Sandra Kaye McMullen

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
FAYETTEVILLE DIVISION
IN RE:
SANDRA KAYE MCMULLEN
DEBTOR
CASE NO.
09-09518-8-SWH
ORDER REGARDING APPLICABILITY
OF 11 U.S.C. §§ 521(a)(6), 521(a)(2)(C), 521(d) AND 362(h)
The matter before the court is the debtor Sandra Kaye McMullen’s motion to determine
whether 11 U.S.C. §§ 521(a)(6), 521(a)(2)(C), 521(d) and 362(h) are applicable to the claim of
Pentagon Federal Credit Union (“Pentagon”), secured by a 2005 Mazda, in her chapter 7 case. A
hearing was held in Raleigh, North Carolina, on April 21, 2010, at which time the court gave the
parties the opportunity to submit formal briefs. The debtor filed a brief, Pentagon filed a responsive
brief, and, at the invitation of the court, an amicus brief was filed by another of the debtor’s
creditors, Coastal Federal Credit Union (“Coastal”). The debtor filed a reply brief, and the matter
is now ripe for disposition.
SO ORDERED.
SIGNED this 03 day of September, 2010.
________________________________________
Stephani W. Humrickhouse
United States Bankruptcy Judge
____________________________________________________________
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For the reasons that follow, the court holds that section § 521(a)(6) is not applicable to the
Pentagon claim in this case, but that §§ 362(h), 521(a)(2)(C), and 521(d) do apply, as discussed
below.
BACKGROUND
The facts are not in dispute. The debtor filed a petition under chapter 7 of the Bankruptcy
Code on October 30, 2009. The debtor also timely filed a Chapter 7 Debtor’s Individual Statement
of Intention indicating that she would, by reaffirming the debt, retain a 2005 Mazda automobile on
which Pentagon has a lien. Pentagon did not file a claim.
The first scheduled § 341 meeting was set for December 18, 2009, and the debtor entered
into the reaffirmation agreement on December 30, 2009, thereby complying with the applicable time
requirements of 11 U.S.C. §§ 521(a)(2)(A) and 362(h)(1)(B). The reaffirmation agreement stated
that the debtor agreed to reaffirm the debt to Pentagon in the amount of $8,205.84, and that the
original purchase price of the Mazda was $20,087.45.
The debtor’s attorney did not sign the reaffirmation agreement. 	After the reaffirmation
agreement was filed with the court, the debtor rescinded the agreement. 	At that time, the debtor
also filed the instant motion along with a motion to delay entry of discharge and to confirm that the
stay remains in effect. The debtor filed the motion to delay discharge and for continuation of the
stay, which the court allowed, in order to protect her ability to enter into another reaffirmation
agreement with Pentagon in the event that the court ruled that one or more of the aforementioned
statutes is applicable, and to file that reaffirmation agreement prior to the entry of discharge.
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DISCUSSION
The questions raised in this matter would most appropriately be asserted in an adversary
proceeding because what the debtor seeks is, in reality, a declaratory judgment as to the applicability
of these statutes. However, because no party objected and each party has, instead, fully participated
through their appearance at the hearing and filing of briefs, the protections afforded by an adversary
proceeding are present and the court will consider the questions raised in the context of a contested
matter.
The Parties’ Interpretation of the Issues and Involved Statutes
The issue presented arises out of the interaction between §§ 362(h)(1)(A) and (B) (when
does the automatic stay terminate) and § 521(d) (when is an ipso facto clause enforceable), but the
parties frame it somewhat differently. Because the crux of the matter comes down to subtleties in
the statutory language and in the interpretation of it, it is worthwhile first to set out the issue as
articulated by each of the parties. The debtor sees the question presented as follows:
In order for the automatic stay to lift in accordance with 11 U.S.C. § 362(h)(1), is it
sufficient for a chapter 7 debtor simply to fail to comply with either § 362(h)(1)(A)
or § 362(h)(1)(B), or does a proper interpretation of these subsections require that a
debtor must fail to comply with both § 362(h)(1)(A) and § 362(h)(1)(B) before the
stay lifts thereunder?
