LOUIS M. PHILLIPS, Bankruptcy Judge.
Should this court, after re-opening this case, approve the Lairs' home mortgage reaffirmation agreement with Hibernia National Bank ("Hibernia") where (i) the Lairs have maintained, and continue to maintain, current status on the loan; (ii) neither the note nor mortgage instrument contain bankruptcy default clauses; (iii) the Lairs' timely filed Statement of Intention indicates an intent to reaffirm; and, (iv) the reaffirmation agreement—confected post-discharge and after the case was closed—is not executed timely?
The formulation of this question from the facts before us compels us to stumble, fumble, slide, stride, and/or plunge into, and hopefully navigate our way through, the precipices, tar-pits, rapids, and sloughs that comprise the span of jurisprudence about 11 U.S.C. § 521(2) (West 1993).
We are here, poised on a particular factual situation, which yields up § 521(2) of the Code as the nut to be cracked.
So, the case was closed and there was no reaffirmation agreement, notwithstanding the parties' collective intent. We are not certain as to the factual particulars, but it appears as though the lender obtained a lawyer who advised that without a reaffirmation agreement, the debt might be in default, or that the entire obligation could not be enforced if there was a default down the road, or (maybe) that a large national lender was going to be unable to maintain the debt on its internal books as a discharged (therefore in rem) debt for purposes of enforcement of its lien rights in the event of future default so that the debtors' discharge was doubtless going to be violated by the lender in treating this home loan (post-discharge) just like any other home loan. Possibly, even, the lawyer advised the lender that the debtors' failure to comply with the debtors' own Statement of Intentions could be a ground for claiming default, but that the intelligent move would be to let the bankruptcy judge say so before going off to foreclose in state court.
Maybe some of this, maybe none. But we know that something was communicated to the Lairs' attorney, who subsequently moved this court to reopen the case for the purpose of allowing the belated reaffirmation agreement (negotiated with the attorney's assistance) to be filed, and therefore deemed approved, or ratified, or something.
It was at such a hearing that the evidence established: (i) as of the commencement of this case the debtors were current with the mortgage company; (ii) the debtors have been paying and the lender has been accepting the monthly payments
To get to the question of whether state law provided a basis for post-discharge
We wish to make as clear as we can, that in so concluding, we must also ask whether bankruptcy law provides a preemptive right to "retain" or to "reinstate" the loan. To this question we also answer, "No." We do not propose that the debtors have a federal right to "retain" property because of a provision of the Code or a federal rule of equity "designed" to actualize the conceptual and policy underpinnings of the bankruptcy process. Our conclusion is grounded in our interpretation of § 521(2), and our understanding of the relative places of state law and federal law within the bankruptcy process. The Lairs have by inaction chosen to rely upon (or simply have found themselves relying upon) state law rights as opposed to the express Bankruptcy Code alternatives offered by § 521(2), because of the full administration of the property (by non-administration), which resulted in the return of the property to them pursuant to § 554(c) of the Code. We conclude that this is where the Lairs find themselves because their state law rights under the contracts (note and mortgage) and their ownership interest in the property
To get to the conclusion that the debtors have retained their pre-bankruptcy state law rights in the agreements and to the property, we must address the question whether, by failing to perform their stated intention, the debtors have in fact "surrendered" the property (as the term is used in § 521(2)(A)), and whether "surrender" of the property operates to provide the creditor with rights in addition to those provided under the state law governing the contracts at issue. The debtors have not used any of the bankruptcy alternatives proposed by the words of § 521(2). They have not sought to avoid the mortgage lien under § 522 (which was not available under the provisions of § 522); they have not attempted to redeem the property under § 722 (which was not available under the provisions of § 722); and they did not properly effectuate reaffirmation under § 524(c). Though we will get into this later in some detail, we mention here that the three delineated alternatives are the only
Good question (proven so by the extent to which courts are perplexed in coming up with an answer). However, as we hope to show, the creditor in this case and the debtors, for that matter, are, presently, firmly footed in the post-discharge, post-bankruptcy world of "surrender," as a result of the de facto "surrender" during the bankruptcy case, because of the Lairs' failure to effectuate their stated choice. In fact, both have "surrendered" as we interpret the word, because neither, as of the end moment of the bankruptcy case had exercised the federal rights or actions provided for in the Code. (We no not mean to imply that "surrender" applies to the creditor.)
The debtors, in effect, by failing to perform their intentions, surrendered their rights to use the express bankruptcy alternatives provided for in § 521(2) as regards the property, and in so doing, surrendered to the full range of consequences of trustee administration of the property. The creditor, by accepting payments timely made, and by waiving its right to stay relief under § 362(d) and any other possible disposition(s) by the trustee while the property was property of the estate, (in effect) surrendered its right to use the Bankruptcy Code rights afforded it and consequently finds itself under the dictates of state law. It is clear also that the bankruptcy process itself, by operation of its own terms, fully dealt with (administered) the property, ultimately sending it back to where it came from—to the debtors and the non-bankruptcy world—so that the rights and obligations concerning it (the property itself only, because the discharge does generate a lingering federal effect) can subsequently be sorted out. In other words, the bankruptcy process, once interested in the property (and the related claim of lien rights) because the property was property of the bankruptcy estate, is interested no longer. The property has been fully dealt with by the trustee; the property was in fact surrendered to the trustee by the debtors.
In other words, we have tried to figure out what the term "surrender" means as used within § 521(2). We think insufficient attention has been paid to the word and its meaning. We do not really know why; it seems obvious to us that the word "surrender" is one of the primary keys to unlocking the whole federal over § 521(2), because (as we shall see), "surrender" along with "retention," are the only actions or rights referred to in § 521 that are not defined or specifically created/provided for by a Bankruptcy Code section. We do have a hunch as to why courts have not addressed the word head-on. Our hunch is that everyone assumes the meaning. We submit that this internalized assumption (we say "internalized" because it is rarely expressed, but when it is, our hunch is proven correct) is uniformly held by the adherents to all of the disparate lines of analysis. We also submit that this assumed meaning within the caselaw is wrong.
We think bankruptcy does affect state law rights, and that in connection with consumer debts secured by liens upon property, bankruptcy gives parties rights not available under state law. We think § 521(2) is perhaps poorly constructed but is not ambiguous. (Actually, the more we have thought about this, the more we are not even sure the statute is poorly constructed, though it is flawed in its directive that trustees oversee the performance of intentions.) We think that a debtor is called upon to make one of two basic choices by § 521(2):(i) to retain the property serving as collateral for the debt through the use of bankruptcy-afforded alternatives; or, (ii) to surrender the right to use these bankruptcy-afforded alternatives as the means of retaining the property. If the former be the choice, then the debtor should "check" the alternative (out of the three provided by the statute) that is applicable, because the three stated methods are the only alternatives available (to retain by use of the Bankruptcy Code). If the latter be the choice, the debtor should "check" "surrender." If "surrender" is "checked" the bankruptcy world is on notice that the Bankruptcy Code will not be used, that the debtor "surrenders" the property
We submit that while our analysis of the meaning of "surrender" might, at first blush, be hard to swallow (advising the client, say, in the position of the Lairs, that they should trustingly "check" the "surrender" box though they want to keep their house does seem slightly incongruous and probably would have been bad advice, as we attempt to show later). However, if our notion is correct (and is seen as correct), positive things (that we can think of) seem possible: first, no more published opinions on § 521(2).
(A) THE STATUTE, 11 U.S.C. § 521(2). WHAT DOES IT SAY?
The section reads, in its entirety, as follows:
The debtor shall:
Because of the almost laughable extent of uncertainty concerning § 521(2)—and the fact that this uncertainty seems to be on the rise at a rate determined precisely by the number of cases published on the subject
(B) THE INTERPRETATIVE APPROACHES, DELINEATING THE CAMPS
The slew of judicial and scholarly publication on the meaning of § 521(2) provides something for everyone, interpretative authority for almost every predisposition and interpretative bent. One line of authority —to which the Fifth Circuit subscribes —interprets that section according
Another line of analysis interprets the same language to allow the debtor to choose either to surrender or retain the property. If the debtor chooses one of the particular methods of "retention" (reaffirmation, redemption, or exemption and lien avoidance), thereby making the choice applicable, the debtor can choose the particular method of "retention" made applicable by the debtor having chosen it. By virtue of this rather circular approach to statutory interpretation, this second line of courts concludes that if none of the particular methods of "retention" are chosen, none are "applicable" (and therefore are not to be chosen, we guess because none were chosen), and the debtor can therefore simply retain the collateral by a means of the debtor's own fashioning (with help from the courts). This retention right usually takes the form of a federal rule of law or equity or something, pursuant to which the debtor is allowed to maintain possession of the collateral while paying for it (surmising upon judicial economic analysis, that the creditor should be happy with the judicially promulgated rule).
Finally, there is a third line of authority that can be described as "the statute as read and as interpreted is hard to understand so we will deem it absurd and treat it purely as a notice provision" camp. This line of analysis holds that § 521(2)(C) preserves
But the authority thus far published does not assuage the thrust of one camp — the "I want to know what the definition of `surrender' is" camp. We are confused by the lack of a definition of "surrender" and remain convinced of its necessity. The question here, is it not, is whether state law, e.g., the parties contract, is preempted by § 521(2) in such a way as to prevent post-bankruptcy reliance on that contract? While "fourth alternative" courts answer this question in the affirmative, by conjuring a right of "retention" which necessitates the invalidation of a portion of those contracts, the "nihilist" courts answer the same question in the negative, by reading § 521(2)(A) and (B) into nullity so that the provisions can preempt nothing because they do nothing. And what do the "plain meaning" courts have to say? The importance of this question to a Fifth Circuit court is obvious.
We frankly are not certain what the Fifth Circuit component of this line of authority says, except that it denounces the "fourth alternative" camp's fashioning of a federal rule of post-bankruptcy retention. What we know is that certain of the "plain meaning" courts have fashioned their own federal rule of equity in response to the federal "reinstatement" rule, one that grants to the creditor a federal counterpoint to the right of reinstatement. Through our analysis, we have determined that at least the Fifth Circuit, in Johnson, did not do this; however, the havoc wreaked by being seen as having done this has been problematic. As we mentioned earlier, all strands of "thought" assume a meaning of surrender, and what is more, may well assume (or be seen to assume) a federalization of the term which cuts off a debtor's state law rights post-bankruptcy and provides to the creditor the benefit of this Bankruptcy Code — inspired forfeiture. We think the assumed meaning of "surrender" is that if surrender is "chosen," the debtor loses all rights in, to and upon the property, to the creditor.
It is this assumed meaning that underlies the fourth alternative fashioning of a federal rule to offset the harshness of this meaning of surrender, which has fostered the plain meaning reaction to the federal rule of retention, which has fostered the nihilist reduction of the statute to rubble. Before any more fostering, we propose to offer a suggestion that § 521(2) contains no federal overlay other than that specifically (and plainly) mentioned, and that "surrender" means nothing other than choosing not to utilize the bankruptcy alternatives of reaffirmation, redemption or exemption and avoidance. We propose that the "surrender" referred to in § 521(2)(A) is the same "surrender" referred to in § 521(4), and that the choice of "surrender" is nothing more than the choice (by foregoing the right to use the bankruptcy options to retain the property which can only be accomplished if the property is excluded, somehow, from the estate) to abide by the requirement that property of the estate be "surrendered" to the trustee. If "surrender" means what
We start with a background discussion of the relationship between state and federal bankruptcy law, and of the jurisprudential progenitors of the present confused state of the law of § 521(2).
(C) OUR APPROACH
(1) The Butner Framework And Its Application Prior To § 521(2)
To answer the preemption question one must have a proper understanding of the relationship between the bankruptcy code and state law. From Butner v. United States
The actual issue in Butner is worth recapitulating. Mr. Butner was second mortgagee of a piece of mineral-producing real property. During an arrangement proceeding, an agent had administered the property under the direction of the bankruptcy court, which had ordered that the rents collected "be applied to tax obligations, payments on the first mortgage, fire insurance premiums, and interest and principal on the second mortgage."
The bankruptcy court denied the request, deeming Butner's remaining claim a general unsecured claim. The district court reversed, observing that while under North Carolina law an owner of mortgaged real property was entitled to the rents until dispossessed by an action to enforce the mortgage, the agent appointed in the arrangement constituted a surrogate for a state law receiver and evidenced sufficient dispossession. The Court of Appeals reversed the district court. It agreed that the agent had constituted a surrogate receiver but that the termination of the arrangement effectively returned possession to the surrogate debtor (the estate). "Because petitioner had made no request during the bankruptcy for a sequestration of rents or for the appointment of a receiver, petitioner had not, in the court's view, taken the kind of action North Carolina
The Supreme Court granted certiorari, it said, to "resolve a conflict . . . concerning the proper approach to a dispute of this kind."
