Court Finds Ride-Through Not Available with respect to Real Property

Posted by NCBRC - July 12, 2013

In In re Jeanfreau, No. 13-50015 (Bankr. S.D. Miss. June 12, 2013), the mortgagee moved to compel compliance with section 521(a)(2), and to delay discharge of the debtor’s chapter 7 bankruptcy due to the debtor’s failure to reaffirm the mortgage on her home. Ms. Jeanfreau was current on her payments under the mortgage and had equity in the home. On her section 521(a)(2) “statement of intention,” she indicated that she intended to retain the property but did not elect to either “redeem” or “reaffirm” the debt. Instead she checked “other” and noted that she intended to maintain regular payments on the mortgage outside of bankruptcy without reaffirming.In finding that ride-through was not available to the debtor, the court relied on precedent set by the 1996 decision in Johnson v. Sun Finance Co. (In re Johnson), 89 F.3d 249 (5th Cir.), which, in turn, agreed with Taylor v. AGE Federal Credit Union (In re Taylor), 3 F.3d 1512 (11th Cir. 1993). Both Johnson and Taylor involved debts secured by personal property. The Johnson court recognized that circuits were split on the issue of the availability of ride-through as a fourth option outside of those provided by section 521 (surrender, redeem or reaffirm). Accord In re Covel, 474 B.R. 702 (Bankr. W.D. Ark. 2012) (listing pre-BAPCPA circuit cases representing both sides of the issue). Many of those pre-BAPCPA decisions rested on interpretation of the phrase “if applicable” in section 521. See, e.g., McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668 (9th Cir. 1998); Home Owners Funding Corp. of Am. v. Belanger (In Re Belanger), 962 F.2d 345, 347-49 (4th Cir.1992).  The Johnson court, however, concluded that the mandatory language, “the debtor shall file with the clerk a statement of his intention,” in the pre-BAPCPA section 521 precluded the fourth, unwritten, option.

The Jeanfreau court then turned to the impact of the BAPCPA amendments on the Johnson decision. Walking through some of the relevant new provisions, the court noted that section 521(a)(6) specifically provides that a debtor may not retain possession of personal property unless the debtor has selected one of the three options in section 521(a)(2)(A), and the hanging paragraph to section 521(a)(2)(B) provides that nothing in (A) or (B) alters the debtor’s rights except as provided for in section 362(h) which, in turn, provides that the automatic stay is terminated with respect to personal property in the event that the debtor fails to file a timely statement of intention as required by section 521. Based on these changes to the Code, courts have generally found that ride through is no longer available where a debt is secured by personal property. See, e.g., DaimlerChrysler Fin. Serv. Amer. v. Jones (In re Jones), 591 F.3d 308 (4th Cir. 2010); Dumont v. Ford Motor Credit Co. (In re Dumont), 581 F.3d 1107 (9th Cir. 2009); In re Harris, 421 B.R. 597 (Bankr. S.D. Ga. 2010) (BAPCPA clearly eliminated ride through for personal property); In re Linderman, 435 B.R. 715, 716-17 (Bankr. M.D. Fla. 2009).

Despite the fact that the property at issue in Jeanfreau was real property rather than personal property, the court found that because the BAPCPA amendments did not change the mandatory language relied on in Johnson, they did not abrogate that court’s holding and did not eliminate the precedential mandate established by that case. See also In re Harris, 421 B.R. 597 (Bankr. S.D. Ga. 2010) (finding that BAPCPA clearly eliminated ride through for personal property and did not change the reasoning in Taylor which demands that ride through is also unavailable where real property is involved).

Though, as found by the Jeanfreau court, the language of Johnson and Taylor may be broad enough to encompass real property, the fact that Congress specifically circumscribed only personal property, arguably supports a finding that ride-through is available where real property is concerned. In re Covel, 474 B.R. 702, 708 (Bankr. W.D. Ark. 2012) (“By not making corresponding changes concerning real property, Congress appears to tacitly recognize a ride through option for real property.”). See also In re Lopez, 440 B.R. 447, 448 (Bankr. E.D. Va. 2010) (denying debtor’s motion to approve reaffirmation agreement because it was not in debtor’s best interest and “Congress changed, but did not entirely eliminate, the ride-through provisions that existed before the 2005 amendments in the Bankruptcy Abuse Prevention and Consumer Protection Act. In re Donald, 343 B.R. 524 (Bankr.E.D.N.C.2006). It did not eliminate the ride-through for debts secured by real property. In re Waller, 394 B.R. 111 (Bankr.D.S.C.2008); In re Wilson, 372 B.R. 816 (Bankr.D.S.C.2007); In re Bennet, 2006 WL 1540842 (Bankr.M.D.N.C.2006).”); In re Caraballo, 386 B.R. 398, 402 (Bankr. D. Conn.2008).

Ms. Jeanfreau filed a notice of appeal in this case on June 20. Where the bankruptcy court felt bound by precedent, it will be interesting to follow this case on appeal.

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One Comment

  • Posted July 17, 2013 at 1:04 pm | Permalink

    This is very interesting. If the Bankruptcy Court is going to force a Debtor to reaffirm at the creditor’s request then the Bankruptcy Court should also force the Creditor to take back the real property at the Debtor’s request and/or provide relief to the Debtor for certain post-petition debts that arise like HOA dues and real estate taxes. Many debtors who intend on surrendering and actually do surrender and vacate become saddled with recurring post-petition real property debts.

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