Bank of Boston v. Burr

• Court: Court of Appeals for the First Circuit
• Decided: November 30, 1998
• Docket: 98-9007
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 98-9007



           IN RE: JAMES E. BURR AND KATHERINE A. BURR,



                             Debtors.



                     _____________________

                                

                        BANK OF BOSTON,

                                

                           Appellant,

                                

                               v.

                                

              JAMES E. BURR AND KATHERINE A. BURR,

                                

                           Appellees.


APPEAL FROM A JUDGMENT OF THE UNITED STATES 

BANKRUPTCY APPELLATE PANEL OF THE FIRST CIRCUIT


Before

                                

                      Stahl, Circuit Judge,

                     Lipez, Circuit Judge,

              and Reavley,* Senior Circuit Judge.


Matthew J. McGowan with whom Salter McGowan Swartz & Sylviawas on brief for appellants.

     Joel F. Soforenko for appellees.

     John Rao on brief for National Consumer Law Center, Inc.,

amicus curiae.


November 25, 1998


_____________________

*of the Fifth Circuit, sitting by designation.  STAHL, Circuit Judge.  This appeal presents a question of

statutory interpretation that has divided the circuits:  under 11

U.S.C.  521(2), must debtors in chapter 7 proceedings simply state

whether they intend to retain or surrender property of the estate

that is collateral for a consumer debt, or (if they intend to

retain the property) must they also elect and perform one of three

retention options specified in the statute?  The bankruptcy court

held that chapter 7 debtors wishing to retain property of this

nature need not elect or perform any of the specified retention

options, and the bankruptcy appellate panel ("BAP") affirmed,

albeit on a somewhat different basis.  We reverse.

                                I.

  On October 25, 1996, James and Katherine Burr filed a

chapter 7 petition.  At the time of their filing, the Burrs owed

First National Bank of Boston (now BankBoston and hereafter "the

Bank") approximately $8,000 on a consumer loan secured by a 1993

Pontiac minivan.  The debtors' payments under the loan agreement

were current, but the agreement provided that the filing of a

bankruptcy petition would constitute an event of default.

  On February 18, 1997, the Bank filed a motion to compel

the debtors to elect and perform one of three courses of conduct: 

(1) reaffirm their debt under the terms of the original loan

agreement (thus giving the bank recourse against them in the event

of a default post-discharge); (2) surrender the minivan; or (3)

redeem the minivan by paying the bank a lump sum corresponding to

the minivan's value.  The motion also set forth an alternative

request that, in the event the debtors should decline to reaffirm

the debt or to surrender or redeem the minivan, the Bank be

relieved from the automatic stay prescribed by 11 U.S.C.  362 so

that it might foreclose on its collateral in state court.  

  In support of its motion, the Bank argued that it was

entitled to relief under the plain language of 11 U.S.C.  521(2),

which provides:

  [I]f an individual debtor's schedule of assets

  and liabilities includes consumer debts which

  are secured by the property of the estate   



    (A) within thirty days after the date

  of the filing of a petition under chapter 7 of

  this title or on or before the date of the

  meeting of creditors, whichever is earlier, or

  within such additional time as the court, for

  cause, within such period fixes, the debtor

  shall file with the clerk a statement of his

  intention with respect to the retention or

  surrender of such property and, if applicable,

  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;



    (B) within forty-five days after the

  filing of a notice of intent under this

  section, or within such additional time as the

  court, for cause, within such forty-five day

  period fixes, the debtor shall perform his

  intention with respect to such property, as

  specified by subparagraph (A) of this

  paragraph; and



    (C) 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 . . . .



Debtors opposed the Bank's motion and asserted an entitlement under

the Bankruptcy Code to retain the minivan without performing the

retention-related options specified in  521(2)(A), so long as

their payments remained current under the original loan agreement.

  On February 25, 1997, the bankruptcy court (Queenan, J.)

tacitly rejected the Bank's claimed entitlement to surrender,

redemption, or reaffirmation (all agree that the minivan is

ineligible for exemption and avoidance of the Bank's security

interest) by entering an endorsed order requiring only that "the

Debtors . . . file a statement indicating whether they intend to

retain or surrender the collateral."  This order (which did not

address the Bank's alternative request for relief from the stay)

was consistent with Judge Queenan's published opinion in In re

Ogando, 203 B.R. 14 (Bkrtcy. D. Mass. 1996), where he had (1) held

that 11 U.S.C.  521(2) requires nothing more from a debtor than a

statement specifying "his intention either to retain or surrender

the collateral," id. at 17, and (2) indicated that a chapter 7

debtor may, as a "fourth option," retain the collateral simply by

remaining current on the payments under the original loan

agreement, see id.  The reasoning of In re Ogando mirrors, in all

relevant respects, the views of the Second, Fourth, Ninth, and

Tenth Circuits.  See In re Boodrow, 126 F.3d 43, 53 (2d Cir. 1997),

cert. denied, 118 S. Ct. 1055 (1998); In re Belanger, 962 F.2d 345,

347-48 (4th Cir. 1992); In re Parker, 139 F.3d 668, 672-73 (9th Cir.