As described by the court, the minority view of the "title states" was that notwithstanding state law that would require possession before a mortgagee would be entitled to rents, a mortgagee should be automatically entitled to a security interest in rents without taking any action whatsoever in the bankruptcy case to obtain possession or recognition. This conclusion was grounded in the following reasoning. "[S]ince the bankruptcy court has the power to deprive the mortgagee of his state-law remedy, equity requires that the right to rents not be dependent on state-court action that may be precluded by federal law."
As we all know, the court disagreed with the minority view. Though, of course, we start with perhaps the most often quoted citation of any Supreme Court bankruptcy decision, "[p]roperty interests are created and defined by state law," the opinion does not end there.
Therefore, regarding the general framework for examining the propriety of establishing a federal rule of equity to supplant state law, the court says, "Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding."
The minority rule of equity granting automatic title to (or security interest in) rents to a mortgagee at the inception of a bankruptcy case is characterized as the adoption of ". . . a uniform federal approach to the question of the mortgagee's interest in rents and profits because of their perception of the demands of equity."
A rule of equity, such as had been fashioned, was deemed by the court to be unnecessary. While state law remedies are (in fact) suspended, the answer, says the court, is not an equitable rule effecting a transfer of title to property not subject to a security interest at the inception of a case. Rather the bankruptcy court should fashion a proceeding-specific remedy ". . . to ensure that the mortgagee is afforded in federal bankruptcy court the same protection he would have had under state law if no bankruptcy had ensued."
Now, we have worked hard on understanding the court's summation, for at first blush it appears to us completely wrong. We quote quite a bit:
What is the court saying here? Surely there are bankruptcy reasons not to allow collection of rents under a foreclosure of a valid mortgage (e.g. the creditor is over-secured and there is equity for the estate). Surely the court is not saying that unless there is a state law problem with your security interest, the right to obtain possession and therefore the rents must be granted.
No, it is not. The court is delineating the creditor's interest that must be protected within the bankruptcy process. We now (since Butner) have become sophisticated, and talk in terms of adequate protection, of the necessity of protecting the value of the creditor's property rights (interests) created by the collateral interest in the debtor's property. What the court is doing, it seems, without specifically articulating it, is espousing the recognition that a mortgagee's interest in the real property derives a certain component of its value from rents, and that the value of the overall interest cannot be diminished by the bankruptcy process just because Congress had the power to supplant state law (substantive and procedural) by virtue of
The court is not suggesting that a bankruptcy court must allow sequestration of rents in a fashion that mimics the state law time-line, nor is it suggesting that equity in property cannot be salvaged for the estate. In fact, if the rents are surplusage, given the relationship between the indebtedness and the value of the property securing payment of the debt, the mortgagee never needs the rents (we recognize this is rarely the case) and therefore is not hurt by a bankruptcy-imposed prohibition upon enforcement of the security interest.
One more point. The court seemed preoccupied with the question of whether Mr. Butner should be granted rights not afforded by state law simply because of bankruptcy. However, the concern can be seen from another angle. For every grant of right not provided for by state law to one party to a contract, there is likely to be a corresponding taking away of a right from the other party, again in a manner not provided for by state law. The effect of the court's decision is certainly recognition of this equation. If Butner is granted an automatic interest in the rents, though not entitled to such under state law, is not the debtor, or the debtor's estate, losing state law rights that state law does not provide to be lost? The answer is "yes." And, what right is lost? The right to remain in possession until state (or federal) procedural vehicles are utilized to dispossess the owner (which must provide the process that is
Because the court is saying that there is nothing inherent in the bankruptcy process that provides the equitable basis to grant Butner additional state law rights, so it is also saying that there is nothing inherent in the bankruptcy process that provides the equitable basis for depriving the debtor of the debtor's (or estate's) version of the same state law rights. Not that bankruptcy statutory law cannot do this. However, without the express statutory law so doing, the equity power does not allow it to be done on the basis of "undefined considerations of equity."
In Mr. Butner's case, the Court recognizes that without taking action in the bankruptcy court, Mr. Butner is fore-stalled from using state law mechanisms for enforcing his interest in rents. What should he have done? It seems that he should have done more to protect himself. But, he did nothing. The court is faced with a creditor whose inaction outside bankruptcy would have generated exactly the same result as happened inside bankruptcy. The debtor (here the debtor's estate) would continue to collect the rents until dispossessed by Butner's enforcement action. Because bankruptcy (absent statutory directive) cannot harm your property rights as a secured creditor (understanding that "harm" means "hurt," not merely "hinder" without actual and negative
The Butner Court, then, overturns the "rule of equity" courts and rejects their observation as to the necessity of providing federal rules of equity designed to vary (add to and delete) state law rights where express bankruptcy law does not provide for variance. The court affirms the Court of Appeals, which recognized the automatic stay-imposed prospect of frustration of enforcement of security interests and recognized, also, the availability (through the bankruptcy process) of obtaining relief either to utilize or mimic state law process necessary to the enforcement of the particular interest at hand. Because Butner took no action, both the Court of Appeals and the Supreme Court saw his request for relief (entitlement to the rents) to be a request for bankruptcy-inspired grant of rights without a bankruptcy basis, because bankruptcy did not cause the problem of the debtor (or debtor's estate) having continued to collect the rents.
Outside of bankruptcy the debtor would have continued to collect the rents until Butner took possession of the property and would have had unfettered use of the funds. Because there is no bankruptcy reason (or state law reason) for a result different than Butner would have obtained under state law, Butner loses the rents.
Bankruptcy caused Butner to lose nothing that he had the right to obtain under
The proper balance between federal and state law is aptly demonstrated by pre-§ 521(2) "collateral rights" jurisprudence that we refer to as "the redemption cases." GMAC v. Stewart (In re Stewart)
The final two "redemption cases" cited above — Whatley
The court then moved to a more "fundamental question." Did the debtor, current on his contract payments, need to effect such a remedy, or could the debtor ignore his own filing and continue in possession of the collateral? Chrysler's first argument was that the presence of reaffirmation and redemption in the code raised a negative inference as to the right of the debtor to continued possession absent the exercise of one of these federal remedies. The court rejected this argument, reasoning that because the Code allows redemption and reaffirmation does not mean that the Code mandates, as a matter of federal law, that a debtor use one or the other to continue in possession post-bankruptcy.
Chrysler also suggested that the Court's denial of redemption in installments implicitly mandated the use of one of the two specified federal retention choices (redemption, by payment if full, or reaffirmation). To this argument the court responded in Butneresque fashion: "the rights and duties of the parties are to be determined, in the first instance, from their contract." The court continued:
The court then moved forward to examine the efficacy of the bankruptcy default clause, within the context of a secured debt relationship, after bankruptcy. Noting several provisions relating to the abeyance of such clauses — §§ 363(c)(1), 365(b)(2), (c), and (f)(3), and 541(c) — the court held that there was no statutory authority for invalidating bankruptcy default clauses once "the asset is no longer part of the bankruptcy estate."
Closing out this string of "redemption cases" are two decisions that are well-known to students of § 521(2) jurisprudence — GMAC v. Bell (In re Bell) and Riggs Nat'l. Bank of Washington, D.C. v. Perry (In re Perry).
The Sixth Circuit in Bell dispatched the debtor's installment redemption argument, and denied the request.
The court disagreed with the debtors, on the ground that the debtors' analysis of the effect of abandonment was incorrect and that bankruptcy law, in combination with the state law contract as issue, determined the debtors' rights in the collateral post-bankruptcy. According to the court, "it [had] been recognized" that the effect of abandonment was merely to allow the debtor more time to confect a redemption or reaffirmation. Cited for this "recognition" is the following passage from In re Cruseturner:
We read the Cruseturner passage as a straightforward exposition of the interrelationship between stay relief and abandonment, setting out nothing more earth-shattering than that a debtor's interest in property (if any) is protected by the automatic stay until the automatic stay is lifted, either by court order (after motion) or operation of law — the occurrence the discharge (§ 362(c)(2)(C)) or the case closure (§ 362(c)(2)(A)). Abandonment of property from the estate does not, in and of itself (without discharge), grant the
However, the Bell court does some interesting interpretative things. Rather than understanding abandonment as the mechanism by which property is jettisoned from the estate (back to the debtor), and the provisions of § 362 as the mechanism by which the debtor's interest in property is protected from abandonment until discharge, we think the Bell court (misreading Cruseturner) decided that abandonment was the method of obtaining a "latency" or "figuring out" period, during which either redemption or reaffirmation could be confected.
This seems strange to us, but we think we are correct about what the court said. We remain uncertain as to what the court did (through this juncture of the opinion), but we try to capture it. The debtors want reversion back to state law rights (not really, we don't think, due to the bankruptcy default clause). The court declines this option because abandonment only provides a respite within which debtors can decide to redeem or reaffirm. Now, the trick part. What is Bell saying happens if the debtor does not redeem or reaffirm?
One of two things, it seems. Either that (i) the property continues to be owned by the estate; or (ii) the property has reverted to the debtors, but the former contract is preempted by the federal necessity of reaffirmation or redemption. We think this second alternative is closer to the answer. We think Bell takes the straightforward Cruseturner theory and, after a couple of turns, creates the following federal construct. Bankruptcy provides the automatic stay to protect one's right to redeem or reaffirm, and abandonment provides a grace period during which the debtor replaces the estate as owner, protected by the stay. This period represents the ultimate bankruptcy effect, for the debtor's interest in property during post-abandonment period, is not different from (in fact is synonymous with) the estate's interest pre-abandonment. The provisions
Before abandonment, recall, the debtor is protected by the stay, but, as regards the property subject to the lien (assuming it is non-exempt), who cares? The property is property of the estate, over which the debtor has no legal authority.
But this doesn't answer the question of what happens if the debtor does not choose redemption or reaffirmation. We think Bell blows down the straw person it has constructed through its view of the function and purpose of abandonment. If abandonment functions to provide the grace period (by means of protection through the automatic stay) during which the debtor decides whether to choose to redeem or reaffirm, abandonment is the method of implementing these statutory alternatives. If the grace period to choose is what you get from abandonment, there are NO OTHER ALTERNATIVES if the specific alternatives are rejected. Within our linguistic context we would describe this process, or state of affairs, as the debtor's rights under the contract having been preempted by the redemption and reaffirmation alternatives implemented through the "grace" of abandonment. Now, we can say these words but cannot conceptualize the outcome. Does the debtor, then, have no rights? Does the creditor own the property (by operation of law)? If the creditor does not own the property, who does — the debtor? If the debtor owns the property, how has the debtor come to own the property? If the debtor has come to own the property because of the preexisting ownership interest, how so? Wouldn't it be through the mechanism of abandonment? If the debtor has come to own the property, how can we describe the creditor's rights? What interest does the creditor have? A security interest? Under what law can the creditor claim a security interest in the property owned by the debtor (who owns under state law)? Is it the same law that was the basis of the pre-bankruptcy security interest? If so, does state law say anything about the debtor's rights under their particular security interest? Does the debtor retain federal constitutional protection
Bell doesn't know, because the Bell conclusion, that bankruptcy law specifically does not allow the debtor to retain state law contract rights, does not offer an answer to the question, "Then, what happens?"
However, Bell, in fact, sees this, and in that admitting it, understands that it has to figure a way out of its interpretative morass. Alternatively, says the court, the debtors are arguably no longer the "primary possessor" due to their default under the bankruptcy default clause (as, we guess, it would be interpreted under the state law applicable to the contract?). The logic here is that the debtors must be the "primary possessor" in order to "get back" their property through abandonment.
What is the Bell court doing here? It looks like it is offering an extension of its improbable analysis of abandonment. However, something else may be going on. Remember the debtors? They had argued the entitlement to either redemption under § 722 in installments or, alternatively, the right to reversion to state law rights under the contract,
If the default clauses referred to by the Bell court were effective under the applicable state law, the debtors did not want state law to control their rights post-discharge. The debtors then, were fudging. The actual request could have been described as a request for an order directing that as a consequence of bankruptcy, the debtors had obtained additional state
What is going on here, an exposition of the federal common law of "primary possession?" Or, does abandonment somehow act to federalize state law to decide the question? Now, the court is analytically solid when in its description of the process by which a bankruptcy default clause is suspended at the inception of the case and comes out of suspense upon stay relief. However, with all the talk about abandonment and primary possessor rights as though the concepts are related, the court fails to see that it need only rule that there is no extra state law right afforded the debtors by their discharge, that does away with the bankruptcy default clause.
