CUDAHY, Circuit Judge.
The debtor, Judy Emely Edwards, filed for bankruptcy under Chapter 7, but wanted to continue paying off the installment loans secured by two cars without reaffirming the debts and thus without continuing to be personally liable on the loans. The question presented by this case is, therefore, whether the options of surrender, redemption or reaffirmation provided in 11 U.S.C. § 521 are exclusive or whether a debtor may retain secured property without doing more, so long as she is not in default on the underlying loans. Both the bankruptcy court and the district court held the § 521 options to be exclusive because both the language of the Bankruptcy Code and the intent of its drafters contradict the view that a debtor may retain possession of collateral while continuing to make regularly scheduled installment payments, absent the creditor's consent. Edwards appeals. We affirm.
Merchants National Bank holds two promissory notes executed by the debtor, Judy Emely Edwards.
On January 22, 1988, Edwards filed for relief under Chapter 7 of the United States Bankruptcy Code. Pursuant to 11 U.S.C. § 521, she filed a statement of intention setting forth a plan to reaffirm the debts owing to Merchants.
Thereafter, a meeting of Edwards creditors was held as required by 11 U.S.C. § 341. Following this meeting, the interim trustee entered his Report of No Assets/No Distribution, and abandoned the secured collateral from the bankruptcy estate. Subsequently, Edwards filed an amended statement of intention which evidenced an intent to retain possession of Merchants' collateral without reaffirming the debts for the car or the truck, but while continuing to make regularly scheduled payments.
Merchants, however, wanted Edwards' personal liability to continue and sought to compel her to perform according to her original statement of intention. A hearing was held before a bankruptcy judge and evidence was introduced. The bankruptcy court refused to compel Edwards to reaffirm the debts because it found that the Bankruptcy Code's policy of protecting
11 U.S.C. § 521(2)
The question presented by this case is whether a debtor who files for relief under Chapter 7 of the Bankruptcy Code must make the choice provided in § 521. Must the debtor, as a condition of retaining the property which secures an installment loan, either redeem it by paying for it lump-sum or expressly reaffirm the debt underlying the collateral — even though the debtor has performed, and continues to perform, all of the obligations of the installment loan agreement?
For the proposition that the debtor may keep the collateral without reaffirming the agreement, for example, the appellant has cited Riggs Nat. Bank of Washington, D.C. v. Perry, 729 F.2d 982 (4th Cir.1984). Riggs is not, however, in point. The Riggs case addresses the question whether an ipso facto, or "default-upon-filing," clause in a loan agreement provides sufficient "cause" to allow an over-secured creditor to have an automatic stay modified or lifted. Riggs holds that a "default-upon-filing" clause alone does not justify the modification of a stay. Consequently, a debtor may retain oversecured property — without choosing between reaffirmation, redemption and the like — until the expiration of the automatic stay.
In answer to this question, the Sixth Circuit has held that a debtor who wishes to retain secured property must redeem or reaffirm, and that redemption cannot be accomplished through installment payments. In re Bell, 700 F.2d 1053, 1056-1057, 1058 (6th Cir.1983).
In addition, as the Bell court states, reaffirmation is supposed to involve a fully voluntary negotiation on both sides. Permitting a debtor to retain property while keeping up installment payments without a reaffirmation of personal liability allows a debtor to force a new arrangement on a creditor. This negates the voluntarism contemplated by the statute. In re Bell, 700 F.2d at 1056. No debtor would reaffirm personal liability unless required to do so.
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 their 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 which 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.
The Tenth Circuit has, however, recently decided that a bankruptcy court has discretion, as the facts warrant, to permit a debtor to retain collateral without either reaffirming or redeeming. Lowry Federal Credit Union v. West, 882 F.2d 1543, 1544, 1546 (10th Cir.1989). Lowry is, of course, distinguishable because here the bankruptcy court did not exercise its discretion to permit retention of collateral without reaffirmation or redemption. The Lowry court seemed to think that § 521 was mandatory but that the trustee of the estate lacked any power to compel the debtor to act. 882 F.2d at 1546. This aspect of Lowry is not consonant with the plain language of the Bankruptcy Code. Lowry also renders the
For these reasons, we hold that 11 U.S.C. § 521 requires a debtor to choose between the reaffirmation, redemption or surrender of property abandoned from the estate or exempted from discharge. The judgment of the district court is, therefore, AFFIRMED.