ROBERT JOHN HALL, Bankruptcy Judge.
Chrysler Credit Corporation ("Chrysler") by a complaint filed 5 January 1982 prays for a judgment directing Irwin Schweitzer ("the debtor") to surrender his automobile in which Chrysler has a security interest unless the debtor either reaffirms the underlying obligation in accordance with section 524(c), 11 U.S.C. § 524(c) (Supp. IV 1980) or redeems the car pursuant to section 722 by a lump sum payment. The debtor, by way of counterclaim, asserts the right to redeem the car in installment payments.
The facts are not in dispute. On 20 August 1980, the debtor purchased, primarily for personal use, a 1980 Dodge Omni from S&W Sales Co., Inc. under a retail installment contract which provided for the $7665.79 purchase price to be paid in 48 monthly installments of $176.18 resulting in a total payment of principal and interest of $8456.64. Subsequently, the contract was assigned to Chrysler. Approximately one year later, on 25 August 1981, the debtor and his wife filed a voluntary petition under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 701 et seq., and claimed the car as exempt. As of the filing date, the debtor's obligation under the installment contract had been reduced to $6528.66. The fair market value of the car, however, had depreciated to $5,000. Finally, as of the 28 January 1982 hearing date, neither had the debtor missed any of the car payments nor had any objections to the discharge of the debt been filed.
The debtor's position is that section 722
Chrysler, of course, contests this and demands the $5,000 in cash if the debtor wishes to redeem the car.
Although the case law on this issue is split, the weight of authority has held that redemption must be by a lump sum payment. In re Carroll, 11 B.R. 725 (Bkrtcy. App. 9th Cir.), rev'g. 7 B.R. 907 (Bkrtcy.D. Ariz.1981); In re Hart, 7 B.C.D. 301, 8 B.R. 1020, 4 C.B.C.2d 648 (Bkrtcy.N.D.N.Y.1981); In re Whatley, 16 B.R. 394 (Bkrtcy.N.D. Ohio 1982); In re Cruseturner, 8 B.R. 581, 587 (Bkrtcy.D.Utah 1981); In re Zimmerman, 4 B.R. 739 (Bkrtcy.S.D.Ca.1980); In re Miller, 4 B.R. 305 (Bkrtcy.E.D.Mich.1980); In re Stewart, 3 B.R. 24 (Bkrtcy.N.D.Ohio 1980). See also In re Bell, 8 B.R. 549 (Bkrtcy.E.D.Mich.1981) (dictum), rev'd on other grounds, 15 B.R. 859 (Bkrtcy.E.D. Mich.1981). Two bankruptcy court decisions have reached the contrary result. In re Davis, 15 B.R. 118, 8 B.C.D. 363, 5 C.B.C.2d 703 (Bkrtcy.C.D.Ill.1981); In re Hall, 11 B.R. 3 (Bkrtcy.W.D.Mo.1980).
Those courts which have allowed installment redemption have argued that the language of the Code and its legislative history leave considerable doubt as to Congress' intent vis-a-vis the mechanics of redemption which when coupled with the practical difficulties that the typical debtor will have in acquiring sufficient funds to effectuate a lump sum redemption compels the conclusion that debtors must be able to demand installment redemption lest the remedy be implicitly repealed by an unwarranted construction.
This Court rejects that argument.
Although one can find ambiguities in both the House and Senate Reports concerning section 722,
The Commission would have banned reaffirmations altogether as a creditor tool for subverting the fresh start policy of bankruptcy legislation in that they revitalized discharged debts. Commission Report, Part II at 142-43. The Commission realized, however, that providing the debtor with the right to redeem exempt or abandoned property from indefeasible liens by the payment in cash of its fair market value might well be an unobtainable and consequently empty remedy. Id., Part I at 173-74 & n. 42; Part II at 131. The Commission suggested, therefore, that the debtor be allowed, as a sort of exception to the reaffirmation ban, to "finance" the redemption by negotiating a binding agreement for periodic payments. Id.
