ROGER M. WHELAN, Bankruptcy Judge.
(Debtors' Complaint to Turn Over Property)
The above-captioned adversary proceeding initiated by the debtors in an effort to reclaim an automobile previously repossessed by American Security Bank as a secured creditor presents a troublesome and recurring issue in connection with this and other related consumer bankruptcy cases. The facts are essentially uncontradicted
The only issue before the Bankruptcy Court relates to the right of American Security Bank, as a secured creditor, to repossess property of the debtor subsequent to the granting of the discharge
For the reasons set forth in this Memorandum Opinion, the Court will grant full relief to the debtor herein.
Conclusions of Law
The primary issue raised by the pleadings in connection with the pending adversary proceeding relates to the enforceability of a bankruptcy clause such as is set forth in the installment contract entered into by the debtors herein, Grant Lee Brock and Linda Green Brock, and Orbit AMC/Jeep.
The secured creditor's argument is predicated upon the premise that the subject contract is not an executory contract in the bankruptcy sense and that accordingly the provisions of Section 365(e)(1) do not apply in this proceeding. Furthermore, in the absence of either redemption or reaffirmation by the debtor, the secured creditor maintains that it has a right to repossess the subject collateral, particularly where the right is exercised subsequent to the granting of the discharge, based upon the further legal premise that the consensual lien arising from the grant of a security interest has survived the discharge and that the protection of the automatic stay is therefore no longer available to the debtor. See Section 362(c), 11 U.S.C. § 362(c). The secured creditor relies upon a United States District Court holding In re Bell
In re Bell, supra, 15 B.R. at 861-62.
It is clear from the facts of this adversary proceeding that the motor vehicle
Extensive rights are provided a trustee in bankruptcy in dealing with executory contracts or unexpired leases within the purview of § 365. However, whether or not this contract is executory, is, as pointed out above, not an appropriate issue for consideration by the Court once the discharge in bankruptcy has been granted and there has been no invocation of rights under § 365, by either the trustee or the debtor.
Accordingly, what was originally property of the estate by reason of the filing of the debtor's voluntary petition, is now solely property of the debtor by reason of the trustee's abandonment of the property and the subsequent granting of the discharge in bankruptcy. Moreover, once the discharge in bankruptcy was granted, the debtor lost all benefit of the automatic stay,
It should be further noted that, just as the contract at issue is not deemed executory in a bankruptcy sense, the same contract is not the type of contract in a contractual sense wherein the creditor could properly assert that the filing of a voluntary petition in bankruptcy would constitute an anticipatory breach of that contract.
The secured creditor further advances the argument that if repossession is not sanctioned under the present circumstances in this proceeding, that it will be prejudiced by reason of the fact that it is barred, at any time, from recovering a deficiency balance from the debtor by reason of his discharge in bankruptcy and the effects thereunder as set forth in § 524(a). While this is true because of the effect of discharge as noted by the secured creditor under § 524(a) of the Code, this is an inherent risk of doing business which must be assumed by every secured creditor and which cannot properly be attributed to the mere fact that the debtor has initiated bankruptcy proceedings. Moreover, the secured creditor never loses its rights as a secured creditor in view of the fact that the lien survives the debtor's discharge.
It is also argued by the secured creditors that the payments being made by the debtor subsequent to the filing of his voluntary petition in bankruptcy are strictly gratuitous in view of the effect of discharge and that the debtor could obviously discontinue making such payments at any time. In the absence of a valid reaffirmation agreement approved by the United States Bankruptcy Court, this contention of the secured creditor is certainly true but misses the mark: the invocation of an insolvency clause relied upon by the secured creditor was the sole event of default or condition of default. In the event that the debtor fails to make the agreed-upon installment payments called for under the security agreement, or for that matter in the event of any other specific default (other than reliance upon the aforementioned insolvency clause), the secured creditor is still entitled in the post-discharge period, to exercise its state-created creditor remedies. The only such remedy not available is, of course, the right to recover a deficiency balance which is now barred because of the effect of discharge pursuant to 11 U.S.C. § 524(a). However, this detriment does not, in any legal way, affect the secured creditor's rights vis-a-vis its validly constituted consensual lien created under the security agreement. The secured creditor, in other words, will always
It is clear from the effect of the court's ruling with specific reference to the nature of the underlying contract, and the now-present effect of the discharge in the post-discharge period, that the secured creditor stands basically in no worse situation than he was in prior to the filing of the petition in bankruptcy so long as the debtor continues to satisfy fully his obligations under the security agreement. In fact, during the pre-discharge period, where the debtor continues to meet fully his contractual obligations under the security agreement, the debtor is in fact providing a form of adequate protection specifically envisioned under § 361 of the Bankruptcy Code, and accordingly the secured creditor at any rate, during that period, would have no grounds for relief from the stay. See generally, Perry/Kotanko, supra.
Accordingly, for the reasons set forth in this Court's Memorandum Opinion, the Court will grant relief to the Plaintiff and will award all costs to the plaintiff upon the proper filing of a Bill of Costs in accordance with the rules of Court.
Debtor's counsel is hereby directed to submit to the Court within three days of this Memorandum Opinion an appropriate order in conformance with the Court's findings, and to serve on defendant's counsel a copy of the proposed Order prior to entry by this Court.
Section 541(c) of the Bankruptcy Code further provides that