Brief of Debtor at 1 (emphasis added). Pentagon construes it as follows:
Can a consumer debtor in a [chapter 7 case] evade enforcement of an ipso facto
clause under . . . a security agreement under § 521(d) by merely stating an intent to
reaffirm debt secured by collateral under § 362(h)(1)(A) without also performing his
statement under § 362(h)(1)(B)?
Creditor’s Brief in Opp. at 1. And, finally, Coastal frames the issue this way:
Following [the BAPCPA revisions to the Bankruptcy Code], does the automatic stay
lift to permit a creditor to enforce an “ipso facto clause” under applicable state law
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if the debtor timely files a statement of intention to reaffirm the debt in question but
fails to also timely perform that stated intention?
Amicus Curiae Mem. of Law in Response to Debtor’s Mot. at 1.
Before delving further into the parties’ interpretations of it, we look next to the language of
the statutes themselves. Section 362(h) provides:
(h)(1) In a case in which the debtor is an individual, the stay provided by
subsection (a) is terminated with respect to personal property of the estate or of the
debtor securing in whole or in part a claim, or subject to an unexpired lease, and such
personal property shall no longer be property of the estate if the debtor fails within
the applicable time set by section 521(a)(2)--
(A) 	to 	file 	timely 	any 	statement 	of 	intention 	required 	under
section 521(a)(2) with respect to such personal property or to indicate in such
statement that the debtor will either surrender such personal property or
retain it and, if retaining such personal property, either redeem such
personal property pursuant to section 722, enter into an agreement of the
kind specified in section 524(c) applicable to the debt secured by such
personal property, or assume such unexpired lease pursuant to section 365(p)
if the trustee does not do so, as applicable; and
(B) to take timely the action specified in such statement, as it may be
amended before expiration of the period for taking action, unless such
statement specifies the debtor’s intention to reaffirm such debt on the original
contract terms and the creditor refuses to agree to the reaffirmation on such
terms.
11 U.S.C. § 362(h)(1)(A) and (2) (emphasis added).
Section 521(d) provides:
(d) If the debtor fails timely to take the action specified in subsection (a)(6) of this
section, or in paragraphs (1) and (2) of section 362(h), with respect to property
which a lessor or bailor owns and has leased, rented, or bailed to the debtor or as to
which 	a 	creditor 	holds 	a 	security 	interest 	not 	otherwise 	voidable 	under
section 522(f), 544, 545, 547, 548, or 549, nothing in this title shall prevent or limit
the operation of a provision in the underlying lease or agreement that has the effect
of placing the debtor in default under such lease or agreement 	by reason of the
occurrence, pendency, or existence of a proceeding under this title or the insolvency
of the debtor. Nothing in this subsection shall be deemed to justify limiting such a
provision in any other circumstance.
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11 U.S.C. § 521(d) (emphasis added).
In summary, if the stay is lifted under § 362(h), any ipso facto clause contained in a secured
creditor’s agreement is enforceable. Attention, therefore, must be focused on the circumstances
under which the stay is terminated or remains in place pursuant to § 362(h). In the context of this
statutory language, if all three versions of the issue presented and the parties’ discussions of it in
their briefs are overlaid, the commonality proves to be this: 	Does the word “and” between
subsections (A) and (B) mean a debtor must comply with both subsections (A) (file a statement
indicating an intent to reaffirm and enter into the agreement) and (B) (take the action specified in
the agreement) in order to benefit from the protection of the automatic stay, or, must the debtor fail
to comply with both subsections in order to lose the protection of the automatic stay? 	The debtor
argues the latter interpretation, and contends that a debtor may comply with both, or either, of the
subsections, and still receive the benefit of the automatic stay. The creditors, in contrast, construe
the statute to mean that a debtor must successfully comply with both (A) and (B) in order to avoid
termination of the stay, such that compliance with one provision, or none, results in the stay lifting.