1998), petition for cert. filed, 67 U.S.L.W. 3284 (Oct. 7, 1998)

(No. 98-618); and Lowry Fed. Credit Union v. West, 882 F.2d 1543,

1546-47 (10th Cir. 1989); see also 4 Collier on Bankruptcy,  521.10

(15th ed. rev. 1998) (endorsing the reasoning of these courts).  But

it has been rejected by the Fifth, Seventh, and Eleventh Circuits,

which hold that a chapter 7 debtor wishing to retain collateral

securing a consumer debt must elect and then perform one of the

retention options specified in  521(2)(A).  See In re Johnson, 89

F.3d 249, 250-52 (5th Cir. 1996) (per curiam); In re Edwards, 901

F.2d 1383, 1385-87 (7th Cir. 1990); and In re Taylor, 3 F.3d 1512,

1516-17 (11th Cir. 1993).

  The BAP affirmed, although it disapproved of the

bankruptcy court's tacit ruling that a chapter 7 debtor may retain

the collateral post-discharge simply by continuing to make payments

under the original loan agreement.  See In re Burr, 218 B.R. 267,

271-73 (1st Cir. BAP 1998).  Instead, it followed the approach

sketched in In re Mayton, 208 B.R. 61 (9th Cir. BAP 1997), where,

in a case preceding In re Parker, a Ninth Circuit BAP held (1) that 

debtors in the circumstances just described need only specify

whether they intend to surrender or retain the collateral, see 208

B.R. at 66-68; but (2) when the automatic stay of 11 U.S.C.  362

expires upon discharge, secured creditors may foreclose on the

collateral (so long as the bankruptcy was an event of default), seeid.  See In re Burr, 218 B.R. at 272-73.  This appeal followed.


II.

  We set to one side the dispute over whether debtors may

retain the collateral post-discharge if they remain current on

their payments under the original loan agreement, and begin by

noting that courts deciding whether the list of retention options

specified in 11 U.S.C.  521(2)(A) is exhaustive have interpreted

the statute in one of the three ways.  The first interpretation  

that the plain language of  521(2) contemplates retention options

beyond those specified in  521(2)(A)   is most forcefully

articulated in In re Parker.  There, the Ninth Circuit construed

 521(2)(A) to require only the filing of a statement of intention. 

See 139 F.3d at 673 ("[T]he only mandatory act is the filing of the

statement of intention, which the debtor 'shall' file."). 

  Then, "if applicable,"   that is, if the

  debtor plans to choose any of the three

  options listed later in the statute (claiming

  the property as exempt, redeeming the

  property, or reaffirming the debt)  the debtor

  must so specify in the statement of intention. 

  The debtor's other options remain available,

  as unambiguously stated in  521(2)(C): 

  "[N]othing in subparagraph[](A) . . . shall

  alter the debtor's or the trustee's rights

  with regard to such property under this

  title."



Id.

  The second interpretation   that 11 U.S.C.  521(2),

taken as a whole, is ambiguous   begins with the proposition,

stated in the opinion of the BAP, that  521(2)(A) mandates

election of one the specified retention options and that 

521(2)(B) directs performance of the elected option:

  Section 521(2) certainly requires the debtor

  to do certain things.  It mandates, interalia, that: (1) "the debtor shall file with

  the clerk a statement of his intention"; and

  (2) "within forty-five days after the filing

  of the notice of intent . . . the debtor shallperform his intention."  11 U.S.C.  521(2)(A)

  and (B) (emphasis added).  Putting  521(2)(C)

  aside, the language of  521(2)(A) and (B) is

  unambiguous.



In re Burr, 218 B.R. at 271.  By focusing on  521(2)(B)'s

requirement that the debtor's intention be performed within forty-

five days, the BAP thus rejected the view, exemplified by In re

Parker, that the statute unambiguously contemplates options beyond

those listed in  521(2)(A).  In the BAP's view, if the stated

intention need be performed within forty-five days, the retain-and-

keep-current option (which is not capable of "performance" within

forty-five days) simply cannot be said to have been plainly within

the contemplation of Congress.  See 218 B.R. at 271-73.