Once that step has been taken, no others need be. "Motion Denied," would have sufficed to send the parties back to state-law-land, where the default clauses pointed out by the court could be interpreted and (if enforceable) enforced, by the state courts.
What conceivably happened, however, is that the court, in denying extra rights than those expressly provided by state law under the contracts to the debtors (who chose not to utilize the federal alternatives), gave the creditor who chose to forego obtaining stay relief (one of the express federal remedies offered by the Code) extra rights that could not have been obtained if the creditor had gotten stay relief (and the right to enforce its security interest under state law in a state court, which would have generated a ruling on the bankruptcy default clause under state law). In other words, the debtors were asking that the court create an incentive for not choosing either redemption or reaffirmation, by adopting a federal rule of equity that preempts state law bankruptcy default clauses in security interests and promissory notes. All the court had to say, under Butner (and the Code), was "No." Not seeing this, the court went to the other extreme along the debtor/creditor spectrum, and provided the creditor, through the adoption of the federal rule of primary possession-hood, the perverse incentive
The creditor in Perry
The concurring opinion makes it clear that the holding only applied to the period of time in which the stay was effective, and that the creditor was free to pursue its state law remedy post-bankruptcy:
Perry is oft cited for the proposition that the debtor can retain collateral absent redemption or reaffirmation, and that bankruptcy default clauses are invalid as a matter of law.
Thus, on the eve of the enactment of § 521(2), with possible exception of Bell (depending on how that case is viewed), the debtor either redeemed, reaffirmed, or operated pursuant to her state law contract. Debtors were not allowed to "federalize" their state law contract by remaining current, nor did debtors sacrifice any and all rights they possessed prior to bankruptcy if they did not exercise a federal remedy.
(2) Our Analysis of the Three Interpretative Camps
Section 521(2), quoted above, became effective in 1988 and quickly became the "battleground" for disputes over collateral. The eight circuit opinions that have issued are evenly split between the "fourth alternative" and the "plain meaning" rules. The most recent § 521(2) decision rejects both the "fourth alternative" and "nihilist" camps for that of the "plain meaning." We move forward to examine the three theories beginning with the "fourth alternative."
(a) The "Fourth Alternative" Camp
The first circuit opinion to issue on § 521(2) was Lowry Federal Credit Union v. West (In re West).
Relying on the non-bankruptcy default clause, Lowry threatened foreclosure if the Wests did not reaffirm or redeem. The Wests sought declaratory and injunctive relief in the bankruptcy court. The bankruptcy court concluded that the debtors' discharge in bankruptcy did not create a default under the non-bankruptcy default clause and either ignored, forgot, or assumed invalid the bankruptcy default clause. Evidently the creditor relied on the loss of a possible deficiency judgment as the grounds for "something happening."
The Tenth Circuit began by examining what it considered the "mandatory" language of § 521(2)(A) and (B), stating that such an interpretation was obvious:
Thus, the Tenth Circuit is the first of several court to interpret § 521(2) as:
But the court was more concerned with enforcement of these requirements, as section 521(2) did not bestow upon the creditor any remedy to ensure its enforcement (that power was granted upon the Chapter 7 trustee):
We find the next portion of the West decision so vexing that we quote the paragraph in full.
Having previously thought that this step in the court's analysis was decided upon their "obvious reading" of § 521(A), we can only suppose that they arrive at this conclusion due to the lack of available remedy to enforce the requirements of § 521(B).
The court ruled that the discharge did not violate the non-bankruptcy default clause. The court was careful to point out that it was not invalidating ipso facto clauses, only ruling that this one was not in default. The court concluded by affirming the lower court's injunction and declaratory judgment that the debtors could retain possession of their vehicle so long as they were not in default.
How this can be justified in light of the obvious bankruptcy default clause we are not sure. In ignoring, or invalidating, the obvious ipso facto clause, the West court mutates the Perry decision and creates exactly the type of federal "rule of equity" — a "fourth alternative" — prohibited by Butner. The debtor receives new "equitable
The debtors in Home Owners Funding Corp. of Am. v. Belanger (In re Belanger)
The Fourth Circuit began its analysis by criticizing an earlier decision — In re Edwards
The court secondly suggests that the interpretation by the Edwards court of § 521(2)(A) renders "if applicable" superfluous. The court argues that if the statute is rewritten by deleting the "if applicable" language (i.e. "the debtor shall file . . . a statement of his intention with respect to the retention or surrender of such property, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property"), it is apparent that no meaning is attributed to "if applicable" by the Edwards court.
As pointed out in our discussion of West, the West court characterizes the "if applicable"
Most courts interpret Belanger as the classic "fourth alternative" decision, allowing retention of collateral post-bankruptcy so long as the debtor is current. This result suffers from the same "federal rule of equity" as is found in West.
In Capital Communications Fed. Credit Union v. Boodrow (In re Boodrow),
On appeal the credit union argued that non-compliance with § 521(2) was cause to lift the stay. The debtor argued that he could retain and pay according to the underlying contract and that the credit union alleged no affirmative harm to justify lifting the stay.
Noting the varying resolution of the "if applicable" language, the Boodrow court found the statute to be ambiguous. Resorting to the legislative history, the court found § 521(2) to be a notice provision, and, in light of the policy concerns underlying the debtors "fresh start," held that the debtor was not limited to the three alternatives stated in the statute.
The Second Circuit seems to depart from the limited holding of the bankruptcy court, defining the "remedy" judicially fashioned in terms of "reinstatement" which the court defines as follows:
Now, let us break this down. Despite our search, we have found no reference to a right of reinstatement (or, and you can even say this with a western movie twang while looking out toward a glorious sunset, a "right-called reinstatement"), within the Bankruptcy Code. Nor have we found any within the legislative history to which courts such as those in the Boodrow claim are so quick to resort. The court, in fact, manufactures a "remedy" in the form of a newly vested "right." Because there is no such thing as a right to reinstatement to be found in the Code, such a judicially-created right must have a definition. So, the redactor of the right makes up the definition, which, once made up, gives substance to the right (the right must exist because it has a definition). Of course, what is a right, even if defined, without a proper name? So (it must be Tuesday), sayeth the court, "The right is called `reinstatement'." The name is a good name because of the good work it does — "it prevents foreclosure and reinstates the contract."
What could be more offensive to the Butner directive? This federal court, operating rogue-like outside the statutory realm, posits as the basis for this flagrantly legislative act the "undefined consideration of equity" only described as policy considerations underlying the debtors' fresh start. Upon this unarticulated equitable consideration (or concern), we have a federally created rule of equity that is given flesh, bones, a name, a function and
Now, as might be obvious, we have a couple of concerns about Boodrow. First, does the debtor who is "only" in technical default have a right of reinstatement if there is equity in the property available for the estate?
Second. By the way, what is "only a technical default"? Is the requirement to maintain insurance at all times, covering the creditor's interest a technical obligation? Where would one look to do research on the federal law of technical default as that term applies to state law contracts?
Third. Suppose the creditor determines, after the bankruptcy case is closed (property is abandoned, etc.) that there has been a default that is not a "technical" one. How does the debtor answer the state law lawsuit by which the creditor seeks to enforce the security interest? (i) with a notice of removal because there is federal question jurisdiction due to the federal right of reinstatement? (ii) with a notice of removal because there is bankruptcy court jurisdiction due to the bankruptcy-related federal right of reinstatement so that this is actually a claim arising under the Bankruptcy Code? (iii) with an injunction complaint in bankruptcy court because of the jurisdiction vested by the federal rule of reinstatement? (iv) with a pleading in state court suggesting that the creditor's lien claim has been modified by the federal rule of reinstatement and that the action must be determined by the state court under the federal laws of reinstatement and technical default?
Fourth. We are not fans of the Supreme Court's Dewsnup opinion,
Fifth. Does the debtor even need the protection afforded by the fashioning of the federal rule of equity? Arguably not. What about a Chapter 13 case? We must assume the Boodrow debtor would have qualified for Chapter 13 (we have few facts on this), but we allow ourselves this assumption. Would Chapter 13 have allowed the Boodrow debtor to do what he wanted to do (have the note paid according to its terms by the disability policy while he keeps the car)? YES. Does Chapter 13 act to deprive this debtor of a discharge? NO. Does Chapter 13 impose upon this debtor obligations more onerous than Chapter 7? Let us assume "yes," that the debtor has a source of income that would require higher repayment to unsecured debt than would occur through Chapter 7. It seems likely that the Boodrow debtor seeks Chapter 7 because of the hope that the car creditor will be paid by the disability policy, and that any post-petition income will be the debtors', not subject to the scrutiny of the trustee. This is the only reasonable conclusion to draw, because if the debtor only receives enough to live on, there would be no required payments to unsecured creditors because there would be no disposable income (unless there is a liquidation value, but the liquidation value
The fourth alternative camp develops this alternative from rather disparate strands of analysis. Section 521(2)(A) is plainly read to require a particular choice among the alternatives set forth, if the debtor elects to retain, but these choices are not exclusive, due to the court's power to authorize a rule of retention. (West). Section 521(2)(A) is plainly read to require the choice of one of the three alternatives, if the debtor seeks to retain the property, only if (by the choice itself) one of the three choices is applicable; the three alternatives are to be seen as partners of a fourth federal rule allowing retention by maintaining payments (Belanger). Section 521(2)(A) is ambiguous, is nothing but a notice provision, and because of policy considerations (yet not comprehended by the author of this opinion) is to be seen as (only) mentioning three (non-exclusive) alternative means of retention of property, but, also, establishes the basis for the extra statutory fashioning of the federal rule of the right of retention (Boodrow).
Were we cruelly objective we would suggest that the development of a federal rule of retention (or right of reinstatement) from three mutually exclusive analytical grounds establishes the emptiness of the exercise and shows that the federal rule has been promulgated upon nothing more than the fact that the authors of the opinions could write words on paper. We prefer to put it another way. Regardless of the approach to statutory construction, the fourth alternative courts in no way rely upon statutory authority for the right of retention. Vague policy considerations, undefined equitable considerations, yes. Statutory authority, no.
The debtor in the final "fourth alternative" case, McClellan Federal Credit Union v. Parker,
The Ninth Circuit began its analysis by examining the jurisprudential camps. The court recognized the "nihilist" approach used by its own BAP in the case, In re Mayton, but considered the language of § 521(2)(A) to be susceptible to a "plain reading":
Thus, the Parker court finds that the "plain meaning" of § 521(2)(A), and the protections afforded the debtor by § 521(2)(C), allow the debtors the federal right to retain their vehicle so long as they continue to make their contractual payments. In addition to those previously noted conceptual difficulties we have with the "fourth alternative" cases, we point out that this court misconstrues the "nihilist"-based opinion of its BAP — In re Mayton. According to the Ninth Circuit "[r]elying on subparagraph (C) the BAP [in Mayton] thus reached the same result as the Second, Fourth, and Tenth Circuits." Although we realize that we have not yet discussed the "nihilist" camp cases,
We mention the Parker case not for its analytical content, but because it was decided. No other discussion appears, to us, warranted.
(b) The Plain Meaning Camp
The Seventh Circuit decision, In Matter of Edwards, dealt with a debtor who was current on her vehicle note during the bankruptcy case, evidenced an intention to reaffirm, but failed to execute a reaffirmation agreement before expiration of the time for performance under § 521(2)(B). The trustee filed a "no asset report" "and abandoned the secured collateral from the bankruptcy estate."
This explanation of both the bankruptcy process and § 521(2) sets up and informs our interpretation of what the court is getting at in posing the question it sees itself facing.
The court points out that the case relied upon by the debtor — In re Perry — does not decide the issue of whether a debtor can retain property after the stay has been lifted or after discharge. Perry, says the court, only holds that bankruptcy default clauses are ineffective until the stay is lifted,
Thus, the Seventh Circuit finds that the debtor is limited to surrendering, reaffirming, redeeming, (or exempting) property subject to § 521(2). "Absent reaffirmation [or redemption, or exemption/avoidance] and after discharge in bankruptcy, . . . Edwards would no longer be personally liable in case of default. The creditor's only recourse in such a case would be to seek repossession of the collateral."
Does the Seventh Circuit interpret § 521(2) to preempt state law on the question of whether, post-abandonment, the parties remain bound by the contracts and law applicable thereto? As we see it, yes. In a footnote, the court diverges from Bell on an important matter. "Bell also holds `default-upon-filing' clauses to be enforceable against property that has been abandoned from a debtor's estate. This additional holding has no bearing on our analysis as we are in no way predicating our conclusions on the enforceability of `default-upon-filing' clauses."
