers Association explained how secured creditоrs in consumer chapter 7 cases often had no information concerning their collateral. The automatic stay prohibits contact with the debtor and typically the secured creditor would know nothing about the fate of its collateral. The сomplaint was that the secured creditor would often incur the expense of filing an adversary proceeding to lift the stay only to learn that the debtor all along intended to surrender the property without a contest. The solution to the problem wаs to require an early disclosure of the debtor’s intention with respect to the property and early performance. If the creditor were to know what the debtor intended to do with the collateral, it would know how to proceed, such as by entering into a reaffirmation agreement, picking up the collateral, or seeking to modify the stay.
The many consumer amendments proposed by the coalition of consumer lenders were the subject of considerable debate and consumer bаnkruptcy amendments were proposed by the Senate Judiciary Committee in 1982 and in 1983. In its report accompanying S. 200, the Senate Judiciary Committee stated that the amendments to § 521 “encourage the debtor and creditor to settle issues involving secured debt without judicial proceedings, but also enable the parties to identify disputed matters at an early stage so that they may be resolved at the meeting of creditors. This will avoid the time and expense of separate and delayed proceedings.” S.Rep. No. 97-446, 97th Cong., 2d Sess. 41 (May 21, 1982).
There was no Senate or Hоuse Report which accompanied the Bankruptcy Amendments and Federal Judgeship Act of 1984 and the legislative history is “woefully inadequate.” In re Barriger,61 B.R. 506 , 509 (Bankr.W.D.Tenn.1986), quoting In re Eagle,51 B.R. 959 , 961 (Bankr.N.D.Ohio 1985). The closest legislative statement interpreting§ 521(2) is a statement made by Representative Ro-dino in resрonse to a request by Representative Synar that he “explain what rights are reserved to the debtor and trustee under§ 521(2)(C) .” 130 Cong. Rec. H1810 (daily ed. Mar. 21, 1984). According to Chairman Rodino, the duty imposed under§ 521(2) “does not affect the substantive provisions of the code whiсh may grant the trustee or debtor rights with regard to such property.” Id. It appears from that statement that the debtor’s rights with respect to the property were to be left intact.
In re Belanger,
[legislative history also clearly shows that the notice and time limitations ofsection 521(2) are not intended to abrogate the debtors’ substantive rights under the Code.
The issue of whether
In
Edwards,
the Seventh Circuit based its decision on what it perceived was the
The 1984 Consumer Finance Amendments to the Bankruptcy Code were intended, inter alia, to protect creditors from the risks of quickly depreciating assets and to keep credit costs from escalating because of the too-ready availability of discharge. See In re White,49 B.R. 869 , 872 (Bankr. W.D.N.C.1985). This legislative purpose speaks strongly against permitting debtors to improve thеir position dramatically against secured creditors by relieving them of personal liability. When a debtor is relieved of personal liability on loans secured by collateral, the debtor has little or no incentive to insure or maintain the property in whiсh a creditor retains a security interest. The value of the collateral may fall below the level of the loan, leaving the creditor undersecured and driving up future costs of credit.
In re Edwards,
In Edwards the Seventh Circuit concluded that “[w]hen a debtor is relieved of personal liability on loans secured by collateral, the debtor has little or no incеntive to insure or maintain the property in which a creditor retains a security interest.”901 F.2d at 1386 . It is doubtful that a debtor would fail to insure or maintain his residence, and his investment in it, simply because he no longer has personal liability for the underlying debt. Furthermore, the failure to insure or the failure to maintain the collateral are typically events of default which would permit the secured creditor to accelerate the indebtedness and repossess the collateral. In fact, default clauses which permit the lеnder to declare a default in the event that the creditor deems its security interest insecure are specifically authorized by the Uniform Commercial Code and may be exercised by a secured lender if it has a good faith belief that the prosрect for payment is impaired. See J. White and R. Summers, Uniform Commercial Code § 25-3 (3d ed. 1990) (discussing Uniform Commercial Code § 1-208).
In re Belanger,
Green Tree’s interpretation of
When a chapter 7 case is filed, all propеrty of the debtor becomes property of the estate including exempt property.
Moreover, Green Tree would not be left substantially more vulnerable than any other lender under a consumer installment sales contract. The reality of most secured loans is that the lender looks to its collateral to guarantee repayment and not the underlying liability of the borrower. The lender’s rights in the collateral are adequately protected under state law, contrary to the fears expressed by the court in
Edwards. In re Donley,
Green Tree points out that both of the other two bankruptcy judges in this district have held that
The reasons for not adopting the rationale of the
Edwards
case have been discussed.
Bell
was rendered prior to the adoption of the 1984 amendments to
Therefore, for the reasons stated, Green Tree’s motion to compel the debtors to redeem, reaffirm, or surrender the collateral securing Green Tree’s claim is denied.
IT IS SO ORDERED.
Notes
. Subsections 2(A), (B), and (C) were added by § 305 of the Consumer Credit Amendment within the Bankruptcy Amendment of 1984.