  Yet the BAP saw 11 U.S.C.  521(2)(C), which 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," as raising questions whether the

unambiguous requirements of  521(2)(A) and (B) are enforceable. 

See id. at 271.  Specifically, the BAP was concerned that reading

 521(2)(A) as setting forth exclusive retention options would

undermine  521(2)(C)'s directive that the statute not be read to

diminish rights otherwise available to debtors under the Bankruptcy

Code.  See id. at 272.  For instance,

  it is at least conceivable, if unlikely, that

  a collateralized loan within [11 U.S.C.]

   101(8)'s definition of "consumer debt" might

  lack an ipso facto clause [making the filing

  of a bankruptcy petition an event of default]

  or be nonrecourse.  If such were the case,

  dictating redemption, reaffirmation or

  surrender as exclusive options could effect a

  substantive alteration of the parties' rights. 

     

Id.

  The BAP continued:

       Moreover, redemption pursuant to 11

  U.S.C.  522(f) and 722, and reaffirmation

  pursuant to  524(c) et seq. are voluntary

  procedures.  Requiring the debtor to do either

  would also violate  521(2)(C).  Additionally,

  compelling the surrender of collateral when

  the debtor fails to perform his or her duties

  under  521(2)(A) or (B) causes a similar

  problem in light of the automatic stay's

  independent protection.



Id. (citations omitted).  This perceived incompatibility between

the requirements of  521(2)(A) and (B) and rights debtors

otherwise hold led the BAP, acting pursuant to  521(2)(C), to

decline to enforce these requirements: "[W]e conclude that the

bankruptcy court did not err in ordering that the debtors declare

whether they intended to retain or surrender the collateral   and

nothing more."  Id. at 273.

  The final interpretation   that the language of 11 U.S.C.

 521(2) unambiguously requires a debtor retaining collateral which

secures consumer debt to elect and then perform one of the

retention options specified in  521(2)(A)   is elaborated by Judge

Shadur in his dissenting opinion in In re Boodrow.  The essence of

this position is that the words "if applicable," as used in

 521(2)(A) ("the debtor shall file with the clerk a statement of

his intention with respect to the retention or surrender of such

property and, if applicable, specifying that such property is

claimed as exempt, that the debtor intends to redeem such property,

or that the debtor intends to reaffirm the debts secured by such

property") (emphasis added), should not be understood to mean that

a debtor need list one of the three later-specified retention

options only if he or she is electing it from the panoply of

options (some stated; others not) available to chapter 7 debtors. 

See id. at 57-59 (Shadur, J., dissenting).  Rather, the words "if

applicable" should be understood to mean that if retention is

selected from the two general options available (retention or

surrender), then the debtor must specify one of the three listed

retention options.  See id.  As Judge Shadur put it:

  [A] reading of the "if applicable" phrase    

  . . . to connote the existence of an

  unexpressed "fourth option" . . . demands an

  inordinately awkward use of the statutory

  language.  That construction reads the statute

  both (1) as though Congress had said that the

  statutorily identified options of exemption,

  redemption, or reaffirmation would be the only

  ones available solely if the debtor decides

  that one of those "is applicable" (something

  Congress certainly did not say) and (2) as

  though Congress had also said (as it also

  certainly did not) that some alternative other

  than those three choices was available if the

  debtor decided on such other alternative.  By

  contrast, it is perfectly conventional usage  

  and perfectly good English   for someone to

  employ the "if applicable" language in the

  statute as a shorthand way of calling for a

  choice between A and B and, only if B "is

  applicable," then a further choice among

  subsets of B.



Id. at 59.

  Judge Shadur bolstered his reading of the statute with a

number of additional observations.  Echoing the point emphasized by

the BAP in this case, he first noted that 11 U.S.C.  521(2)(B)'s

mandate of performance of the elected retention option within

forty-five days "is totally at odds with any concept of Congress

having contemplated a 'fourth option' involving a continued and

extended payout schedule that would run the length of the

underlying consumer debt contract   a period of many months (or

years) in most cases."  Id.  He next stated that "the absence from

the Bankruptcy Code of any provision that would expressly permit

the 'fourth option,'" id. at 60, in combination with the fact that,

at the time  521(2) was enacted, at least three courts had held

that a chapter 7 debtor had no right to continue performance under

a secured consumer debt contract absent creditor-approved

reaffirmation, see id. at 59-60, all but compels the conclusion

that the qualifying language of  521(2)(C) is "perfectly

consistent" with "limiting a Chapter 7 debtor to the three options

expressly articulated in Section 521(2)(A)," id. at 59.  