The court is not predicating its conclusion on the enforceability of default clauses because such clauses are rendered irrelevant by its analysis (it thinks). The irrelevance is grounded in the "exclusive" federal methods of retaining collateral after abandonment which, for policy reasons believes the court, necessitate the federalization of "surrender" to strip from the parties' state law contracts the state law content.
It is clear that Edwards does away with state law as a residual bundle of rights to which the parties return post-abandonment if none of the federal retention mechanisms are chosen. It is also clear to us that the statute, itself, does not compel such a result. Why, then, does the Seventh Circuit end up where it does, enacting a federal rule preemption of state law where there is no conflict? One word — POLICY.
The policy considerations driving the Seventh Circuit emanate from the polar opposite end of the political spectrum as those driving the fourth alternative courts. The fourth alternative courts construct debtor-friendly equitable considerations to preempt state law rights to the detriment of
First of all, the court is startlingly (and almost embarrassingly) unconvincing. The "id" part of the analysis breaks through to reveal what is really going on. We see the court chagrined at the thought of the debtor improving its position "dramatically" against the secured creditors; we see the court offering its reactive aversion to the statutory construct (promulgated by Congress, the body with authority to pass laws) as the basis for its understanding of Congressional intent — Congress intended "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."
The short answer is that the complaint about the "too-ready availability of discharge" is a social complaint from the judicial branch, that has no place in an opinion purporting to decide a case or controversy. Further evidence of the social/political basis of the court's opinion is the pseudo-scientific/economic analysis that underlies the political viewpoint. Social horrors occasioned by discharge include: (1) "the debtor has little or no incentive to insure or maintain the property on which the creditor maintains a security interest"; and (2) "the value of the collateral may fall below the level of the loan, leaving the creditor unsecured and driving up the future costs of credit."
We question whether the court had evidence supporting the fact of this double feature horror movie, or whether the court simply knows these things. If there was evidence, it is not mentioned, and if the court just "knows" these things, we offer a couple of observations. First, why couldn't the credit/security agreement contain a bankruptcy default clause and, as well, a requirement that insurance be maintained (which would give rise to an additional event of default)? Or did they? Second, is it not possible (probable) that the loan (we are in bankruptcy here, and the property has been abandoned) is already greater than the value of the collateral so that the state law state of affairs (pre-bankruptcy) was such that the collateral value would not cover the debt?
The non-statutory policy "analysis" is in actuality an attempt to insure the necessity of fashioning an equitable rule upon a set of "policy considerations," that while different from those used by the fourth alternative courts, are just as unnecessary and wrong. Regarding the fourth alternative argument put forth by the debtor, the court can "just say no." (There is nothing in § 521(2) that offers the "right of reinstatement.") To both parties the court could have said that because the property has been abandoned (and presumably discharge has been entered), the parties are left to state law rights, to be determined without the interference of the bankruptcy court (or any federal court without an independent basis of jurisdiction). Butner would be complied with. Neither party is
Finally, how does the thing the court has done actually work? Say the debtor chooses reaffirmation, but within the recission period rescinds the agreement? What happens then? Suppose the debtor chooses "surrender," files the statement and the case is closed? What, in fact, happens? What, in fact, happens? What, in fact, happens? While we are at this, let's make it a bit more complicated. The debtor keeps paying and the creditor keeps accepting the amount due under the note, in the face of the "surrender" choice. Has there been an act translative of title, from the debtor to the creditor arising from the surrender choice? If so, under what law (the federal bankruptcy law title transfer statutes? If so, where are they, please?)? Is it necessary for the creditor to make a claim in a court? If so, which one? And, what is the claim that is made? Does the debtor retain any interest in the property (that has been abandoned back to the debtor), and, if so, under what law? Or, has the debtor lost all interest (and, if so, what does the abandonment statute mean) so that the debtor is, post-abandonment, a thief? If the debtor has no interest in the property, can the creditor go to state court and ask for an injunction to compel the give-back of the creditor's property? What is the law of the give-back (or, put another way, how does one research the state "give-back" law)?
Is the debtor is responsible for delivering the property to the creditor? By the way, does the debtor, whose name is on the automobile title (but who loses all interest in it) have an insurable interest in the property? Maybe all of these questions can be side-stepped by implying within the federal statute an obligation to turn over (deliver) the cars, VCR's, stereos, boats, furniture, in each and every case where there is "surrender," to the office of the Chapter 7 trustee so that the Chapter 7 trustee (who is closing, nationwide, and average of 98% of Chapter 7 cases without administering one stitch of property) can deliver it to each and every creditor holding collateral. Oh, by the way, does the trustee in this situation bear the risk of loss, so that the trustee is responsible for any damage to the (823) cars parked in the trustee's parking lot (what if the trustee has no parking lot)?
It is getting pretty ridiculous here, but not, we think, because of our analysis. Clearly, trustees would revolt at the prospect of being the middle persons in this scrum.
So, let's analyze the inner-workings of the debtor being liable for the delivery as a result of the federalized evisceration of state law contract rights. Same questions: (1) does the debtor deliver? (2) does the debtor bear the risk of loss? (3) What of the costs associated with transport, say, of a several-ton air conditioning unit — does the debtor bear the cost of disassembling and transportation? (4) Where is delivery to be made — to a regional resale lot of the creditor's choosing, to the loan office, or to an equitably-arrived-at location that recognizes the interplay between the necessary loss by the debtor of any and all rights in,
We do not know the answer to any of these questions, but can project, regarding the difficulty of trying to get to answers. Certainly (with respect to each item of collateral), the bankruptcy court would have to conduct a hearing during which it would have to weigh and analyze (and we can see it now) something to be described as "the various factors and intersecting policies with full recognition that though it might cost the debtor something, it should not be too much and though the creditor need suffer no cost, it might have to suffer some." In furtherance of its equitable analysis, it would seem that the court would have to focus upon the type of property — is it big, little, weatherproof (or not), furniture, electronics, vehicles (running or not), transportable without assistance (or not).
Now, we have said that trustees would revolt if called upon to effectuate the "distribution" of property that the Seventh Circuit thinks it has required. Realizing that the Seventh Circuit probably cares little about the bankruptcy courts' perspective as to their job responsibility, is it rational to conclude that the same Congress that promulgated § 554(c) intended for the bankruptcy courts to be the traffic police, post-bankruptcy, for the distribution of personal property back to secured lenders so that secured lenders would not be subject to the same state law upon which the original contracts were confected? NO. In light of Butner, of course, NO.
The Seventh Circuit did not think its way to the end of its pronouncement. Problematically, this seems to be a recurring consequence (recall the fourth alternative courts) of making (up) pronouncements. Edwards postulates a groundless equitable (federal) rule to fill the nonexistent holes in the statutory scheme as a reaction to the same exercise performed by the fourth alternative courts at the other end of the political/social spectrum. Neither hold water.
Taylor v. AGE Fed. Credit Union (In re Taylor)
In addition to its "clear reading" of § 521(2), the Taylor court also notes that "retention" does not satisfy the "performance" requirement of § 521(2)(B) because "retention" can not be completed within 45 days and does not need to be "performed":
The court cites with approval the following passage from the bankruptcy court's opinion:
Following the bankruptcy court's lead, the Eleventh Circuit pulls out a shameless old saw with which to pound (or, we guess, to carve up) the debtor:
Before we discuss Taylor further, it will be helpful to look at the district court opinion (which reversed the bankruptcy court and was) reversed by Taylor.
The reason the district court believes itself not to be involved with the surrender portion of § 521 is two-fold. First, the court, without saying so, believes "surrender" to mean lose
The statutory interpretation format used by the district court is that espoused by Boodrow, which allows the district court to conclude that the statute (§ 521(2)(A)) is ambiguous and therefore can be rewritten to include the fourth federal alternative.
We see the Taylor case as containing the essence of the problem inherent in the analyses that have preceded us. The surrender "part" of § 521 is not at issue in the district court, only the "retain" part. Because of this we get the issue discussed in terms of having to make up a fourth alternative (because no one would ever choose "surrender" without it) or requiring that retention can be exercised only through redemption, reaffirmation, or exemption/avoidance (because no one would choose these alternatives if there was a fourth, non-surrender alternative). The tension is between the political ends of the aforementioned spectrum, with each end trying to maintain the viability of its social preference through statutory interpretation. The funny thing is that the word "surrender" is effectively read out of the Code, certainly is read out as a viable, practical alternative. Who in their right mind would ever choose "surrender" when one could choose "reaffirmation," sign the agreement and then "rescind it"?
A couple of additional observations about Taylor. It is clear that both the bankruptcy court and the Eleventh Circuit are disdainful of the prospect of a forced federal right of reinstatement (so are we). But is it necessary to be regaled about the prospect of debtors who, notwithstanding that they are current on their obligations and whose payments have been accepted by the creditor right along, yearn to embark upon unbridled collateral dissipation once, by the discharge, their liability becomes in rem (such a cause for celebration!)? NO. In fact, these speculative assertions are just that — speculative assertions. And, while it does seem appropriate to offer the suggestion (to the fourth alternative courts) that mention of the federal right of retention is tantamount to the creation (from the atmosphere) of a federal equitable, involuntary in rem reaffirmation, it is not necessary to expound half-baked social and economic theory. Though we care not about the debtors' post-abandonment predilections (for collateral dissipation, ice cream before breakfast, or whatever), we point out a frequent fault found in the plain meaning type of social theorizing — it's probably wrong.
The debtors have been paying. The creditors have been accepting. The creditor faces, usually, an undersecured position and a dischargeable deficiency. The debtors have maintained insurance. Most importantly, the debtors need a car. The debtors have a discharge so that the indebtedness
We simply do not know enough to be able to espouse these universal truths about human nature (which seem controverted by the facts), nor do we see the need for such a complicated reaction to the fourth alternative courts. As we said above, begin by just saying "no" (to the fourth alternative), and explicate, by reference to the statute and Butner.
Finally, we observe that Taylor probably did not go as far as Edwards in confecting a reactionary federal rule of equity to fill a non-existent statutory hole. Recall the footnote in the Eleventh Circuit opinion regarding surrender, which off-handedly suggests that the debtor surrenders "the collateral to the lienholder who then disposes of it pursuant to the requirements of state law."
Our interpretation of Taylor on this score makes sense (at least to us). The district court opinion, remember, expressly invalidates the bankruptcy default clauses contained in the agreements (the question was briefed to the district court). In light of the issues on appeal, the "surrender" description can be read to overrule the invalidation of default clauses, so as to leave the creditor (in the event of "surrender") entitled to rely on such a clause (under state law) to enforce the security agreement. Reliance upon state law to enforce the security agreement normally takes the form of a constructive "surrender" of the property, to the creditor (perhaps through a custodian appointed through state law process).
Clearly the focus of the Eleventh Circuit is on the word "retention." Though the district court did not see "surrender" as even implicated in the arguments presented, the Eleventh Circuit does touch on its interpretation of "surrender": "Surrender provides that a debtor surrender the collateral to the lienholder who then disposes of it pursuant to the requirements of state law."
From the brief reference to "surrender," we get confirmation of our conclusion that there are residual state law rights applicable to contracts (the "lienholder then disposes of it pursuant to the requirements of state law") and confirmation of our conclusion that the Taylor court has misconstrued the terms "retention" and "surrender." As with the Edwards court, the Eleventh Circuit erroneously understands "surrender" to refer (or relate) to the debtor's relationship with the creditor ("surrender provides that a debtor surrender the collateral to the lienholder"). This misconstruction requires that the Eleventh Circuit see "retention" as referring, at least in part, to the post-bankruptcy world, which it does not. To the credit of the Eleventh Circuit, however, it realized (whether it knew it realized this or not) that the federal rule of Edwards created a legal vacuum that could not (rationally) exist. Therefore, the court allows for the continued existence, post-bankruptcy, of some residual state law rights and obligations regarding the property. It does not delineate or explain, because it cannot, given the analytical box into which it has put itself (arguing itself right up to the conclusion that the § 521(2)(A) "retention" is the repository of the exclusive means of retaining ownership — or even possession — post-bankruptcy, but recognizing, like a bell clanging off in the distance somewhere, that the Code has not done away with all state law rights). What it could do was rail against the fourth alternative and quit before it pronounced. And, we think that is what it did.
We move now to the Fifth Circuit case Johnson v. Sun Finance Co. (In re Johnson).
The court perfunctorily reviewed the conflicting appellate jurisprudence, describing the plain meaning camp as holding "that debtors must choose to reaffirm the debt, redeem the property, or surrender the collateral, and nothing else."
