ALBERT V. BRYAN, Senior Circuit Judge:
The Riggs National Bank of Washington, D.C., a secured creditor, petitions this Court for further security for its loan to John Gillis Perry, Jr. Specifically, Riggs
Riggs is the holder of a secured interest in Perry's 1980 Audi 5000 sedan automobile by virtue of the terms of the instrument evidencing his purchase, wherein Perry agreed to pay the sale price on an installment basis. He thereafter filed a petition under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701-66 triggering the automatic stay provided in section 362(a); that stay normally remains in effect from the time a petitioner files under Chapter 7 until a Bankruptcy Court rules on a discharge request. See 11 U.S.C. § 362(c)(2)(C). However, Riggs then filed a complaint seeking to modify the stay in the Federal Bankruptcy Court for the District of Maryland pursuant to 11 U.S.C. § 362(d).
Although Perry had been tardy in over half of his payments as of the hearing date, the Bankruptcy Court observed that he was then current and denied the relief prayed. This decision was upheld by an en banc panel of the Bankruptcy Court, as well as by the District Court, which ruled "that no cause [had] been shown to justify modification of the stay and that any decision regarding [Riggs's] ultimate rights with respect to the automobile must be postponed until there is a disposition of Perry's Chapter 7 petition." 29 B.R. 787, 795 (D.C.D.Md.1983).
Before us, on appeal, Riggs maintains that Perry breached the sales agreement's "default-upon-filing" clause, which stipulates that the purchaser shall be deemed in default of the agreement upon the commencement of any bankruptcy proceeding by or against the purchaser. This default, the bank insists, qualifies as "cause" within the meaning of 11 U.S.C. § 362(d)(1) to modify the stay.
The enactment of the Bankruptcy Code, and in particular the stay provision, evinced a clear Congressional purpose to create a way by which debtors may obtain a fresh start towards reorganization of their financial obligations.
Regardless of the vitality of the default-upon-filing clause, Riggs gives other reasons in support of its contention that they are inadequately protected, and that we should modify the stay. First, it asserts that the Chapter 7 filing itself constitutes a constructive default, since a Bankruptcy Court may thereafter absolve Perry of any personal liability under the installment sales agreement. If Perry's obligation is discharged, however, the bank retains a lien against the automobile to the extent of its value. See In re Rosenow, 22 B.R. 99, 100 (Bkrtcy.W.D.Wash.1982); Matter of Sawyer, 18 B.R. 661, 662 (Bkrtcy.D.Idaho 1982); In re Weathers, 15 B.R. 945, 951-52 (Bkrtcy.D.Kan.1981). The bank's sole legitimate concern, therefore, is that its lien exceeds the present value of the collateral. Allegedly, it is placed at even greater risk because of the highly depreciable character of its security. Nevertheless, appellant's position is no more fragile, due to the Chapter 7 filing alone, than that of any lender under an installment sales contract. We can muster even less sympathy for institutional lenders; they are fully cognizant of the risks inherent in the making of loans, default among them, and receive substantial interest payments to help offset those risks. This Court declines to exact additional obligations from debtors who merely file under Chapter 7 while they maintain their fiscal responsibilities.
Appellant Riggs further suggests that we are required to grant it relief from the stay due to the exception found in section 362(d)(2). That provision states that modification of a stay of an act against property is appropriate "if the debtor does not have an equity in such property; and ... such property is not necessary to an effective reorganization." While this clearly applies to real property mortgage foreclosures, we cannot believe the Congress intended that we modify a section 362(a) stay every time the value of a debtor's personal property drops below the balance due on the outstanding loan. But see In re Stewart, 3 B.R. 24 (Bkrtcy.N.D.Ohio 1980). The Senate Judiciary Committee's comments on this provision of the Code support our interpretation: "In cases where the single asset of the debtor is real property, the court shall grant relief from the stay if the debtor has no equity in the collateral, thereby allowing the creditor to proceed with his foreclosure." (Emphasis added). S.Rep. No. 989, 95th Cong., 1st Sess. 5, reprinted in 1978 U.S.Code Cong. & Ad.News, 5787, 5791.
Riggs also directs our attention to the sales agreement's proviso that allows the bank to declare the entire outstanding balance at once due and payable upon the buyer's default. While Perry admittedly fell behind in his monthly payments prior to his Chapter 7 institution, the bank's asserted right to accelerate all remaining payments conflicts with the debtor's right to the section 362(a) stay. Maintenance of that stay until the discharge issue has been settled will not result in undue hardship for Riggs as long as Perry pays the monthly installments.
An alternative theory of Riggs postulates that to maintain possession of the
In sum, it is imperative that Perry, so long as his discharge petition is under consideration, not be denied the rights and privileges accorded him by the Bankruptcy Code.
The judgment will be
WIDENER, Circuit Judge, concurring and dissenting:
I concur in not dissolving the stay although for somewhat different reasons than those expressed in the majority opinion, which I set forth below. I do not agree, however, that adequate protection is not required for such a lien on personal property, and, as to that much of the opinion, I respectfully dissent.
Under 11 U.S.C. § 541 (all references to code sections are to Title 11, U.S.C.), the automobile became the property of the bankrupt estate when Perry filed his petition in bankruptcy. At that time, § 362(a)(4) automatically stayed "any act to create, perfect, or enforce any lien against property of the estate." This, of course, included the automobile in question. Perry having claimed the automobile as exempt property under § 522(b)(1), parties in interest had to object or else the property claimed as exempt was to be so considered under § 522(1). No objections having been filed, the property claimed as exempt then passed from the estate into the hands of the debtor. Leg.Hist. p. 5868, 6324.
Any relief from this stay would have to have been provided under § 362(d), which must be either for cause under subsection (1), including the lack of adequate protection of the interest in the property, or if the debtor does not have an equity in the property under subsection (2)(A).
I agree with the majority opinion that the due on bankruptcy clause in the security agreement should not of itself be cause to terminate the stay, and would not enforce it, at least in this case, because it would be
I do not agree with the majority opinion, however, as it implies that relief is not required by § 362(d)(2) to personal property when the debtor loses his equity in the secured property. The statute is explicit on the point:
The Legislative History on page 5790 is just as certain:
There is no doubt that the debtor has "no equity in such property" and none that the automobile in question is decreasing in value. There is also no doubt that the single bankruptcy judge who first heard this case provided additional protection (which he deemed adequate) by order. In connection with his refusal to terminate the stay, he ordered that payments be brought and kept up to date, that prepaid insurance for six months in advance be kept in force, and that, should the debtor fail to comply, upon five days written notice and presentation of an affidavit the stay would be lifted without further notice, a considerable improvement on the absence of any condition with respect to the stay which presently exists. I think this action initially taken by the individual bankruptcy judge was a sufficient compliance with the adequate protection required by § 362(d).
One further thing needs mentioning. Our holding that the due on bankruptcy clause in the security agreement is not enforceable extends, of course, only to enforcement proceedings in bankruptcy and not as to its ultimate validity which will have to be determined under state law. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The stay presently in force under § 362(a)(5) remains in force only "until the earliest of — (A) the time the case is closed; (B) the time the case is dismissed; and [obviously meaning or] (C) the time a discharge is granted or denied." At such time, then, the existing stay will terminate and the bank will be left free to foreclose its lien. At that time, the Legislative History, pages 5862 and 6317, is explicit that the rule of Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886), is retained. Long specifically approved the foreclosure of a lien of a mortgage on exempt property
H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News, 5787, 5963, 6296-97.