  Along these same lines, Judge Shadur also pointed out

that it would be the rare debtor indeed who would elect

reaffirmation or redemption over the unstated fourth option, which

neither requires a large lump sum payment (redemption) nor

resuscitates personal liability for the underlying debt post-

discharge (reaffirmation).  See id. at 60.  Why, then, would

Congress specify the seldom-to-be-used devices of redemption and

reaffirmation, but leave unspecified the option that would be

almost universally employed?  See id.  Judge Shadur concluded by

noting that, in the context of chapter 13 of the Bankruptcy Code,

Congress explicitly provided for a "cram down" provision by which

a debtor may retain property over the objection of a secured

creditor by keeping current on his or her payments.  See id. at 60-

61.  This, of course, strongly suggests that it would be improper

to infer congressional approval of a similar "cram down" option in

the present context:  "[W]hen Congress wants to provide for a 'cram

down' that enables a debtor to keep property over the objection of

a secured creditor, it knows full well how to do so."  Id. at 60.

                               III.

  The appellate positions of the parties are not

surprising.  The Bank urges us to follow the approach of Judge

Shadur and the Fifth, Seventh, and Eleventh Circuits and to declare

the retention options set forth in 11 U.S.C.  521(2)(A) both

unambiguously exhaustive and enforceable.  Debtors, ably assisted

by amicus curiae the National Association of Consumer Bankruptcy

Attorneys, counter with alternative arguments:  section 521(2)

either unambiguously countenances unstated retention options beyond

those specified in  521(2)(A) (per the Ninth Circuit), or it is

ambiguous (for the reasons stated by the BAP in this case) and

must, because of the "fresh start" policy underlying the Bankruptcy

Code, be interpreted to allow for the unspecified, fourth, retain-

and-keep-current option (per the Second, Fourth, and Tenth

Circuits).  We are persuaded by the Bank's argument.

  As an initial matter, we reject the claim that 11 U.S.C.

 521(2) unambiguously contemplates retention options other than

those specified in the statute.  For one thing, the only non-

specified retention option posited by the debtors is the retain-

and-keep-current option, and that option is not, as many courts

have recognized, capable of performance within forty-five days of

the filing of the statement of intention, as  521(2)(B) requires. 

See, e.g., In re Boodrow, 126 F.3d at 59 (Shadur, J., dissenting);

In re Taylor, 3 F.3d at 1516.  For another, we completely agree

with Judge Shadur, for the reasons he sets forth, that it would be

"inordinately awkward" to read  521(2)(A) as connoting the

existence of at least one, unspecified, fourth option.  See In re

Boodrow, 126 F.3d at 59 (Shadur, J., dissenting).  We also agree

that it is perfectly conventional usage, and perfectly good

English, for Congress to have phrased  521(2)(A) in the way it did

because it intended chapter 7 debtors to elect surrender or

retention, and then, "if" retention is "applicable," to specify

which of the following three retention options they intend to

employ.  See id.  In so ruling, we reject the debtors' argument

that the reading we adopt renders the words "if applicable"

redundant.  See In re Belanger, 962 F.2d at 348.  While the point

might be obvious, the phrase "if applicable" makes completely

explicit that, in the event of a surrender of collateral,

exemption, reaffirmation, and redemption will have no application. 

  We are left, then, to consider whether 11 U.S.C.

 521(2)(C) should cause us to decline to enforce the directives of

 521(2)(A) and (B).  Following the lead of the BAP below, debtors

and amicus suggest that enforcing these directives would deprive

debtors of rights they otherwise enjoy, in contravention of

 521(2)(C).  We disagree.  Section 521(2)(C) merely acts to make

supreme over the directives of  521(2)(A) and (B) rights conferred

upon the trustee and debtor elsewhere in the Bankruptcy Code.  Seeid. ("[N]othing in subparagraphs (A) and (B)of this paragraph shall

alter the debtor's or the trustee's rights . . . under this title. . . .") (emphasis supplied).  When this is properly understood,

any appearance of self-contradiction evaporates.  Chapter 7 debtors

do not, of course, enjoy a freestanding right under the Bankruptcy

Code to retain property securing a consumer debt merely by keeping

current on their payments under old loan agreements.  Nor do they

maintain a freestanding right under the Code to maintain with their

secured creditors advantageous arrangements in place prior to

filing.  For this reason, we see as beside the point the BAP's

concern that giving effect to  521(2)(A) and (B) might alter the

rights of those extraordinarily rare debtors with consumer loan

agreements that are either nonrecourse or that lack ipso facto

clauses.  After all, any such rights altered by operation of the

directives of  521(2)(A) and (B) do not derive from the Bankruptcy

Code; they are enforceable only under state law.  And the loss of

such state law rights is one of the costs of a chapter 7 discharge.