We are confused because this last reference to "another option" seems to refer back to the fourth alternative courts previously
Now, the argument is set, the caselaw is mentioned; it is time to choose. Before the choice, though the court recasts the debtors' argument:
Now, let's stop. Is this what the debtors really argued, or has the court left out something? We think that the court, in recasting the debtors' position, left out the crux of the debtors' argument. We think the debtors' argument, properly stated, was not that they could keep the property until someone came and got it. We think the debtors' argument, if seen in the context of its original exposition, was that they had the right, under § 521(2)(A), to indicate the intention to "retain" the property but were not required to indicate one of the three methods articulated within the subsection. In other words, the debtors argued that they had a fourth alternative "retain" right. The court's response to the debtors' "argument" convinces us of the correctness of our interpretation:
The particular disagreement of the court indicates that it is the debtors' determination to choose "retain," but none of the specified alternative methods; to embrace this, says the court, would leave the creditor in the dark. It is within the context of the
In addition to the court's focus upon the notice provided to the creditor by a properly executed choice of alternatives on the statement, we find support for our interpretation of the court's opinion from the observation, "If the payments are in default as the Sun affidavit shows, Sun can always move to lift the stay in order to foreclose."
We have suggested in our introductory remarks that the Fifth Circuit missed an opportunity to bring some order to the morass that is § 521(2) jurisprudence. We meant it. Also, the arguments raised by the parties evidence the need for further analysis of the section (521(2)), about what it means, what it requires, what it doesn't cover.
The debtors in Johnson say that they are advancing a right to retain that is covered by the "retention" or "retain" choice within § 521(2). We see it differently.
Are not the debtors, in describing their "right to retain" actually describing "surrender"? We think so. According to the affidavit of default referred to by the bankruptcy court, the debtors made no further note payments after the commencement of the bankruptcy case. They did not claim that the property was exempt. They had no intention of paying any more note payments. They evidenced no intention to interfere with the trustee administering the camcorder (probably the last thing that would have occurred to the trustee), and no intention to defend a stay relief action or subsequent foreclosure by state law process.
The debtors were in fact describing "surrender" as we see it. The "retain" or "retention" contemplated by § 521(2) is applicable only to the bankruptcy world, because it must be understood to exist only through application of the specified bankruptcy alternatives. "Surrender" is the choice not to "retain" through the bankruptcy-provided mechanisms. "Surrender," as we will show, is the choice to abide by the statutory requirement that property of the estate be surrendered
However, time does not stop with the choice not to use the bankruptcy methods of retention. The Bankruptcy Code provides for this by offering the creditor stay relief, trustee disposition, etc. If these alternatives don't occur, time still moves on, until the case is closed. At this moment on the case administration time spectrum the Code causes, by operation of law, the abandonment of all property not administered back to the debtor. As of the moment of abandonment, the property has passed through the bankruptcy process without the process having been used to assist the debtor in keeping it, or the creditor in getting it. The property has been surrendered (we know that it is surrendered constructively) first, to be dealt with however it can be within the bankruptcy process. If not to be dealt with through the process, the unadministered (undealt with) property is deemed fully administered by virtue of the operation-of-law abandonment occurring under § 554(c). Thereafter, § 521(2) having no further effect, the property and lien rights and ownership/possession rights are to be dealt with under applicable non-bankruptcy law.
Now, we understand that we cannot ignore the fact of discharge. Yes, the personal obligation is discharged, so that the resulting liability is in rem, limited to the property. So what? The discharge does not interfere with the enforcement of state law security interests. All rights in, to, and upon the collateral are maintained by
We can figure at least one response. It had nothing to do with the camcorder, in connection with which the creditor had taken no action (no stay relief, nothing). What was the creditor after? We think a directive to the debtors to state the intention to "surrender" the property. Why? Because we think the creditor was going to follow up the motion to compel the proper selection of an intention with a motion (or, complaint) to compel the debtors to deliver the property to the creditor so as to save the creditor the costs of exercising the state law rights of foreclosure and, more importantly, we think, to place the debtor into the position of either complying with a court order, suffering a discharge complaint under § 727(a)(6)(A),
We conclude that the Johnson creditor, then, was after bigger fish, was after a circumvention of the discharge through the creation of a post-bankruptcy obligation that could be used to lessen the costs of enforcement bargained for under state law, or as ground for relief from the discharge, itself. There is no other reason for such hard-fought camcorder litigation (of course, the debtors should have just reaffirmed, signed an agreement, and then rescinded it if they were worried about what "surrender" meant). So, we come to the ultimate irony. The creditor in Johnson was pushing for an Edwards federal equity rule promulgation, in the name of "limiting a debtor to a fresh start, not a head start"! In throwing out this bait, hoping for a mullet strike, it was the creditor who was trying to do away with the effect of discharge under the guise of protecting the sanctity of creditor rights in the face of discharge. For "surrender" to mean what the Johnson creditor insisted it to mean, the court would have been forced to impose upon the debtor the post-bankruptcy obligation of effectuating return, delivery, etc. All the questions we have asked earlier would have to be resolved (at expense to the debtor), just to determine how much it should cost the debtor, personally, to comply with the imposition of this post-bankruptcy (usually post-discharge) obligation. What is so unconscionable is the sanctimoniousness with which the creditor goes about its business, trying to protect the "system," have the debtors "do right," while all the while hoping to circumvent the discharge by the addition of delivery/return costs, or even better, to generate the situation whereby the debtor could be compelled by a bankruptcy court to deliver property (at debtor's cost) or suffer loss or revocation of discharge.
We think this is what the Johnson creditor was after, but to the credit of the Johnson bankruptcy court (and the adoptive Fifth Circuit), the creditor did not get what the creditor wanted.
Did the Johnson debtors lose? Not really. They were never really intentionally asking for the federal retention right. What they were really asking for was our interpretation of surrender. What they got was, in essence, a directive to surrender
In Johnson, the Fifth Circuit endorses the "plain meaning" interpretation of the language of § 521(2)(A), and does it correctly. In so doing, it refutes the possibility of the "fourth alternative" right of retention. However, and we hope the creditor understands this, the court refrained from rejecting one groundless creation of a federal rule of equity by creating another, just as groundless.
Bank of Boston v. Burr (In re Burr)
(c) The Third Approach Emerges — The "Nihilist" Camp
As previously mentioned, the "nihilist" argument relies heavily on § 521(2)(C) in reasoning that § 521(2)(A) and (B) were only meant to notice secured creditors and not to alter (i.e., enlarge or diminish) substantive rights. According to these cases, both the "plain meaning" and "fourth alternative" approaches impermissibly alter the debtor's rights in the collateral. Under the "plain meaning" approach, § 521(2) is seen by the nihilists to diminish the debtor's state law rights in the collateral (because the meaning attributed to "surrender" is "to turn-over" the collateral). Under the "fourth alternative" approach, § 521(2) is seen to enlarge, or even codify, the debtor's state law rights in the collateral by ignoring contractual defaults possibly enforceable under state law. The "new path"
The leading "nihilist" case is Mayton v. Sears Roebuck & Co. (In re Mayton)
After examining the "plain meaning" and "fourth alternative" lines of analysis, the Mayton court found that § 521(2)(C) preserves the debtor's bankruptcy rights and that §§ (B) and (A) were "subservient" to it. Additionally the court opined that "it is also clear that 521(2) does not diminish the debtor's rights under the Code generally."
Thus, says the Mayton court, after the stay is lifted the creditor may foreclose in state court. The court added that to equate "surrender" with "foreclosure" would abrogate the automatic stay to the detriment to other classes of creditors, a result that should require a more explicit statement in light of § 521(2)(C).
In other words, the Mayton court refuses to require the debtors to do anything, notwithstanding the mandatory provisions of § 521(2)(A) and (B) and limits the notion of surrender to the choice to be made by
The First Circuit Bankruptcy Appellate Panel relied heavily upon Mayton for its analysis of § 521(2) in First National
The First Circuit BAP thus framed the issue before it as whether § 521(2) required the selection of either retain or surrender, or the additional selection of reaffirmation, redemption, or exemption.
The court declined to choose between the fourth alternative approach favored by the debtor and the plain meaning approach advanced by the creditor. Instead, it ventures its own statutory analysis, beginning (logically) with the language of the statute itself but concluding, quickly, that the statutory language, because it contains inherent contradictions, is hopelessly ambiguous. Noting the mandatory (and fairly clear) provisions of §§ 521(2)(A) and (B), requiring choices and performance (within a time limit), the court points out that "subsection (C) provides that `nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title' rendering it unclear what the debtor must do, and just when he or she must do it."
Because performance of one of the intentions would serve to limit a debtor's options to choose another option, the court cannot figure out how to require debtors to do anything. The equipoise, to the First Circuit BAP, must be perfect, and must affect all parties who might have rights. "Given that no alternative is permitted, neither can the debtor's nor the trustee's rights in the property be enhanced. And, since the creditor's rights in the collateral are the counterpoint to the debtor's and the estate's, we may conclude that, aside from the substantive (e.g., §§ 522, 544, 548, 722) and procedural (e.g., § 362) rights conferred by the Code, the creditor's rights remain static, as well."
From the perch of this statutory self-abrogation, it is easy for the BAP to decline the fourth alternative approach, which (as we have mentioned) has resulted in the promulgation of the right of reinstatement (i.e., embraced debtor rights). Alas, the BAP understanding of the meaning of "surrender," its view that § 521(2)(C) overrides the entirety of the statute so as to render it to mean no debtor must (or even can) make any choices (as such a choice might preclude others),
The changes wreaked upon all parties' rights, which the court sees as precluded by § 521(2)(C), requires the rejection of prior approaches and the adoption of what we have termed the nihilist approach. The rejected approaches
It is clear that because of its notion of what it would be doing if it ordered the debtor to choose surrender (give up all non-bankruptcy rights), or to choose redemption/ reaffirmation (venture into the abyss of involuntary reaffirmation), the BAP has fashioned a problematic method of statutory construction:
The BAP concludes, then, that the debtor must indicate an intent to retain or surrender — and nothing more.
(d) Back to Plain Meaning, With a Vengeance
In Re Burr
To the First Circuit all three camps made their appearance — for the first time.
Having rejected the "fourth alternative" camp, the court examined the two remaining methodological alternatives. While its interpretation of § 521(2)(A) and (B) tracks the BAP approach (recall that the BAP as well rejected the fourth alternative camp's analysis of the words of the subsections before it ran out of steam and allowed § 521(2)(A) and (B) to collapse into and be subsumed by § 521(2)(C)), the First Circuit rejects the nihilist reading of § 521(2)(C). Framing the issue as "whether 11 U.S.C. § 521(2)(C) should cause us to decline to enforce the objectives of § 521(2)(A) and (B),"
The court also concluded that enforcement of § 521(2)(A) and (B) will not convert the redemption or reaffirmation process into an involuntary one. We have some difficulty following the court's argument because it mostly dribbles off into dicta. Debtors are never forced to reaffirm, there are other choices, etc. Also, "the fact is that most secured creditors in circumstances such as these will prefer to enter reaffirmation agreements containing identical terms to the old agreements over the costs associated with accepting back, and the disposing of, surrendered collateral. See amicus brief at 19-22 (acknowledging the incentives most creditors have to enter reaffirmation agreements)."
The court offers a final bit of possibly comforting speculation to debtors within the First Circuit by suggesting that maybe a debtor just checking the "reaffirm" option
The First Circuit, in rejecting the BAP (nihilist) and fourth alternative approaches places itself within the plain meaning camp, as it understands it. Because it disagrees with the BAP view that § 521(2)(C) is all-encompassing in its protection (and therefore overrides § 521(2)(A) and (B)), the court joins the Edwards version of plain meaning, holding (it seems) that § 521(2)(A) and (B) preempt state law rights related to the underlying contracts between the parties, and that the federal doing away with of such rights is (because it should be) one of the costs of discharge. So, with the Seventh Circuit, the First Circuit has offered its own rule of equity (also absent a statutory directive to do so), one that is the polar opposite of the fourth alternative.
We try to open up the Burr opinion, which has through its critique of the nihilist approach to the relationship of § 521(2)(C) to § 521(2)(A) and (B), both exposed the flaws within the nihilist approach and offered the key to its own undoing. We disagree with the extension by the Burr court of the plain meaning analysis to require federal preemption of state law rights, for the same reasons we offered in response to the Edwards opinion.
