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
Section 521(a)(2) of the Bankruptcy Code
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 174th 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.
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
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.
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
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 intention
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,
If an individual chapter 7 debtor
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.
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.
Notwithstanding the express provisions of the Bankruptcy Code, cases
The debtors in In re Failla, filed a chapter 7 bankruptcy case on August 31, 2011. Like the Debtor here, the Faillas scheduled real property as encumbered by a mortgage and, in the statement of intention, indicated the property was going to be surrendered. The debtors did not list the property as exempt. Significantly, the debtors also did not list the debt to the mortgage holder as disputed or contingent. The debtors received their discharge in 2011. After the bankruptcy case was completed, the mortgage lender continued the pre-petition foreclosure action, and the debtors actively defended that action. In late 2014 the mortgage holder moved to reopen the Faillas' bankruptcy case and asked the bankruptcy court to compel the debtors to surrender the property in accordance
The court acknowledged that section 521(a)(1) and (a)(2) do not identify to whom a debtor should surrender property in order to perform the statement of intention. Nonetheless, the court concluded that a chapter 7 debtor who has not scheduled property as exempt and who has agreed to surrender the property (and as a result claimed the wild card exemption
The Failla court, and the opinions on which it relies, did not address whether and to what extent the debtors' non-interference with the chapter 7 trustee's administration of the property in question meant the debtors complied with their stated intention to surrender, but assumed, based on Taylor v. AGE Federal Credit Union (In re Taylor), 3 F.3d 1512 (11th Cir.1993), that surrender in chapter 7 means complete forfeiture of any defense to a lienholder's foreclosure of its interest in the collateral.
Id. However, the district court did not cite to any Bankruptcy Code section that would support its conclusion. In fact, there is no Bankruptcy Code section that provides that if a chapter 7 trustee doesn't administer surrendered real property what follows is a second surrender — surrender to the lienholder. Rather, what the Bankruptcy Code specifically provides is that what follows is the property is abandoned to the debtor.
The lienholder in a chapter 7 case is not without recourse. The Bankruptcy Code allows the lienholder to seek stay relief; the Bankruptcy Code allows the lienholder to compel the chapter 7 trustee to abandon the property; the Bankruptcy Code allows the lienholder to demand the property from the chapter 7 trustee; the Bankruptcy Code allows the lienholder to ask the bankruptcy court to compel the debtor to comply with his statement of intention.
The assumption that if the chapter 7 debtor states it will surrender property to the trustee, and the trustee doesn't administer the asset, somehow the debtor is "getting away with something" if the debtor does not then surrender to the lienholder, is a conclusion that is not supported by the Bankruptcy Code.
The Debtor has asked that I stay my ruling until resolution of Dolan v. Carrington Mortgage Services, Case No. 9:15-CV-80879-DMM (S.D.Fla.2015). There is no reason to do so. The Southern District of Florida is not a single judge district; accordingly, the holding of one district judge in a case is not binding on a bankruptcy judge in any other case.
A chapter 7 debtor who indicates surrender of real property in his statement of intention is not obligated to surrender that property to the lienholder, whether or not the property is administered by the chapter 7 trustee. Compulsory surrender of real property collateral by a debtor to a lienholder in chapter 7 is not supported by, and indeed ignores, the express provisions of the Bankruptcy Code. And, consequently, I must disagree with my colleagues who have held otherwise.
In this case the Debtor performed his stated intention to surrender with respect to the Property because he did not interfere with the Chapter 7 Trustee's administration of the Property. Theia took no action in the bankruptcy case other than to seek stay relief, which it obtained. Because the Debtor's surrender in this case was to the Chapter 7 Trustee and not to Theia, I do not need to determine whether and to what extent surrender to a lienholder, as required by chapter 12 or 13, requires a debtor to relinquish defenses to foreclosure. Consequently, there is no purpose in reopening the bankruptcy case,
I also agree that "surrender" and "turn over" are not synonymous.
However, courts do not necessarily agree what "not interfering" with the lender means. Compare Failla v. Citibank, N.A. (In re Failla), 542 B.R. 606, 610-12 (S.D.Fla.2015) (Surrender means the debtor is prohibited from "interfering or impeding the secured creditor's efforts to take possession of the property by available legal means."); In re Calzadilla, 534 B.R. 216 (Bankr.S.D.Fla.2015) (same) with Rodriguez, 2015 WL 4872343 at *4 (Failure to surrender entitles a lienholder stay relief; surrender is "not a bar by injunction to defending a foreclosure action which would be unconstitutional, inequitable and unjust.").