  Nor do we see a contradiction between 11 U.S.C.

 521(2)(C) and either the voluntary nature of redemption and

reaffirmation or the automatic stay of 11 U.S.C.  362.  We do not

doubt that redemption is beyond the means of most chapter 7

debtors, and that chapter 7 debtors wishing to retain consumer

goods on which they owe money will, as a practical matter, be

compelled to enter into reaffirmation agreements with their secured

creditors.  Nor do we doubt that some oversecured creditors may use

their superior bargaining power to attempt to impose additional,

creditor-friendly terms in any new agreement.  But strictly

speaking, debtors are never "forced" to enter into reaffirmation

agreements; they can always surrender the property and be

discharged of the underlying debt.  Or, rather than filing for

chapter 7 protection, debtors can petition to reorganize under

chapter 13 and take advantage of the cram down provision available

to chapter 13 petitioners.  See 11 U.S.C.  1325(a)(5)(B).  Again,

we emphasize that a chapter 7 discharge is a benefit that comes

with certain costs.  

  With respect to the perceived contradiction between

"involuntary" surrender and the automatic stay, we perhaps would

have cause for concern if, in fact, the effect of 11 U.S.C.

 521(2) were that most debtors were forced to surrender their

collateral.  But as amicus itself recognizes, 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

then disposing of, surrendered collateral.  See Amicus Brief at 19-

22 (acknowledging the incentives most creditors have to enter

reaffirmation agreements).  Moreover, one court has supportably

concluded that a chapter 7 debtor complies with 11 U.S.C.

 521(2)(A) and (B), and therefore is entitled to retain the

property in question, simply by offering to reaffirm under the old

contractual terms, attempting in good faith to negotiate a

reaffirmation agreement with the creditor, and taking all steps

otherwise necessary to reaffirm a debt under  524.  See In re

French, 185 B.R. 910, 914 (Bkrtcy. M.D. Fla. 1995); but cf., e.g.,

In re Turner, 156 F.3d 713, 718-21 (7th Cir. 1998) (chapter 7

debtors' unilateral statements of reaffirmation, filed without

notice to or the consent of creditors, were not valid reaffirmation

agreements under  521(2)(A)).  We need not and do not decide

whether In re French was correctly decided; we only observe that

the regime unambiguously prescribed by  521(2)(A) and (B) does not

so clearly undermine a chapter 7 debtor's other Code-conferred

rights as to be unenforceable. 

  We conclude with two miscellaneous points responsive to

arguments made in the parties' briefs.  First, we are distinctly

unimpressed with the tentative and unelaborated suggestion of

amicus that 11 U.S.C.  521(2)(A)'s reference to exemption as a

retention option, along with its concomitant failure to mention 

522(f)'s lien avoidance procedure as yet another retention option,

is tantamount to a textual endorsement of the retain-and-keep-

current option.  There is no suggestion in the Code that a debtor

can exempt property by making payments under a pre-petition loan

agreement, and lien avoidance is just that   lien avoidance.  It is

not, in and of itself, a retention option.  Second, because we

resolve this case on the plain language of the statute, we have no

need to plumb the sparse legislative history or to resolve the

parties' fundamental disagreement about whether enforcement of 

521(2)(A) and (B) would further, or undermine, the general policies

of the Bankruptcy Code.  We do observe, however, that nothing in

the legislative history militates against the result we reach

today.  Nor does our ruling run counter to policy judgments plainly

underlying the Code.

                               IV.

  For the reasons stated, we believe that 11 U.S.C.

 521(2) unambiguously requires chapter 7 debtors wishing to retain

property of the estate that secures a consumer debt to elect one of

the retention options specified in 11 U.S.C.  521(2)(A), and then

to perform the elected option in accordance with 11 U.S.C.

 521(2)(B). We therefore reverse and remand to the BAP for further

proceedings consistent with this opinion.

  Reversed and remanded.  No costs.