Though the First Circuit is correct that the BAP incorrectly attributes an all-sub-suming and nullifying scope to § 521(2)(C), it is wrong in its conclusion that limiting the scope of § 521(2)(C) requires the preemption of state law rights. Because the court fails to consider the situation of the bankruptcy world within the state (non-bankruptcy) law world, and forgets to try to figure how the Bankruptcy Code, as a contextual whole, might address the proper interpretation of § 521(2)((A), (B), and (C)), the court erroneously expands the effect of § 521(2)(A) and (B) to the post-bankruptcy world, providing a non-statutory "equitable" effect of discharge (preempting state law lien rights, post-bankruptcy).
Absent absurdity the Supreme Court instructs that we give effect to every word contained in a statute.
Also, we think the First Circuit correctly observes that the absence of reference to a creditor's rights should not be seen as a vehicle for concluding that creditors' rights
However, practically speaking, we are not sure that the exclusion of "creditor" from the scope of § 521(2)(C) is all that meaningful. There is something to be said, in fact, for the proposition that if a debtor's and trustee's rights are preserved, there is some definite effect upon the secured creditor. Probably, the omission of creditor from the subsection is a recognition that inclusion is unnecessary, as long as the reference to "rights under this title" is adhered to.
Where the First Circuit BAP and the First Circuit diverge, though, is that the appeals court sees "rights under this title" as limiting the extent to which a debtor's state law rights are protected (because only bankruptcy rights are protected, state law rights need not be), while the BAP wishes that the protection of rights was not limited to bankruptcy rights (so it wills that it not be so).
In fact, because both courts were resolved in their understanding of "surrender" (the BAP struggling to keep it from happening, the First Circuit embracing it as what the debtor, who has debt discharged without reaffirming it, deserves), neither looks hard enough at what the Code actually has to say about the protection of all parties' rights.
In fact, the old "redemption" cases such as Stewart and Cruseturner, along with Butner and the Bankruptcy Code itself, illuminate. Under § 554, property not otherwise administered is "abandoned" to the debtor by operation of law upon case closure.
Full administration has another significance. The bankruptcy case is over. The bankruptcy world, subject to the right to reopen the case under § 350, has ceased to exist. Any lingering or consequential effect of the bankruptcy process (one would think) would arise from operation of the Code. And the Code is clear that there are lingering consequences that affect the parties to the bankruptcy case post-bankruptcy. These include:
We may have missed a few of the lingering bankruptcy consequences upon state law rights (we have purposefully excluded avoided liens, etc. because the thing that happens in bankruptcy does away with the state law rights of the lienholders and therefore there would be no rights left upon which the bankruptcy process could have a continuing effect). However, we have missed none that require that § 521(2) have post-bankruptcy effect at odds with the specified post-bankruptcy effect of § 554(c).
To get through the process to the full administration of property and the beginning point of the lingering effects, it is useful to analyze what bankruptcy rights could have been utilized within the bankruptcy process by the parties holding them, but were not.
The bankruptcy process, as we see, has offered each party a significant number of choices, none of which has been selected.
We understand that we must fold into our analysis the word we have suggested is primary but overlooked. We must analyze "surrender." We offer the foregoing observations to suggest that both the BAP and the First Circuit were analyzing § 521(2)(C) in light of a presumed meaning of "surrender." One avoided the consequence of the meaning. One embraced it. We think we have approached the question from another way, one which ultimately will seek to define surrender within the overall context of the Code (as opposed to inserting a pre-determined meaning to the interpretation of one subsection of one section), the juxtaposition of the bankruptcy and non-bankruptcy worlds, and the directive of Butner. We think that neither the BAP nor the First Circuit looked hard enough at the Code to determine just what rights were being dealt with. We hope, by the time we get through with this, that we have.
(e) Summing up the Three Approaches
The Fourth Alternative approach appears unredeemable. The fourth alternative courts do not offer a consistent approach to statutory construction, positing three interpretations of § 521(2), each exclusive of the others. To a varying degree, the fourth alternative courts promulgate a federal rule of equity on the basis of "considerations" of the most undefined sort, and grant debtors a federal right supplanting state law rights arising from the parties' state law contracts. Behind this enthusiastic approach to unbridled legislation in the guise of the exercise of judicial power is the "feeling" that the word "retention" must relate to the non-bankruptcy (or state law) world because the word "surrender" certainly does. Also, we sense a "feeling" that the fresh start granted by and delineated through the Code is insufficient, that there must be a further lingering effect to the bankruptcy case than that provided for by the Code. We think the fourth alternative courts have fashioned a retention answer to their (erroneous) understanding of the scope and meaning of the word "surrender." We conclude that they interpret the word "surrender" to mean the debtor giving up all interest, whatsoever, in, to, and upon the collateral property, and being obligated to take affirmative action to deliver the property to the creditor in performance of the "surrender" choice.
The nihilist camp is seen by us as having tried, unsuccessfully, to interpret § 521(2) in such a way as to leave undisturbed the state law rights of all parties if none of the (redemption, reaffirmation, or exemption and lien avoidance) alternatives are chosen and no other bankruptcy alternative comes into play. The pitfalls of such an approach are basically two: (i) the statutory alternatives among which the debtor shall choose if the debtor intends to retain the property and the statutory requirement of a choice to be performed, are read out of the statute; (ii) the nihilist alternative will, in all likelihood, not garner appellate court approval. The nihilist camp approach is correct in its conclusion that § 521(2)(A), read literally, limits the "retention" choices to those mentioned in the statute. It is also correct in its nagging understanding that interpreting such a limitation to preclude the post-bankruptcy reliance upon state law rights "just can't be right." However, the nihilist camp, in failing to tackle the meaning of surrender, runs afoul of Butner in a way different from the fourth
The nihilist camp understands the word "surrender" to constitute such a modification, abrogation, or superceding, and therefore believes it appropriate to interpret the mandatory provision of § 521(2)(A) as meaningless, because of § 521(2)(C). However, once "surrender" is interpreted as the nihilist camp does, the nihilist courts should have recognized that the effect of such a meaning is simply one of the many ways Congress has modified, abrogated, and/or superceded state law, and should have been constrained to give effect to the Congressional intent. In addition to running afoul of Butner in this way, the assumed meaning of "surrender" hamstrings the nihilist courts a second way in their interpretative endeavors. Because "surrender" is assumed to mean a loss of state law right, the nihilist courts set themselves up to be interpretatively trashed by reviewing courts because of their misreading of § 521(2)(C).
Recall the First Circuit's summary rejection of the BAP misreading of this provision. Unfortunately, read alone § 521(2)(C) cannot be understood to mean what the BAP opinion in Burr says it means, but the BAP cannot interpret it any other way. Because "surrender" means loss of state law rights, and because such an effect is bad and must be read out of the Code, a vehicle must be found. Because of this assumed meaning, § 521(2)(C) must be misread, changed from:
Congress, had it intended to write such a subsection, knew how to refer to applicable non-bankruptcy law.
Finally, because "retention" and "surrender" are understood expansively by the nihilist courts, "retention" to mean retention during and after bankruptcy and "surrender" to mean give up all rights state and federal during and after bankruptcy, the nihilist courts are blind to our suggestion that § 521(2) can be read as a coherent whole, and that § 521(2)(C) can be read in a way other than to nullify the preceding statutory provision. As we opine further on, "surrender," as the act of giving up one's rights to use the bankruptcy alternatives as the mechanisms for retaining property, generates a limited range for the word "retention" (the retention choice is the choice to retain property through the use of federal law), and likewise allows us to make sense out of § 521(2)(C) in a way that the First Circuit, in Burr for example, could not (we suggest) brush aside as easily as it could the rewriting proposed by the BAP opinion in that case. As we have mentioned, the Bankruptcy Code specifically provides for the effect of the closing of a bankruptcy case, on property not (actually) administered by the trustee. The property, according to 11 U.S.C. § 554(c), is abandoned to the debtor, and thereby, under the Code, fully administered. Likewise, it
Being a court in the Fifth Circuit, it is of course with the plain meaning camp that we are most involved. As we hope has become obvious, we believe that the plain meaning opinions have shortcomings, but that only two of the circuit court opinions (Edwards and Burr) actually succumb to the worst of them. We see the plain meaning courts as offering the correct reading of s 521(2)(A), concerning the necessity of choosing one of the three methods of "retention," if "retain" be the debtor's choice. We think the Edwards and Burr courts are wrong in their fervent promulgation of a federal rule to fill in for a non-existent problem; we think the Taylor and Johnson courts have offered insufficient and imprecise treatment of the meaning of the terms "surrender" and "retain," and have not at all dealt with § 521(2)(C). We do not read Taylor or Johnson as having created a federal rule of surrender, but we see that they are perceived as having done such. We are satisfied that the Johnson opinion provides room for our interpretative endeavor, because our conclusion, as to the limited choices facing a debtor who chooses to "retain" property, is consistent with the Johnson court. What we attempt to do, after this interlude, is to offer the specificity of definition and the overall construction of the statute (§ 521(2)) that Johnson lacks. We see the Johnson case as reactive in nature, reacting to the improper confection of a federal law of retention, reacting to the foolishness of the parties before it. Such reactions were necessary, but are seldom (and were not) sufficient. Inherent in the process of opinion as reaction is the problem of the probability that vision will be lacking, that the reactor will only react, not forge.
We think the Fifth Circuit missed one of two chances. Either the court had no jurisdiction due to the interlocutory nature of the order appealed, and missed the opportunity to tell parties similarly situated to go away until there was something justifiable
(3) Our Camp, Lonesome In Our Focus Upon the Word "Surrender," As It Is Used in § 521(2)
We are satisfied, after surveying the different analytical approaches to § 521(2), that the word "surrender" is the key. Two reasons. The word "surrender" is found within § 521(2) and therefore should be worthy of having its meaning explicated. Second, if the word "surrender" is properly understood, the meaning of "retention" as it is used in § 521(2) can be properly understood.
We have offered our suggestions to the presumed meanings underlying the most problematic cases and the confused state of affairs resulting from Taylor and Johnson. It is now time for this Court to put up or shut up.
It is well established that, absent absurdity, statutory interpretation of the Bankruptcy Code begins (and, if possible, ends) with a term's "plain meaning."
(4) Surrender, The Word
"Surrender" is defined by Webster's Ninth New Collegiate Dictionary as: "the action of . . . giving up the possession of something esp. into the power of another; . . . to give up completely or agree to forego esp. in favor of another . . . [.]"
"Surrender" is defined by Black's Law Dictionary as:
"Relinquish" is defined by Black's as "[t]o abandon, to give up, to surrender, to renounce some right or thing."
In isolation, the word "surrender" appears to mean the complete giving up of rights to a thing. It is also clear (plain) that the giving up of rights to a thing (or the giving up of a thing), if the thing is property or a property right, seems to involve not only the act of giving up, but the act of giving up in favor of another or "
The "other" to whom the debtor "surrenders" (if that be the choice) is
We get support for our conclusion by the next step in our plain meaning analysis, which requires that we analyze the word "surrender" within the context, first, of the specific provision in which it resides, and second, within the context of the Bankruptcy Code as a whole.
(5) The Word Within the Code
(a) The Word Within § 521
We look again at the placement of the word "surrender" within the particular statute.
The word "surrender," then, is used twice within § 521, once as a general requirement affecting all property that becomes property of the estate (§ 521(4)) and once to delineate one of two choices provided to a debtor regarding particular property of the estate (§ 521(2)). When Congress uses a term repeatedly in the same statute we presume that "equivocal words have equivalent meanings."
Our understanding that the "surrender" choice in § 521(2)(A) is a reference to the duty of surrender of all property of the
The pre-condition for the filing of the statement of intentions is the scheduling of consumer debts secured by
The "surrender" referred to is § 521(2)(A) is the same surrender referred to in § 521(4). The existence of the surrender requirement (at all) seems more formalistic than necessary (though it probably is simply the obligating mechanism for insuring the prospect of immediate transfer to the estate of the debtor's pre-petition property). The use of the term "surrender" makes sense; a debtor who surrenders property (or who must surrender property) to the trustee has, during the bankruptcy case, no residual state law rights, given the preemptive creation of the estate.