Id., Part I at 174 (emphasis added). And again:
Id., Part II at 131 (emphasis added).
Finally, there is nothing in the legislative history of the Code to indicate Congress' disapproval of these Commission proposals in any respect relevant to this discussion. See In re Cruseturner, 8 B.R. 581, 585-88 (Bkrtcy.D.Utah 1981). Compare Section 4-504, Commission Report, Part II at 130 with 11 U.S.C. §§ 524(c) and 722.
Accordingly, the debtor's counterclaim for authorization to redeem in installments is denied.
Having ruled that a forced redemption requires a lump sum payment, the related yet more fundamental question remains: is the instant debtor so situated that he has need to resort to such a remedy? Or in other words, where as here a debtor has always been current in his contract payments, can the secured creditor demand that the debtor either redeem, reaffirm or surrender the collateral? Or may the debtor ignore his own filing, continue the then current contract payments and thereby maintain possession of the collateral?
Chrysler, relying on In re Bell, 15 B.R. 859 (Bkrtcy.E.D.Mich.1981), argues that Congress provided only two ways in
The first problem with this analysis is that it finds no explicit support in the Code. Granted: the Code gives debtors the right to redeem certain assets. Granted: the Code gives debtors the right, subject to Court approval, to agree to reaffirm their debts. Nowhere, however, does the Court find that provision which says the filing of the petition divests debtors of the right to possess their exempt but liened assets absent the exercise of such remedial rights.
Moreover, this Congressional omission can hardly be called inadvertent when viewed against the Code as a whole.
For example, section 365(d)(1) provides that a Chapter 7 trustee must assume or reject an executory contract or lease within 60 days of the order for relief or it is deemed rejected. 11 U.S.C. § 365(d)(1). And section 365(d)(2) allows a Chapter 9, 11 or 13 trustee until the plan is confirmed to make a similar decision. Id. at § 365(d)(2). Accordingly, Congress' silence in regard to a time limit within which a debtor has to elect between redeeming, reaffirming or not acting at all militates against there being any such Code directive.
Finally, the existence of such a rule can hardly be implied from the existence of these remedies. Although one can ask: why have remedies such as redemption and reaffirmation unless debtors were obligated to surrender collateral absent their invocation? The simple answer is that such remedies are needed where the debt has been permissibly accelerated due to, for example, the debtor having defaulted on the contract payments.
Having so decided, however, other questions still remain: is not a redeem, reaffirm or surrender rule to be implied from the holding that a forced redemption must be by a lump sum payment? For, the argument runs, is not the debtor's continual possession of the collateral, conditioned only on his maintaining his contract payment schedule notwithstanding his discharge and notwithstanding the secured party's lack of consent, nothing more than a forced and therefore impermissible installment redemption? To which the answer must be: in the absence of a specific Code provision, the rights and duties of the parties are to be determined, in the first instance, from their contract.
How much is owed; when is it due; who has the right to possession; what constitutes a default; how is it cured; what are the remedies? These are matters which, with due regard for law and rule, presumably have been agreed upon by and between the parties. Accordingly, the threshold inquiry must be: to what have the parties agreed? Then if it has been determined that the debtor's rights and duties under the contract are properly inconsistent with his continued possession conditioned only on his unconsented to maintenance of the payment schedule, it would follow that the debtor, if he wishes to maintain such possession, must avail himself of an appropriate Code remedy exercised in the appropriate manner. However, if no provision of the contract properly gives the secured party the right to possession of the collateral or to change the contract payment schedule then, under the circumstances of the case, the debtor's continued possession by means of such payments is hardly a forced installment redemption, but rather is simply the contracted for performance.