The debtor interprets the statute to provide that a debtor must, in essence, successfully fail
to comply with both (A) and (B) in order for the automatic stay to lift. So, if the debtor complies
with both (A) and (B), or with either one, the debtor reasons, the stay remains in place. Going
further still, the debtor argues that she can satisfy the statute by filing the statement of intent even
if, to the contrary, she specifically intends to refrain from taking the action specified within it, or
intends merely to try to negotiate and enter into a beneficial reaffirmation agreement. According
to the debtor,
[i]t might be questioned why a debtor should be required to state an intention to
reaffirm or redeem property, if filing of such a statement does not carry with it an
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obligation to actually perform the intention. Could not a debtor simply indicate an
intention to reaffirm, while actually intending all-the-while to exercise a right to
“ride-through”? The answer, of course, is yes, but such a possibility should not in-
and-of-itself lead to an interpretation of § 362(h)(1) that is inconsistent with the plain
meaning. Furthermore, it will likely always be the intention of a debtor to reaffirm
a debt, provided an agreement may be negotiated which is actually beneficial to the
debtor . . . . It is only if the creditor would insist on terms which are burdensome, or
which are not overall beneficial to the debtor, that the debtor might change his
intention and opt for a less-risky “ride-through.”
Debtor’s Brief at 18.
Finally, although the debtor advocates a plain reading of § 362(h) and recognition of a
statutory ride-through, she also discusses, at length, the extent to which BAPCPA did or did not
preclude judicial ride-through, the nature of a “proper” statement of intention, and the legislative
history of § 362(h). Debtor’s Brief at 8. 	For the reasons that follow, the court does not need to go
down these analytical side roads because, in the court’s view, the debtor simply misreads the plain
language of the statute.
Statutory Interpretation
BAPCPA’s drafters were generous in offering to bankruptcy courts a bounty of interpretive
opportunities. 	With § 362(h), we embark on interpretation of the statutory inverse negative. In
construing a statute, the “‘court should always turn first to one, cardinal canon [of construction]
before all others’: the plain meaning rule.” 	Ayes v. U.S. Dept. of Veterans Affairs, 473 F.3d
104, 108 (4th Cir. 2006) (alteration in original) (quoting Conn. Nat’l Bank v. Germain, 503 U.S.
249, 253 (1992)), cert. denied, 552 U.S. 989 (2007), quoted in Coastal Federal Credit Union v.
Hardiman, 398 	B.R. 161, 167 (E.D.N.C. 2008). 	Application of the rule requires the court to
consider “the context in which the statutory words are used because [courts] do not construe
statutory phrases in isolation; [courts] read statutes as a whole.” 	Hardiman, 398 B.R. at 167
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(alteration in original and internal quotation omitted). What the court cannot do, in a plain meaning
analysis, is look beyond statutory language that is “unambiguous,” or a statutory scheme that is
“coherent and consistent.” Hardiman, 398 B.R. at 167 (quoting Barnhart v. Sigmon Coal Co., 534
U.S. 438, 450 (2002)). 	“Coherent and consistent” are not the most apt descriptors of BAPCPA’s
statutory scheme as a whole, but the specific statutory language before the court in this matter is,
in the BAPCPA context, relatively straightforward.
The debtor maintains that the “plain meaning” of § 362(h)(1) “clearly indicates that
§§ 362(h)(1) and 521(d) are not implicated unless the debtor fails both to timely file a proper
statement of intention and ‘to take timely the action specified[.] 11 U.S.C. §§ 362(h)(1)(A) and
(B).’” Debtor’s Brief at 13 (emphasis added). 	In arguing that compliance with either one of the
§ 362(h)(1)(A) and (B) subsections is sufficient under the statute to warrant maintenance of the stay,
the debtor must mean that only the filing of a statement of intention required by subsection (A) is
necessary, because compliance with (B) is impossible without first complying with (A). 	This
interpretation of the statute, however, is at odds with another of the most basic precepts of statutory
construction: “In construing a statute, we are obliged to give effect, if possible, to every word
Congress used.” 	Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979), quoted in In re Balbus,
933 F.2d 246, 251 (4th Cir. 1991). 	This particular interpretation of the statute would enable a
debtor to completely ignore subsection (B) as meaningless and thus would, impermissibly,
“contradict well-established principles of statutory interpretation that require statutes to be construed
in a manner that gives effect to all of their provisions.” U. S. ex rel. Eisenstein v. City of New York,
129 S. Ct. 2230, 2234 (2009) (citing cases); In re Bateman, 515 F.3d 272, 278 (4th Cir. 2008)
(noting the “general rule that ‘courts should disfavor interpretations of statutes that render language
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superfluous’”) (citations omitted). If, in fact, the language of § 362(h) plainly and clearly allows
a debtor to choose either one of its two subsections for compliance, why would the choice of the
second subsection only be impossible?
