Paul Adam Freeman

1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE: )
)
PAUL ADAM FREEMAN ) CASE NO. 3:05-bk-06791
)
Debtor. )
______________________________________ )
)
IN RE: )
)
KERRY VINCENT SCOTT, and )
MONICA DENISE SCOTT ) CASE NO. 3:04-bk-00469
)
Debtors. )
MEMORANDUM OPINION
Paul Adam Freeman, and Kerry and Monica Scott (collectively the “Debtors”), filed motions to
allow Capital One Auto Finance (“Capital One”) to send them monthly statements of account pursuant to
W. Va. Code § 46A-2-114. Capital One objects to the motions on the grounds that its computer system
is designed to cease all correspondence with bankrupt debtors, the system is not programmed to send the
Debtors monthly statements only, and that granting the Debtors’ requested relief would result in Capital
One making collection efforts in potential violation of the automatic stay.
The court held a telephonic hearing in these matters on June 27, 2006, in Wheeling, West Virginia,
followed by a court hearing in Martinsburg, West Virginia on July 21, 2006, and then a second telephonic
hearing in Wheeling, West Virginia on September 6, 2006. The parties have fully briefed the issue and it
is ripe for review. For the reasons stated herein, the court will modify the automatic stay to allow Capital
One to send the Debtors monthly statements of their accounts.
Dated: Tuesday, October 03, 2006 1:10:05 PM
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1 At the time this Memorandum Opinion was issued, Mr. Freeman’s plan had not been
confirmed by the court.
2
I. BACKGROUND
When Mr. Freeman filed his Chapter 13 bankruptcy on December 13, 2005, he listed Capital One
as having a secured interest in the amount of $6,289 in a 1999 Ford Pickup, having a stated value of
$5,221. Under Mr. Freeman’s proposed Chapter 13 plan, he will make his regular monthly payments
directly to Capital One and there is no pre-petition arrearage claim to be paid through his proposed 13
plan.1
Similarly, when Kerry and Monica Scott filed their Chapter 13 bankruptcy petition on February
17, 2004, they listed Capital One as having a secured interest in the amount of $19,000 in a 2004 Ford
Escape, having a stated value of $17,000. Under the Scotts’ confirmed Chapter 13 plan, they are to make
payments directly to Capital One and there is no pre-petition arrearage claim to be paid through their
confirmed plan.
Because the Debtors are to retain and pay for their vehicles under the terms of their plans, they
request that the court direct Capital One to send them monthly statements of their accounts and that Capital
One be able to do so without fear of violating the automatic stay of the Bankruptcy Code. Receipt of
monthly statements will help ensure that the Debtors timely make their monthly payments.
James Redding, the Senior Operations Manager at Capital One, submitted an affidavit stating that
Capital One’s computer system houses information for every automotive loan in its nationwide portfolio.
The system uses “status codes” that determine what actions will be taken on an account. Placing an
account in “Bankrupt Status” prevents automated collection activities such as calls, letters, and
repossession. The system, however, is not designed to send “bankruptcy safe” notices – there is not an
individual code to allow monthly statements to be sent and another for the initiation of collection activity.
Thus, an account in “Bankrupt Status” will not receive any communications fromCapital One. Mr. Redding
further states that no manual override exists whereby an account may be modified to only send monthly
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2 The Debtors filed identical motions with regard to secured debts owing to Ford Motor Credit
and Sun Trust Bank. Those motions were resolved by agreed orders whereby the creditors consented
to the relief requested by the Debtors.
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statements, and that Capital One would incur substantial costs if it is required to modify its system.2
II. DISCUSSION
Capital One objects to the Debtors request to modify the automatic stay to allow it to send monthly
statements, as required by State law, on the grounds that: (1) State law is preempted by the Bankruptcy
Code, (2) requiring it to send monthly statements to the Debtors would impose an undue economic burden
on it, and that (3) it cannot send monthly statements without also initiating collection activities in potential
violation of the automatic stay.
A. Preemption
Capital One asserts that the automatic stay of the Bankruptcy Code prevents it from sending the
Debtors monthly statements of their accounts, which would otherwise be required under State law.
The automatic stay of the Bankruptcy Code prohibits, inter alia, “any act to collect, assess, or
recover a claim against the debtor that arose before the commencement of [the bankruptcy case.]” 11
U.S.C. § 362(a)(6). Under West Virginia law, however, a creditor is required to “deliver or mail to the
consumer, without request, a written receipt for each payment by coin or currency on an obligation
pursuant to a consumer credit sale, consumer lease or consumer loan.” W. Va. Code § 46A-2-114(1).
If a monthly statement of account is deemed to be an attempt to collect on a pre-petition debt, then the
provisions of the automatic stay may preempt the West Virginia law on consumer statements of account.
See, e.g., Eastern Equip. & Servs. Corp. v. Factory Point Nat'l Bank, 236 F.3d 117, 121 (2nd Cir.
