Maria Esther Quintero

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 06-40163 TK
Chapter 7
MARIA ESTHER QUINTERO,
Debtor.
___________________________/
MEMORANDUM OF DECISION
This 	Memorandum 	addresses 	the 	consequences 	of 	a 	secured
creditor’s failure to provide a chapter 7 debtor in a case subject to
the Bankruptcy Abuse and Consumer Protection Act of 2005 (“BAPCPA”)
with the disclosures required by 11 U.S.C. § 524(k). 	For the reasons
stated below, the Court denies the above-captioned debtor’s request
that 	it 	approve 	her 	reaffirmation 	agreement 	with 	National 	Auto
Finance 	(“National”). 	The 	Court 	also 	holds 	that 	National 	may 	not
repossess 	its 	collateral 	as 	a 	result 	of 	the 	Court’s 	failure 	to
approve 	the 	reaffirmation 	agreement. 	The 	reasons 	for 	the 	Court’s
decision are set forth below.
DISCUSSION
The 	debtor 	(the 	“Debtor”) 	filed 	a 	bankruptcy 	petition 	on
February 	13, 	2006. 	As 	a 	result, 	her 	case 	is 	governed 	by 	the
Signed: May 05, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
May 05, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 06-40163 Doc# 16 Filed: 05/05/06 Entered: 05/05/06 14:36:25 Page 1 of 7

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amendments 	to 	the 	Bankruptcy 	Code 	enacted 	by 	BAPCPA. 	On 	or 	about
April 	4, 	2006, 	the 	Debtor 	submitted 	a 	reaffirmation 	agreement 	(the
“Agreement”) to the Court for its approval. 	The Agreement was signed
by 	the 	Debtor 	on 	March 	9, 	2006 	and 	by 	National 	on 	March 	28, 	2006.
The 	Agreement 	represented 	that 	the 	debt 	was 	secured 	by 	a 	2003
Mitsubishi Lancer (the “Car”). 	It did not list a value for the Car.
However, 	in 	her 	bankruptcy 	schedules, 	the 	Debtor 	valued 	the 	Car 	at
approximately $8,000. 	The Agreement listed the debt to be reaffirmed
as $11,824.70.
Under the Bankruptcy Code prior to BAPCPA, assuming the Debtor
was 	current 	on 	her 	payments, 	the 	Court 	would 	not 	have 	approved 	the
Agreement. 	In In re Parker, 139 F.3d 668 (9 th Cir. 1998), the Ninth
Circuit Court of Appeals held that a bankruptcy court did not err by
refusing to approve a debtor’s agreement to reaffirm a debt secured
by her car. 	It agreed with the bankruptcy court that it was not in
the debtor’s best interest to reaffirm the debt because, as long as
the 	debtor 	maintained 	payments 	on 	the 	car, 	the 	car 	could 	not 	be
repossessed. 	Reaffirming the debt would provide no advantage to the
debtor, only the disadvantage that the debtor would be liable for any
deficiency if the car were repossessed and sold at a foreclosure sale
for 	less 	than 	the 	debt. 	See 	id. 	at 	671-73. 	This 	holding 	has 	been
referred 	to 	as 	the 	“pay 	and 	drive” 	option. 	As 	noted 	by 	the 	Parker
court, 	the 	Second, 	Fourth, 	and 	Tenth 	Circuits 	had 	previously
concluded that a chapter 7 debtor could “pay and drive.” 	The Fifth,
Seventh, 	and 	Eleventh 	Circuits 	had 	reached 	a 	contrary 	conclusion.
Id. at 672 (citing cases).
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BAPCPA 	endeavored 	to 	eliminate 	the 	“pay 	and 	drive” 	option.
Thus, 	as 	amended 	by 	BAPCPA, 	section 	521(a) 	provides, 	in 	pertinent
part, that:
(a) the debtor shall–-
...
(2) if an individual debtor’s schedule of assets
and liabilities includes debts which are secured
by property of the estate–
(A) within thirty days after 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...the debtor intends
to reaffirm debts secured by such property;
(B) within 30 days after the first date set
for 	the 	meeting 	of 	creditors 	under 	section
341(a), 	or 	within 	such 	additional 	time 	as 	the
court, 	for 	cause, 	within 	such 	30-day 	period
fixes, 	the 	debtor 	shall 	perform 	his 	intention
with 	respect 	to 	such 	property, 	as 	specified 	by
subparagraph (A) of this paragraph;....
...
(6) 	in 	a 	case 	under 	chapter 	7 	of 	this 	title 	in
which 	the 	debtor 	is 	an 	individual, 	not 	retain
possession 	of 	personal 	property 	as 	to 	which 	a
creditor 	has 	an 	allowed 	claim 	for 	the 	purchase
price secured in whole or in part by an interest
in such personal property unless the debtor, not
later 	than 	45 	days 	after 	the 	first 	meeting 	of
creditors under section 341(a)...
(A) 	enters 	into 	an 	agreement 	with 	the
creditor pursuant to section 524(c) with respect
to the claim secured by such property;...
If the debtor fails to so act within the 45-day
period 	referred 	to 	in 	paragraph 	(6), 	the 	stay
under section 362(a) is terminated with respect
to the personal property of the estate or of the
debtor which is affected, such property shall no
longer 	be 	property 	of 	the 	estate, 	and 	the
creditor 	may 	take 	whatever 	action 	as 	to 	such
property 	as 	is 	permitted 	by 	applicable
nonbankruptcy law....[Emphasis added.]
See 11 U.S.C. § 521(a).