As indicated above, Chrysler is relying on the district court opinion in In re Bell to support its position. Although Bell clearly held that the debtor therein had to redeem, reaffirm or surrender his van notwithstanding the lack of any missed payments, the basis of the decision is unclear. On the one hand, the opinion can be read as being based on a perceived Code requirement compelling such debtor action. If that is
In Bell, the contract had a standard "termination upon bankruptcy" clause. 15 B.R. at 861. Both the bankruptcy and district courts agreed that this clause was invalid vis-a-vis the trustee by virtue of section 541(c)(1) of the Code, and that consequently the right to possess the van passed to the estate. 15 B.R. at 861; 8 B.R. at 551. The debtors then exempted their equity in the van and the trustee abandoned the estate's interest.
It is at this point where the bankruptcy and district courts parted company.
The bankruptcy court was of the opinion that notwithstanding the departure of the van from the estate the bankruptcy termination clause was still inoperative. 8 B.R. at 551. The district court, without discussion, responded:
15 B.R. at 861.
Therefore, what the district court was presumably saying was that although the bankruptcy termination clause was invalid vis-a-vis the trustee, upon his abandonment of the estate's interest in the van, the prohibition was removed and the clause, not being against public policy, was enforceable. Accordingly, inasmuch as the provision gives GMAC the right to possession, it is so entitled unless the debtor avails himself of an appropriate remedy, to wit: redemption or reaffirmation.
In fact, such an analysis was employed by the Bankruptcy Court for the Northern District of Ohio in In re Whately, 16 B.R. 394 (1982).
In Whately, the debtor, who had always been current on her car payments, argued that neither redemption nor reaffirmation was required inasmuch as her only default was predicated on a bankruptcy acceleration clause—which clause was expressly invalidated by section 363(e) of the Code. The Whately court rejected this argument by explicitly holding that a secured installment note is not an executory contract thereby rendering section 363(e) inapplicable, 16 B.R. at 398, and by implicitly finding the bankruptcy acceleration clause not to be against public policy and therefore enforceable, see id.
Finally, the only other decision this Court has discovered on point has indicated, in dictum, an inclination towards a contrary result. See In re Abel, 17 B.R. 424, 8 B.C.D. 798 (Bkrtcy.D.Md.1981).
In Abel, GMAC tried to establish that the debtor had defaulted in his car payments. When the bankruptcy court found otherwise, GMAC took an appeal in which it attempted for the first time to argue its right to relief from the section 362 stay notwithstanding the debtor having always been current in his payments.
The district judge refused to consider the argument inasmuch as it had not been raised below. However, the judge then stated:
Id. 17 B.R. at 426, 8 B.C.D. at 799 n. 3.
Although this of course supports the proposition that there is no Code provision requiring a Chapter 7 debtor to redeem, reaffirm or surrender his vehicle, it leaves undiscussed the ultimate issue: is a Chapter 7 debtor fulfilling his obligations under his contract by maintaining the contract payment
For example, in the case at bar, the contract provides:
The determinative issue is therefore: is this provision enforceable?
Although subject to a liberal construction in favor of debtors in order to avoid inequitable results, see In re Triangle Laboratories, Inc., 663 F.2d 463 (3d Cir. 1981); In re Queens Boulevard Wine & Liquor Corp., 503 F.2d 202 (2d Cir. 1974), bankruptcy termination clauses were specifically condoned by the former Act, at least as to leases, see section 70(b), 11 U.S.C. § 110(b) (repealed 1978); H.R.Rep.No.595, 95th Cong., 1st Sess. 348 (1977), reprinted in  U.S. Code Cong. & Ad.News 5963, 6304, ("House Report"). In order to simplify the question of what assets were to be subject to administration, the Commission recommended rendering such provisions "unenforceable as to property of the estate." Commission Report, Part I at 193. Moreover, the Commission suggested making such provisions invalid in executory contracts and leases, at least in reorganization cases. Id. at 198.
Eventually, these suggestions were embodied in sections 363(c)(1), 365(b)(2), (e), (f)(3) and 541(c) of the Code. The later legislative history to section 365, however, makes it clear that not all bankruptcy termination clauses are invalid in toto. For example:
House Report at 349, U.S.Code Cong. & Ad.News at 6305.