The absurdity of a "federalized" notion of "surrender," which extends the effect of surrender to the post-bankruptcy world, is exposed by means of the statutory scheme set up in § 521. A time-line is helpful in this regard. The creation of the estate and the appointment of a trustee effectively dispossesses the debtor, by preemptive federal law (§ 541), from rights in the property held pre-petition. To effectuate the disposition in favor of the entity created by the commencement of the case, § 521(4) requires that the debtor "surrender" all property of the estate to the trustee. There is no deadline within which this "surrender" is to be accomplished; it is a fact of bankruptcy life that all debtors must face. What was theirs is theirs no longer, unless the property is some way excluded from the estate by the workings of some section of the Bankruptcy Code. The property belongs to the estate and therefore must be surrendered. Now, recall a major premise of the "plain meaning" courts: "Reinstatement" is not a valid option because it is not a solution that is capable of being effectuated within the time frame mandated by § 521(2)(B). The debtor who "surrenders" has, in fact, by so choosing performed the choice because of the general duty of surrender. What the debtor cannot do, however, is perform surrender in favor of any entity other than the trustee (or estate). Without thinking through the inconsistency, the Edwards and Burr courts believe that the debtor must surrender to
However, within § 521(2)(A), the Code contains a practical recognition that there is certain property that a trustee might not want to fool with, but that a debtor
As well, it is recognized by § 521(2) that parties other than the debtor and trustee might have interests (in property of the estate) that might be affected by the alternatives available to a debtor as provided by other sections of the Code. The creditor holding a property interest in collateral securing its debt immediately comes to mind.
By the terms of the statute setting forth the bankruptcy right of redemption, we see that property subject to this right will not be administered by a trustee except by means of abandonment, which is a necessary pre-condition to redemption unless the property is exempt.
By the terms of the statute setting forth the bankruptcy right of avoidance of liens covering exempt property, we see that property subject to this federal right might well be excluded from the estate, though not exempt under the terms of applicable state law due to a security interest, and that the federal law of lien avoidance will preempt state lien law in certain situations.
Given the general "surrender" requirement and prospect of a creditor losing state law granted lien rights through application of federal law, it is recognized as necessary that the trustee and creditor be notified of the debtor's intention to use federal law of exemption and lien avoidance as the basis for excluding the property from the estate and administration by the trustee (and therefore from the "surrender" requirement) and eradicating the effect of the creditor's state law property interest. In other words, contrary to the federal law requirement of surrendering property to the trustee, the debtor will use the Bankruptcy Code-based rights to retain the property, free of both the estate's and the creditor's interest.
By the terms of the statute (and the application of common sense), we understand that the Bankruptcy Code protects a debtor's right of discharge by limiting the means by which a debtor can be bound, post-bankruptcy, for a pre-bankruptcy debt.
By the terms of the statute, the general surrender provision is not subservient to the reaffirmation agreement section of the Code (or the reference thereto found in § 521(2)(A) or (B)). Therefore, the debtor who determines to keep property that is collateral for debt must somehow effectuate the exclusion of that property from the bankruptcy estate; otherwise, the surrender of the property to the trustee will expose the property to trustee administration/disposition, which would undermine the whole reason for reaffirmation. Pulling the property out from that to be surrendered can be accomplished in one of a number of ways that quickly come to mind. First, if the property is properly claimed exempt, it is thereby pulled out of the estate, and the reaffirmation process can proceed free of the surrender requirement. Second, the debtor or the creditor (or both) could effectuate abandonment by the trustee under § 554(a) or could compel abandonment under § 554(b). Third, it might even be that there is equity in the property over and above the creditor's lien value that the debtor could purchase from the estate through action taken by the trustee (this does not circumvent the "surrender" requirement, but extracts the property from the estate after its surrender). Finally, the property could be so under water (value-wise) that the debtor and creditor, secure enough in the prospect that the particular property will not be administered except through § 554(c), could forego the effort to exclude the property from the estate prior to operation-of-law abandonment under § 554(c).
The Code recognizes that there is inherent cost in a creditor exercising rights under § 362 but also that the trustee should be apprised of a debtor's intention to use the reaffirmation provisions so that the trustee can have the opportunity to analyze whether the estate should forestall or facilitate reaffirmation (by administering or not administering the property). Given the interestedness of the creditor and the trustee, the Code requires notice of the choice to use the Bankruptcy Code
Through this discussion of the relationship between the three methods of retention set forth in § 521(2)(A), we have attempted to outline the general structure of the relationship between the general duty of surrender of the property (§ 521(4)) and the necessity to exclude property from this general "surrender" obligation to effectuate one of the alternatives. Before we move on, we stop to suggest that in addition to the plain language of § 521(2)(A), which we read the same way (regarding the exclusive methods of retention) as the plain meaning courts, our placement of the concept of "retention" within the context of the overall duty of surrender (§ 521(4)) is an additional basis for concluding that the plain meaning courts correctly limit the means of "retention" (as the term is used in § 521(2)(A) to those alternatives set forth in § 521(2)(A)). We have looked through the Code sections applicable to Chapter 7, trying to find other ways a debtor might avoid the surrender requirement of § 521(4), but cannot find any. Therefore, because "retention" must be understood as the process by which a debtor avoids the obligation to "surrender" property to the trustee, it is clear that there are only the three mentioned methods of "retention" as that term is used in § 521(2)(A). Remember, though, that we interpret "retention" to be applicable only within the bankruptcy process.
From the words of the statute, which establish the choices and the timing of the choices, we conclude:
1. At the moment the choice is necessary, a debtor who chooses "surrender" can surrender
2. At the moment the choice is necessary, a debtor who chooses "surrender" is notifying all parties receiving notice of the choice that the debtor has opted for the "surrender" referred to as the general obligation of the debtor in § 521(4), and will not attempt to "retain" property through exemption/lien avoidance, redemption, or reaffirmation. By this choice the parties receiving notice are on notice that the debtor intends to take no action inconsistent with the general obligation of surrender of the property to the trustee, or full administration of such property (of the estate) by the trustee.
Seen in this light, neither "surrender" nor "retain" (or "retention") has a post-bankruptcy effect because it is only within the bankruptcy estate administration world that the terms have meaning. The reason the three choices provided in § 521(2)(A) are exclusive is that the choices provided are the only methods by which a debtor, within the bankruptcy process, can (within the bankruptcy process) except property of the estate from the general requirement that a debtor surrender property of the estate to the trustee. There is no language whatsoever within § 521(2) that purports to extend the choices—retention or surrender—to the non-bankruptcy world. Remember Butner. Unless the bankruptcy world (by the terms of the statute creating it) specifically cares about the non-bankruptcy world judges (under the guise of equity) do not have the power to formulate the usurping
(b) The Word Within Other Code Sections
The word "surrender" is frequently used by Congress to delineate debtor or trustee responsibilities elsewhere in the Code. In these other Code sections, Congress draws clear distinctions between the "surrender" of property and its dispossession or delivery. For instance, compare § 365(d)(4)
Other distinctions are drawn in the bankruptcy code concerning various parties' duties to the trustee. As mentioned earlier, § 521(4) requires that the debtor "
From a practical standpoint, it seems to us to be well accepted (practically) that "surrender" as contemplated by § 521(4) is "constructive"—debtors do not show up at § 341 meetings with all of their possessions in tow. We distinguish this obligation imposed upon the debtor from that imposed upon other entities by § 542(a), which requires the actual delivery to the trustee of property of the estate, even that property which might be exempted by the debtor. Further, we note the requirement in § 543(b) that requires delivery to the trustee of property of the estate by a custodian in possession of such property as of the commencement of the case.
(6) What About the Bankruptcy Rules?
If we look further, to the Federal Rules of Bankruptcy Procedure ("FRBP"), we find no reference to the word "surrender," but we do find some rules relevant to our discussion.
First, what we do not find. We do not find a general delivery rule requiring debtors in Chapter 7 to deliver property to the trustee as a necessary component of the processing of every bankruptcy case (our guess is that if such a rule was proposed, there would be a nationwide trustee resignation ceremony, to protest), notwithstanding an entire section of the Rules (Part VI) entitled "Collection and Liquidation of the Estate." The debtors Statement of Intentions required by § 521(2) is required to be "served upon the trustee and the creditors named in the statement on or before the filing of the statement."
Though there is no general delivery requirement, the prospect of delivery is referred to. In Rule 7001, the adversary proceeding is defined (in part) as "a proceeding (1) to recover money or property, except a proceeding to compel the debtor to deliver property to the trustee . . ." This Rule clearly does not refer to a proceeding to compel "surrender" of property, and clearly pre-supposes the prior "surrender" by the debtor as the basis for dispensing with the adversary proceeding process in favor of the contested matter proceeding.
"Surrender," when analyzed within the context of the particular subsection context (§ 521(2)), the particular section context (§ 521), and within the general context of Code and Rules, can only mean the constructive,
Our understanding, then, of the word "surrender" comports with the plain meaning of the Code. It comports with the basis for the equitable nature of the bankruptcy process. "Surrender" is, in fact, accomplished by the filing of the bankruptcy case. The obligation "to surrender" is elucidated to advise debtors of the by operation-of-law "surrender" so that no practical action will be taken by a debtor after the commencement of the case that conflicts with the surrender of pre-bankruptcy property to the estate. The required "surrender" is therefore probably best seen as a prohibiting obligation, the obligation not to ignore the legal fact of the creation of the bankruptcy estate. "Surrender" is not, within the bankruptcy context, synonymous with actual delivery, but is better seen as a version of constructive delivery (to the estate). The word "delivery" is used in the Code to indicate actual delivery, which is only necessary in the event of actual administration by the trustee, as opposed to full administration by non-administration. This is what "surrender" means.
From the meaning of surrender we get, in an easy jump, to the meaning of "retain." As defined by Webster's Ninth New Collegiate Dictionary, "retain" means "1 a: to keep in possession or use . . . syn see KEEP." "Retention" is defined that as "1 a: the act of retaining: the state of being retained." Within Webster's II New Riverside University Dictionary, "retain" is defined as "[t]o keep or hold in one's possession. . . ."
(7) Retention or Surrender. Retention or Surrender.
If retention is chosen, the debtor is providing notice of her intention to circumvent the surrender requirement and to use one of the exclusive alternative methods of excepting property from the requirement that it be surrendered to the trustee. The choice to surrender is, simply, the choice not to utilize one of these alternatives, but
If the property is to be retained as opposed to surrendered, more must be done (to effectuate one of the alternative methods of retention). If the choice be to surrender (or, better put, not to retain), then the debtor has acquiesced to the processes of estate administration and will not attempt to interject the federal alternative rights to keep the property free of the estate's right to have it surrendered.
We are back at § 554(c), because this abandonment by operation-of-law provision is an integral part of the bankruptcy process to which the debtor has surrendered. If surrender is properly understood, we think it beyond argument that the debtor who surrenders does not give up any rights that may be inherent in or come her way by operation-of-law abandonment under § 554(c) (or, for that matter, abandonment of any stripe). It is the federal law to which the debtor has surrendered that provides the debtor with the rights (if any) through abandonment. "Retention," as a mirror image choice, might well require abandonment (redemption, reaffirmation) under § 554(a), (b), or (c), but the difference between "retention" and "surrender" is the existence of rights vis a vis the creditor party (and, perhaps to a limited extent, the trustee) that can be obtained in favor of the debtor
In choosing not to use federal bankruptcy law to obtain the right to retain estate property free of the obligation to surrender it to the trustee, the debtor cannot look to the bankruptcy law for help with respect to the property, notwithstanding the "analysis" of the fourth alternative camp. However, the fact that the debtor can ask no assistance from bankruptcy law regarding the property does not require the conclusion that the debtor, to whom the bankruptcy law sends the property after the bankruptcy estate is fully administered, cannot ask of the state law upon which the rights and obligation are grounded for whatever assistance (or protection) there may be. It is on this point that the Burr and Edwards Courts are plainly wrong, that the Taylor Court falters, and that the Johnson Court has been misunderstood. The logic that correctly prompted the repudiation of the fourth alternative courts, that federal courts cannot create rules of equity upon general considerations because state law controls property rights unless supplanted by federal law, is ignored by either the fashioning of the opposition rule or the failure to pronounce a viable interpretation of the statute. Because the Edwards and Burr courts were more intent on pushing a social/political agenda in response to that pushed by the fourth alternative courts, they forgot to figure out that the same basis of precluding the preemption of state law rights (as a matter of "equity") through the creation of the "right of reinstatement" also precluded the preemption of state law rights through the extension of the meanings of "retention" and "surrender" to the post-bankruptcy world.
The debtor who successfully "retains" property may well affect, change, or modify
At that point (the point of receipt-back through abandonment) the bankruptcy is finished. The parties are left to the law that they started with. Just as there is no basis for suggesting that federal law should allow the making up of a right of reinstatement, there is no basis for making up a loss of state law rights that should not be affected one way or another.