The statute says – in this sequence – that the stay terminates if the debtor fails to timely
accomplish (A) and (B). The sequence informs the reading, much as application of the appropriate
order of operations is crucial in working a mathematical equation. If this sentence were written in
a numerical format, there would be brackets to indicate that subsections (A) and (B) are cumulative:
No stay if no [A + B]. The statute does not say that the debtor must accomplish (A) and/or (B) in
order for the stay to remain in place. The starting point of this statute is the presumptive termination
of the stay. The termination occurs if (not “unless,” but “if”) the debtor does not file the statement
of intention and enter the agreement, and take the action specified in the statement. 	Further, as is
discussed above, the subsections must be read as [A + B], because B cannot be accomplished
without A. This analysis “gives effect to the logical sequence of the language used.” Bateman, 515
F.3d at 277 (internal quotations and citations omitted).
What the debtor’s interpretation really does is incorporate the word “not” at the beginning
of the statute, thus flipping the statute’s operation. According to the debtor: “The automatic stay
does NOT lift pursuant to § 362(h)(1) UNLESS the debtor BOTH fails to file timely a ‘proper’
statement of intention under § 362(g)(1)(A) AND fails to timely enter into a reaffirmation
agreement . . . in accordance with § 362(h)(1)(B).” Debtor’s Brief at 14 (capitalization added). The
debtor’s numerically formatted sentence would read: Stay unless no A and/or no B.
That is not what the statute says. The statute says that the stay IS terminated IF a debtor fails
to file the required statement per subsection (A), AND to take the action specified in the statement
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1 In In re Jones, 591 F.3d 308, 311 (4th Cir. 2010), the court of appeals clearly expressed its view that
“BAPCPA amended Title 11 to eliminate the ride-through option that we recognized in In re Belanger.” The
debtor argues that even if Belanger-style ride-through was precluded by BAPCPA, the statute does not
necessarily preclude other forms of ride-through, including the statutory variant which is, according to the
debtor, authorized by the plain language of § 362(h). 	The court disagrees with the debtor’s interpretation
of § 362(h) but does agree that Jones does not stand for the proposition that “judicial” or “back door” ride-
through is gone for good.
The Jones court did not consider that question, but included this thought-provoking observation:
“Because Mr. Jones did not take any action to reaffirm or redeem, we have no occasion to address the ‘back
door ride-through’ option that some courts have recognized where the debtor has substantially complied with
§§ 521(a)(2) and 362(h) but has been frustrated in his effort to fully comply.” 591 F.3d at 312 n.3. Thus,
to the extent that a ride-through door remains ajar in this circuit, the path to and potentially through that door
appears to be through substantial compliance.
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per subsection (B). It isn’t so much the word “and” that drives the debtor’s construction of the
statute, but rather the debtor’s conflated assumption that the stay will NOT terminate, UNLESS the
debtor fails to do not one, but two things. To the contrary: the stay WILL terminate, IF the debtor
fails to do not one, but two things, namely (A) and (B). Doing one or the other, but not both, is not
enough. The statute says “and” because a debtor must comply with both (A) and (B), otherwise the
stay is terminated. A creditor may then be entitled to enforce an ipso facto clause, if one is included
in the contract.
The court’s analysis of the statute “ceases ‘if the statutory language is unambiguous and the
statutory scheme is coherent and consistent.’” Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450
(2002) (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997)), quoted in Hardiman, 398 B.R.
at 167. The only way it is proper for the court to look outside the language of the statute itself would
be if the question raised created the ambiguity necessary to warrant examination of related
precedent, legislative history, and other sources commonly examined by courts. So, while the
debtor goes to great lengths to explain why ride-through is not necessarily precluded by the statute, 1
the court has no grounds on which to even pursue that line of reasoning.