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As amended by BAPCPA, section 362(h)(1) provides, in pertinent
part:
(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...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
[retain]...such personal property...[and] enter
into 	an 	agreement 	of 	the 	kind 	specified 	in
section 524(c) applicable to the debt secured by
such personal property...; 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.
See 11 U.S.C. § 362(h)(1).
Section 524(k) is a new section, which was added by BAPCPA. 	It
specifies a series of disclosure that must be provided to the debtor
concerning 	the 	debt 	to 	be 	affirmed 	and 	the 	reaffirmation 	process.
It also includes a form of motion, declaration, and proposed form of
order. 	As the Court reads section 524(k), all of these items are to
be 	provided 	to 	the 	debtor 	by 	the 	secured 	creditor 	at 	or 	before 	the
reaffirmation 	agreement 	is 	signed 	by 	the 	debtor. 	As 	amended 	by
BAPCPA, section 524(c) provides, in pertinent part:
(c) An agreement between a holder of a claim and
the 	debtor, 	the 	consideration 	for 	which, 	in
whole 	or 	in 	part, 	is 	based 	on 	a 	debt 	that 	is
dischargeable 	in 	a 	case 	under 	this 	title 	is
enforceable only...if –
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See 11 U.S.C. § 524(m)(1)(reafffirmation agreement may not be
denied approval without hearing on notice to debtor and creditor).
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... (2) 	the 	debtor 	received 	the 	disclosures
described 	in 	subsection 	(k) 	at 	or 	before 	the
time 	at 	which 	the 	debtor 	signed 	the
agreement;....
See 11 U.S.C. § 524(c).
Given the elimination of the “pay and drive” option, the Court
would 	be 	prepared 	to 	approve 	the 	Agreement 	if 	the 	Agreement 	were
enforceable. 	It 	appears 	that 	the 	Debtor 	can 	afford 	to 	make 	the
monthly payments and apparently needs the Car for transportation to
work. 	However, as the Court reads section 524(c)(2), the Agreement
is 	unenforceable. 	The 	Agreement 	does 	not 	contain 	the 	required
disclosures 	nor 	does 	it 	contain 	a 	motion, 	declaration, 	or 	proposed
form 	of 	order. 	The 	Court 	inquired 	of 	the 	Debtor 	at 	the 	hearing 	on
approval 	of 	the 	Agreement 	whether 	National 	had 	given 	her 	any 	other
disclosure documents. 	She said that National had not done so. 1
Moreover, 	this 	problem 	cannot 	be 	solved 	by 	National 	providing
the disclosures now together with a new reaffirmation agreement. 	The
deadlines 	for 	the 	Debtor 	to 	act 	have 	already 	passed. 	The 	Debtor
complied with those deadlines with respect to the Agreement but would
be 	unable 	to 	do so with respect to a new agreement. 	See 	11 U.S.C.
§ 	521(a)(2).
The 	question 	then 	presented 	is 	whether 	National 	may 	repossess
the 	Car 	even 	if 	the 	Debtor 	is 	not 	in 	default 	on 	her 	payments 	based
on the Court’s failure to approve the Agreement. 	The Bankruptcy Code
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is ambiguous on this point. 	However, the only reasonable conclusion
is 	that 	National 	may 	not 	do 	so. 	BAPCPA 	includes 	in 	its 	title 	the
phrase 	“consumer 	protection.” 	The 	addition 	of 	section 	524(k) 	is
probably 	the 	primary 	protection 	provided 	to 	chapter 	7 	debtors 	by
BAPCPA. 	Congress cannot have intended to leave it within a secured
creditor’s 	power 	to 	thwart 	a 	chapter 	7 	debtor’s 	attempt 	to 	retain
her 	car 	and 	reaffirm 	her 	debt 	by 	failing 	to 	comply 	with 	the
requirement 	that 	the 	creditor 	supply 	the 	debtor 	with 	the 	expanded
disclosures at the appropriate time.
This 	conclusion 	is 	not 	inconsistent 	with 	the 	express 	language
of 	the 	statute. 	Section 	521(a)(6) 	provides 	only 	that 	a 	debtor 	may
not 	retain 	the 	collateral 	unless 	the 	debtor 	enters 	into 	a
reaffirmation 	agreement. 	It 	does 	not 	require 	the 	reaffirmation
agreement 	to 	be 	approved. 	This 	conclusion 	is 	also 	consistent 	with
section 362(h)(1)(B) which provides that the automatic stay does not
terminate 	and 	the 	collateral 	remains 	property 	of 	the 	estate 	if 	the
debtor 	has 	offered 	to 	enter 	into 	an 	agreement 	to 	reaffirm 	the 	debt
on 	the 	same 	terms 	provided 	by 	the 	contract 	and 	the 	creditor 	has
refused. 	By failing to comply timely with section 524(k), National
has 	in 	effect 	refused 	to 	enter 	into 	an 	enforceable 	reaffirmation
agreement with the Debtor.
CONCLUSION
The Agreement is not approved. 	However, National is prohibited
from 	repossessing 	the 	Car 	based 	on 	the 	failure 	of 	the 	Court 	to
approve the Agreement.
END OF DOCUMENT
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COURT SERVICE LIST
Steven L. Jacobs
Law Offices of Steven L. Jacobs
Sanwa Bldg. #350
14895 E 14th St.
San Leandro, CA 94578
Maria Esther Quintero
P.O. Box 265
Pleasanton, CA 94588
National Auto Finance
c/o Nuvell Financial Services Corp.
P.O. Box 7100
Little Rock, AR 72223-7100
John Kendall
2411 Santa Clara Avenue
Suite 12
Alameda, CA 94501
Case: 06-40163 Doc# 16 Filed: 05/05/06 Entered: 05/05/06 14:36:25 Page 7 of 7