There can be no federal interest sufficient to pass muster under Butner because it is the federal law itself that creates the federal/state interplay. Read this way, the fallacy of the Edwards and Burr expansion of the effects of discharge so that all rights in the property are lost (forever) unless one of the (federal) retention alternatives are chosen, seems clear (to us). The discharge is the discharge, with its effects itemized in § 524. We cannot fathom the basis upon which these courts determined to promulgate additional effects (as a matter of "equity") in the face of the plain meaning of the statutory interplay between § 521 and § 554 and the express provisions of § 524. Simply put, the discharge is not relevant to the proper understanding of § 521(2). It has no bearing. There is no need to offer ungrounded hypothetical economics of the "situation." The discharge does what it does, but it does not purport to effect lien rights. Some other provision of the Code would have to, but other than the provisions mentioned (§§ 722, 522, perhaps 524(c)), none do. The only provision we have found that is relevant to the post-bankruptcy world of lien rights that were not affected in/by the bankruptcy world is § 554. Section 554 is a bankruptcy/federal law that gives the property back if it has been scheduled but not administered. Gives it back to the debtor as though fully administered. The "equitable" realization of the discharge as a ground for doing away with state law lien rights cannot work, conceptually or practically. Not only can it not work, but such an "equitable" promulgation in fact contravenes the plain meaning of § 554(c). How could the Code provide to give property back to a debtor if another section of the Code took away all of a debtor's post-bankruptcy rights in the property? It couldn't.
Reading § 521(2) as we do, alone and within the context of the entirety of § 521 and the Code, creates no potential for internal conflict. It works. Non-bankruptcy law has its effect pre-bankruptcy. Bankruptcy law takes over at the commencement of bankruptcy. If bankruptcy law is not used to administer property or to reaffirm, extinguish, modify state law rights, then it is to state law that the lien and property rights return to after full administration of the bankruptcy case. No politics. No social theory. No economic espousals.
(8) We Try To Tie Up
We think we know what § 521(2) means. The debtor must choose either to retain property securing consumer debt through one of the exclusive methods listed in § 521(2)(A), which is tantamount to choosing not to surrender, or must choose to abide by the general law of surrender as required by § 521(4) (which is tantamount to choosing not to use any of the methods made available by the Code to exclude the property from the surrender requirement).
Section 521(2)(C) has definite meaning. The general meaning, of course, is that if the Bankruptcy Code provides either the trustee or debtor with any rights in the property, a choice does not do away with those substantive rights. This means, most generally, that a debtor can probably change her mind. Redemption can become reaffirmation, or (oops, we forgot we claimed it as exempt) exemption and lien avoidance or surrender. Surrender can become reaffirmation (by agreement) or redemption, etc. Second, the automatic stay remains in effect until modified by order or operation of law. Third, regardless of the debtor's choice, the trustee's administrative rights are not affected, so that if there is equity, the property can be liquidated for the equity. The trustee can object to the exemption. If there be some arrangement that the trustee wishes to make with the creditor holding the lien rights, the choice of the debtor does not preclude the trustee from doing so. The creditor is not mentioned in § 521(2)(C); the creditor need not have been. The creditor's rights regarding the automatic stay are set forth in § 362.
Finally, § 521(2)(C) applies to protect the debtor's residual rights under § 554(c) in the event the property is not administered by the trustee. This right is a right provided under the Code. Presumably the creditor's rights in the lien will be whatever they will be under state law, once the bankruptcy process is finished. Again, there was no reason to include the creditor in § 521(2)(C), because it is the trustee and the estate with which the debtor is concerned, given the general surrender requirement of § 521(4).
This last point will be our last point here. The absence of reference to creditor is the final piece to our interpretive puzzle. We have argued that § 521(2) is concerned primarily with the question of whether the debtor will attempt to exclude property that otherwise must be surrendered to the trustee. The creditor is affected by the debtor's choice, perhaps. However, because § 521 deals with the debtor's duties to the estate (and trustee), the question of protecting rights is only relevant to the debtor and the trustee. The absence of creditor makes perfect sense.
The relations between the debtor and the creditor and between the trustee and the creditor, will be dealt with elsewhere. Section 521 sets out the baseline relationship between the debtor and the trustee. Section 521 is concerned with the bankruptcy administration that might or might not unfold from the commencement of the
(9) We Promised No More § 521 Opinions — How Can This Be?
The Way Our Interpretation Works
The litigation that has arisen probably cannot be helped within the fourth alternative circuits, nor can it be helped in the Edwards or Burr circuits (without en banc review). We are primarily interested in being right, and secondarily interested in not being reversed. We do admit, however, to a tangential interest in the prospect of no more waste of judicial and client resources and seeing the recognition of the proper contextual placement of state and federal law.
Under our interpretation of § 521(2), there is no question that there is no bankruptcy-generated (or judicially made up) right of reinstatement. Also, there is no question that unless a debtor intends to abide by the "surrender" requirement that is effective upon the commencement of the case, there are only three methods by which the bankruptcy process can be used to effect retention by the debtor of property of the estate, free and clear of the obligation to surrender. The three methods are those listed in § 521(2)(A). However, our interpretation of the statute (we think), because it properly defines "surrender" and puts it in its proper context, should do away with confusion about what it means to choose "surrender." Debtors (if courts use our work here) can choose "surrender" without fear of post-bankruptcy consequences, except those that would otherwise flow from the non-bankruptcy law rights and obligations arising from the contracts (and, if applicable, the fact of bankruptcy).
We harken back to the facts of Johnson. Remember the camcorder? Remember the debtors' argument, that they had the right to retain it until the trustee or some other party with the right to do so obtained possession? Because of the confused state of the law, the obvious intention of the creditor to impose post-bankruptcy obligations upon the debtor that would survive discharge, and the purportedly not confused (but nevertheless groundless) opinions promulgating the right of reinstatement, it was impossible for the Johnson debtors honestly (or accurately) to make their choice. The description of their supposed right was our definition of "surrender." Because "surrender" refers to the obligation to surrender property of the estate to the trustee, the Johnson debtors would have been absolutely correct in their explication of their right to remain in possession of the camcorder had they only chosen "surrender." Why did they not do so? Well, aside from the already mentioned "right of reinstatement" carrot, the debtors were a test case, made so by a creditor who likewise misread the law and believed that the choice of surrender by a debtor imposed post-petition bankruptcy-generated obligations upon the debtor, in favor of the creditor. The creditor believed that if it could press the debtors into a surrender choice, the choice could then be converted to a set of mandatory obligations (far outside of a creditor's state law rights and remedies) which, if not complied with, could bootstrap the creditor into a denial or revocation of discharge action (or at least the basis for a post-petition judgment of some sort upon the post-petition — i.e., not subject to discharge obligation).
Simple. What is more, the simplicity flows clearly from the plain meaning of the text of the statute. No playing equity god. No making up groundless rules. No use of the Bankruptcy Code as a leverage game. No waste of time or money.
Before we crow too loudly, though, we ought to address an anticipated criticism. "Why would anyone choose to reaffirm if § 521(2) means what you say it does?" Several reasons spring immediately to mind. First, the creditor does not have to keep taking the money from the debtor after commencement of the case, but can treat its claim as one against the estate, only.
Finally, we understand that we are a bankruptcy court, and that as the Johnson case shows, it is possible for debtors not to be current on payments on secured debt. If there is a default in payments, the only way the debtor could hope to obtain the right to keep the property post-bankruptcy is to reaffirm (assuming the beady-eyed creditor is willing to enforce the security interest during bankruptcy (after stay relief) or after bankruptcy on the basis of default).
There. There are three often-occurring situations, generating at least a real choice to be made — to reaffirm or not to reaffirm — with plenty of incentive (if the property is worth keeping for a debtor who can afford it) to reaffirm.
Another question that could be urged as an attempt to trip us up is "what happens if a debtor does not perform the stated intentions; huh? huh?" Frankly, we care very little about this, but do have some observations. First. If our analysis is used, the surrender choices will be properly understood to have been made vis a vis the trustee and will not be seen as imposing any post-petition obligation to or loss of rights in favor of the creditor. Therefore, a debtor who understands the incentive to reaffirm but rejects it in favor of surrender will remain protected by the automatic stay and will give up only what rights are generally given up by filing bankruptcy. If properly understood, "surrender" is, in fact, a choice that can be rationally made (as the term is understood by the caselaw we have discussed, it is "surrender" that a debtor would never choose). We therefore think that the "performance anxiety" would be greatly reduced; the choices would be clear. The making of the surrender choice is the performance of surrender, because the surrender choice is only the choice not to retain through the use of bankruptcy alternatives but to submit to the general requirement that property of the estate be surrendered to the trustee.
We think that there will be fewer performance problems rather than more, and we think that the failure to perform the reaffirmation, redemption, or exemption/lien avoidance choices are in fact self-curing in the bulk of Chapter 7 cases,
We look forward hopefully to the day when all that a creditor will have to complain about is the actual statute and the particular loan security agreement, and when all the debtor will have to complain about is the actual statute and the particular loan security agreement.
WE FINALLY DO TIE UP. THE LAIRS AND THEIR HOME
The Lairs chose "reaffirm" as the method of retention, but did not perform before the entry of discharge and closure of the case. The property was abandoned to them, as property fully administered, pursuant to § 554(c). They made and the bank accepted payments on the loan throughout the bankruptcy case so that when the parties came before the court, the home loan was current.
The loan and security documents contain no bankruptcy default clause. The only default provided for is non-payment. Were there a default clause that was enforceable under Louisiana law, we would be faced with a different situation, as our analysis compels the conclusion that nothing in the Bankruptcy Code invalidates default clauses in loan or security agreements, and therefore they are enforceable unless some bankruptcy avenue (redemption, reaffirmation, exemption/lien avoidance) has had a preemptive effect or unless applicable non-bankruptcy law applied in a non-bankruptcy forum renders them unenforceable.
With no bankruptcy default clause presented here, we are faced, squarely, with the consequence of our interpretation of § 521. We think that the fact is irrelevant to the question of whether the Lairs have a right to maintain the ownership and possession status that was returned to them by § 554(c). Our question is whether, given the absence of a default clause (within any of the agreements), it is in the Lairs' best interest for this Court to determine whether a post-discharge reaffirmation agreement is possibly enforceable. We conclude that it is not in their best interest for this Court to do so.
Because non-bankruptcy law provides no basis upon which the creditor can enforce the lien rights except for non-payment (perhaps other grounds, like failure to maintain insurance, etc., which are not relevant because we were not apprised of any such default), and because the Lairs were current as of the hearing, we can figure no basis upon which the bank can enforce the lien rights against the Lairs' property. If the Lairs subsequently default, the bank can proceed as it sees fit, subject to the discharge. If such a situation arises, the Lairs will be better off not having reaffirmed the debt because of the absence of personal liability. We offer no suggestion as to the social/economic pre-disposition of the Lairs regarding maintenance of the property, etc. It is not our place to argue their worthiness or worthlessness.
If the creditor (who doubtless controlled the format of the agreements) had wanted a bankruptcy default clause, one would have been contained in the agreements. If the creditor had wanted to provide practical incentive for timely reaffirmation, it would have (during the bankruptcy case) refused payments until an agreement was confected. Neither avenue was chosen, which is tantamount, in our way of thinking, to having made the choice to be exactly where the creditor is now — paired with a debtor who is liable in rem, but who is
Therefore, the case will be ordered closed, with the motion for approval of untimely reaffirmation agreement to be formally denied by separate Order, in conformity with these reasons.
The debtor shall:
So, says the Timbers court, the creditor is to be assured that the value of that entitlement, to be paid from the collateral, is preserved without diminution. The pre-bankruptcy status quo is to be maintained for the time it takes to get to the paying stage of the case at which time other express codal provisions are triggered, establishing the requirements of confirmation of a Chapter 11 plan (as it might affect the holder of a claim secured by property of the estate). We cannot address the thousands of cases dealing with the protection to which a secured creditor is entitled, or the various forms it can take. We think it not too difficult to formulate a general proposition that the creditor's claim should not be diminished in value, by the fact of the bankruptcy process (automatic stay, time factors, etc.), than it would be by the fact of applicable non-bankruptcy law and the diminution that would result from the necessity of utilizing that non-bankruptcy law to enforce the secured interest of the creditor upon the collateral (the catch, of course, is that any proceeding attempting to attain mimicry of a hypothetical enforcement action is dependent upon fallacy of presentation and adjudication, in that the presenters and deciders are human). To the extent of the potential additional harm to the creditor's property interest in property of the estate, over that which the creditor would suffer anyway, the value of the property interest of the creditor must be protected, or put back to fill in the value hole caused by the bankruptcy process.
In this title —
(15) "entity" includes person, estate, trust, governmental unit, and United States trustee[.] 11 U.S.C.A. § 101(15) (West 1999).
11 U.S.C.A. § 554 (West 1999).