Accordingly, where as here the asset is no longer part of the bankruptcy estate, it follows that the section 541(c) prohibition against such bankruptcy termination clauses is no longer operative. Ergo, in the absence of a specific Code prohibition, unless such clauses can be said to be offensive to the underlying goals and purposes of the Code (i.e. against public policy), they must be enforced.
Although not directly on point, the Court finds those cases decided under old section 70(b) to be instructive. There, when faced with statutorily condoned termination clauses, the courts upheld them, but only in the absence of the landlord's waiver of such a provision or the creation of an inequitable result. In re Queens Boulevard Wine & Liquor Corp., 503 F.2d 202, 206-07 (2d Cir. 1974). Accordingly, enforcement decisions were rendered on a case by case basis. Moreover, when examining the equities of a particular case, the courts gave particular weight to such factors as whether enforcement of the provision would result in "depriving the debtor of an asset absolutely necessary to its continued viability." Id. at 207.
Applying the foregoing to the case at bar, the Court notes that the contract provision which accelerated the debt upon the filing of the petition in reality did no more, at least in regard to the outstanding principal, than what the Code does automatically.
Furthermore, when one balances the secured creditors loss of the debtor's personal liability on the obligation and the depreciating value of the lien against the reality that enforcing the provision will not necessarily deprive the debtor of his vehicle, the remedies of redemption and reaffirmation being available, the scales are tipped toward enforcement.
That is not to say, however, that the Court will automatically enforce these types of clauses in all cases. For example, should the vehicle be necessary for the debtor's survival and the secured creditor unreasonably refuses to agree to a reaffirmation of the debt, the Court may well decline enforcement of such a bankruptcy acceleration clause based on equitable considerations.
Such facts and issues not being before the Court at this time, the Court finds the acceleration provision enforceable, and therefore, the debtor in default. Accordingly, the debtor is granted until the date of his discharge hearing to either redeem the car by the tender of $5,000 or negotiate a reaffirmation. The debtor is granted leave, however, to move in conformity with this opinion, should Chrysler unreasonably refuse to cooperate with the debtor's exercise of these Code granted remedies.
11 U.S.C. § 722.
Although unclear by itself, when the above Reports are read in conjunction with the Commission Report, see test infra, and the Code itself, see notes 6-8 infra, it becomes apparent that the latter interpretation is the proper one. See In re Hart, 8 B.R. 1020, 4 C.B.C.2d 648, 7 B.C.D. 301 (Bkrtcy.N.D.N.Y.1981).
11 U.S.C. § 524(c) (emphasis added). Moreover, section 524(c) agreements have uniformly been held to be consensual only. See, e.g., In re Vinson, 5 B.R. 32 (Bkrtcy.N.D.Ga.1980). Accordingly, one might ask, why did Congress feel it necessary to add the italicized provision if debtors were to have the right to dictate an installment redemption under section 722? Clearly, Congress must have anticipated that all installment redemptions would be by consensual agreement approved under section 524(c). See also note 7 infra.
The Court, therefore, fails to see how it can be suggested that Congress envisioned installment redemption under section 722 when that section is devoid of any limiting parameters. Without the time constraints present in section 1322(c), why not redeem in 5 years, 10 years, 20 years? And should the Court hold up the debtor's discharge pending completion of the "plan"? That would apparently violate the spirit of Chapter 7, see Bankruptcy Rule 404(c); yet, once the debtor has his discharge in hand, how much incentive will he have to complete a long term redemption of an asset which may have depreciated to zero value? Cf. In re Hart, 8 B.R. 1020, 4 C.B.C.2d 648, 7 B.C.D. 301 (Bkrtcy.N.D.N.Y.1981) which suggested that such an arrangement might well be a deprivation of property without adequate protection, and consequently, without due process.