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Accordingly, the court rests its holding on the plain language of the statute. However, the
particular facts of this case warrant some further discussion of the statute as applied to the facts. As
discussed above, the debtor’s construction of §§ 362(h)(1)(A) and (B) makes the requirement set
out in subsection (B) essentially meaningless. The debtor’s construction of the statute also raises
questions about the significance, if any, of the debtor’s actual intent. To the extent that the debtor
infers from the statute that it is permissible to file a statement of intent without actually having any
present intent of taking the stated action, and with the present intent of taking some other, different
action that will defeat the stated intent, the court disagrees. The good faith requirement inherent in
all aspects of the Bankruptcy Code should preclude a debtor from filing a statement of intent to
reaffirm and then entering into the reaffirmation agreement solely to further some other, and
different, purpose of the debtor.
More particularly, in § 521, which outlines a debtor’s duties, § 521(a)(2)(B) calls on a debtor
to perform, within 30 days after the first date set for the meeting of creditors under § 341(a), his
intention with respect to the property securing the debt that he has, under § 521(a)(2)(A), stated his
intent to reaffirm. Whether the debtor in fact had no intent to perform the agreement she entered
into is not entirely clear. She argues that a lack of intent is acceptable, but does not go so far as to
profess her own lack of intent to perform the agreement with Pentagon.
To expect a debtor to undertake the duty prescribed by § 521 with the intent of seeing it
through is not unreasonable and appears so self-evident, in this context, that articulation of that
requirement should not be necessary. The court’s reasoning does not extend so far as to limit a
debtor’s ability to change his mind, which is specifically countenanced by the statutory provision
allowing a debtor to unilaterally rescind the agreement within sixty days of the date of its filing or
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at any time before a discharge is entered, whichever occurs later. § 524(c)(4). 	The court is well
aware that a debtor’s circumstances may change and thus affect the debtor’s decisions in connection
with the bankruptcy case. That may well include the advisability of taking the action they forecast
in the context of § 362(h)(1). 	That scenario, however, is qualitatively different from the one
proposed by this debtor, which is that a debtor may “indicate an intention to reaffirm, while actually
intending all-the-while to exercise a right to ‘ride-through.’” Debtor’s Brief at 18.
Last, the court turns to the applicability of § 521(a)(6), which presents an easier question.
Section 521(a)(6) provides that an individual chapter 7 debtor may not “retain possession of personal
property as to which a creditor has an allowed claim for the purchase price” unless the debtor
complies with the remaining requirements of that statute. 11 U.S.C. § 521(a)(6). See In re Donald,
343 B.R. 524, 535-6 (Bankr. E.D.N.C. 2006) (holding the term “allowed” is significant and cannot
be ignored).
The Donald court noted that for a claim to be “allowed,” a proof of claim must be filed,
which is “a reasonable prerequisite to receiving the relief afforded by § 521(a)(6).” 343 B.R. at 536.
Pentagon did not file a proof of claim, from which it follows that Pentagon does not have an
“allowed claim.” Further, “even if a creditor does file a proof of claim and the claim is deemed
allowed, the claim must be ‘for the purchase price’ of the personal property at issue,” which the
court construed to mean the “full” purchase price. 	343 B.R. at 536. 	In this case, the debtor’s
indebtedness is for an amount that is less than the purchase price. Neither creditor takes serious
issue with the debtor’s argument that § 521(a)(6) does not apply in this case, and the court agrees
with the debtor that § 521(a)(6) is inapplicable on these facts.
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CONCLUSION
For the foregoing reasons, the court concludes that § 521(a)(6) does not apply on the facts
of this case, but that the remaining statutes, namely §§ 521(a)(2)(C), 521(d) and 362(h), are
applicable in the context of the debtor’s decision to reaffirm, redeem, or relinquish the personal
property securing her debt to Pentagon. As provided in the court’s order of March 12, 2010, the
debtor’s discharge in this case will be delayed for a period of 30 days following the date of the entry
of this order, during which time the debtor may choose to file a reaffirmation agreement concerning
the Pentagon debt. Also as provided in the order of March 12, 2010, the automatic stay as against
Pentagon shall remain in full force and effect until the earlier of the entry of discharge of the debtor
or entry of an order closing the case.
SO ORDERED.
END OF DOCUMENT
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