2001) (holding the automatic stay preempts contrary state law and that the Bankruptcy Code provides the
exclusive remedy for stay violation cases); MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910,
913-16 (9th Cir. 1996) (same); In re Martinez, 281 B.R. 883, 885-86 (Bankr. W.D. Tex. 2002) (noting
the “perverse consequences (at least in some situations)” resulting from the automatic stay’s prohibition on
sending monthly statements to a debtor, and prospectively approving an innocent notice procedure that
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3 With regard to the discharge injunction, which is not applicable until a debtor has completed
the Chapter 13 plan, newly enacted § 524(j) of the Bankruptcy Code allows a secured creditor in the
debtor’s principal residence to seek or obtain periodic payments from the debtor in the parties’
ordinary course of business. 11 U.S.C. § 524(j). This section is not applicable here because it is the
automatic stay and not the discharge injunction that is applicable, and Capital One is secured in the
Debtors’ vehicles – not their personal residences.
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would not give rise to damages in a future stay violation action); cf., Ramirez v. GMAC (In re Ramirez),
280 B.R. 252, 258 (C.D. Cal. 2002) (holding that where a debtor exercises his right to retain and pay for
collateral the creditor may send monthly statements to the debtor without violating the discharge injunction
of § 524 because to hold otherwise would “force debtors to guess, with little guidance, the due date and
proper amount of their monthly payments [which] would unduly complicate the lives of debtors and likely
result in a greater number of missed payments and foreclosures by creditors.”); Bankr. M.D.N.C. R.4001-
1(b)(4) (allowing a creditor in a Chapter 13 case, after confirmation, to inquire of the debtor about the
status of direct payments).3
In this case, however, the court does not need to decide whether § 362(a) of the Bankruptcy Code
preempts § 46A-2-114 of the Code of West Virginia because the court will grant the Debtors’ motion to
modify the automatic stay, which will, in effect, allow W. Va. Code § 46A-2-114 to govern the parties
course of dealing.
B. Undue Burden
Capital One asserts that the automatic stay in these cases should not be modified to allow it to send
monthly statements to the Debtors on the grounds that the costs of reprogramming its computer system to
both allow the mailing of monthly statements and prohibit corresponding collection activities is too
substantial when compared to the Debtors’ individual need to receive monthly statements.
These cases present the unusual situation where the Debtors are seeking to waive (partially) the
benefit provided to them by the automatic stay, and Capital One – whom is not the intended beneficiary
of the stay – is seeking to have the automatic stay remain in place. Section 362(d) of the Bankruptcy Code
gives the court discretion in fashioning relief from the automatic stay to the particular circumstances of a
case, “such as by terminating, annulling, modifying, or conditioning such stay.” 11 U.S.C. § 362(d). See,
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e.g., In re Brown, 311 B.R. 409, 412 (E.D. Pa. 2004) (“[T]he decision whether to modify, condition or
annul the bankruptcy stay under section 362(d) is committed to bankruptcy court discretion and is to be
determined by examining the totality of the circumstances; a denial of a motion to lift the automatic stay may
be reversed only upon a showing of an abuse of that discretion.”).
Capital One states that it has thousands of accounts in “Bankrupt Status.” Therefore, the burden
in this case to be weighed is not just between Capital One and the Debtors, but between Capital One and
all other potential debtors that might desire to receive monthly statements of account. Mr. Redding’s
affidavit only stated that the cost to Capital One to reprogram its “status code” system “would be
substantial and unduly burdensome.” No other evidence was submitted on what the exact costs would be
to Capital One, or on how those costs would be outside its normalcourse of business in servicing consumer
automobile loans. In short, the court finds Capital One’s “undue burden” argument to be unsupported by
the facts and ultimately unconvincing.
C. Stay Violation
Finally, Capital One argues that if the court grants the Debtors’ motions to modify the automatic
stay then it will be requiring Capital One to violate the automatic stay on the basis that its computer system
cannot be easily reprogrammed to only send the Debtors monthly statements and not collection notices.
Capital One further states that “opening the door to allow some collection activity would create uncertainty
for creditors in determining what practices violate the automatic stay and unnecessary consternation for
courts to decide if these post-petition collection activities violate the automatic stay.”
The court, of course, does not have any control over how Capital One conducts its business and
will not become entangled in its internal affairs. Moreover, the court’s ruling does not compel Capital One
to send monthly statements as requested by the Debtors. The court is only modifying the automatic stay
to permit Capital One to send the Debtor monthly statements to the extent that it may be required to do
so by State law – any other collection activity outside the scope of that modification may constitute a
violation of the automatic stay for which Capital One might be held accountable under 11 U.S.C. § 362(k).
The court does not believe that this modification will create any “uncertainty.” In fact, it appears to the
court that the “uncertainty” posited by Capital One relates not to an assessment as to whether its conduct
may constitute a violation of the automatic stay, but, rather, whether it can or should modify its business
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practices. Consideration of such an issue is beyond the ken of this court. Nevertheless, the court can find
no compelling reason under the limited circumstances of the Debtors’ motions to, in effect, direct that
Capital One be excused from whatever its obligations may be under State law.
III. CONCLUSION
The court will modify the automatic stay to allow Capital One to send the Debtors monthly
statements pursuant to W. Va. Code § 46A-2-114. A separate order is attached pursuant to Fed. R.
Bankr. P. 9021.
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