Appeal from the United States Bankruptcy Court for the Central District of California Honorable Catherine Bauer, Bankruptcy Judge, Presiding Bk. No. 11-12906
U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on October 20, 2011 at San Diego, California
Before: HOLLOWELL, KIRSCHER and MARKELL, Bankruptcy Judges.
San Diego County Credit Union (SDCCU) appeals an order of the bankruptcy court that (1) disapproved a reaffirmation agreement that SDCCU entered into with the debtors, (2) ordered SDCCU to accept the debtors' payments, and (3) enjoined SDCCU from repossessing its collateral so long as the debtors made payments and otherwise fulfilled their obligations to SDCCU.
For the reasons given below, we AFFIRM the disapproval of the reaffirmation agreement, but VACATE the portion of the bankruptcy court's order that requires SDCCU to accept payments and refrain from exercising its state law contractual remedies.
Christopher and Rebecca Obmann (the Debtors) filed a joint petition for relief under chapter 7*fn2 on January 28, 2011. On their bankruptcy schedules, the Debtors listed an $18,496.00 obligation to SDCCU secured by a 2004 Chevrolet Silverado (Silverado). They also listed a $7,003.00 obligation to SDCCU secured by a 2004 Nissan Frontier (Nissan). According to the Debtors' schedules I and J, they had a combined average monthly income of $9,126.20 and expenditures of $9,938.00, which included a $778.00 payment on the Silverado, as well as a $261.00 payment on the Nissan.
Along with their schedules, the Debtors filed a Statement of Intention with respect to the Silverado. On the Statement of Intention form (Official Form 8), the Debtors checked the box indicating that they intended to retain the Silverado, but did not check either the "Redeem the property" box or the "Reaffirm the debt" box. Instead, the Debtors checked a box entitled "Other" and wrote "Retain and pay pursuant to contract." The Debtors indicated the same intention with respect to the Nissan.
On February 3, 2011, the Debtors attempted to make a payment on the Silverado under their loan agreement with SDCCU (the Loan). At that time, the Debtors were already behind on the Loan because they had failed, prepetition, to make their January payment. Under the terms of the Loan, a filing of a bankruptcy proceeding, as well as a failure to make any payment when due, were events of default, entitling SDCCU to accelerate all payment on the Loan and to exercise its state law rights against the Silverado, including repossession.
SDCCU refused to accept the Debtors' February 3, 2011, payment on the Loan. It told the Debtors it would not accept payments unless there was an enforceable reaffirmation agreement in place. On February 8, 2011, the Debtors and SDCCU executed an agreement to reaffirm the debt secured by the Silverado (the Reaffirmation).*fn3 The Reaffirmation reaffirmed the $13,495.58 remaining balance on the Silverado under the original terms of the Loan. The Debtors listed the value of the Silverado as $19,875.00. They filed the executed Reaffirmation with the bankruptcy court on February 14, 2011.
The § 341 meeting of creditors was scheduled for March 9, 2011.
Also on March 9, 2011, the bankruptcy court held a hearing on whether to approve the Reaffirmation (the Reaffirmation Hearing). At the Reaffirmation Hearing, the bankruptcy court expressed its concern that SDCCU, by refusing to accept payments, was purposely forcing debtors into defaulting on their loans until the court approved a reaffirmation agreement.
It continued the hearing to March 30, 2011, and entered an order requiring the president and CEO of SDCCU, Teresa Halleck (the CEO), to appear:*fn4 to explain its policies and procedures*fn5 regarding bankruptcy, since it appears that either the Credit Union fundamentally misunderstands the purpose and extent of the automatic stay and/or that it is purposely forcing debtors into defaulting on their car loans under some misconception that this Court will then ...