UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

[Pages:31]FOR PUBLICATION

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

In the Matter of: ANTOINETTE

DUMONT,

Debtor,

No. 08-60002

ANTOINETTE DUMONT, v.

Appellant,

BAP No. SC-07-1155-BaMoD

OPINION

FORD MOTOR CREDIT COMPANY,

Appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel

Baum, Montali, and Dunn, Bankruptcy Judges

Argued and Submitted May 5, 2009--Pasadena, California

Filed September 15, 2009

Before: Alfred T. Goodwin, Diarmuid F. O'Scannlain, and Susan P. Graber, Circuit Judges.

Opinion by Judge O'Scannlain; Dissent by Judge Graber

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COUNSEL

Michael G. Doan, Doan Law Firm, Carlsbad, California, argued the cause for appellant-debtor and filed briefs.

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Randall P. Mrocynski, Cooksey Toolen Gage Duffy & Woog, Costa Mesa, California, argued the cause for the appellee and submitted a brief.

Tara Twomey, National Association of Consumer Bankruptcy Attorneys, San Jose, California, submitted a brief on behalf of amicus curiae National Association of Consumer Bankruptcy Attorneys. With her on the brief was Cynthia Feathers.

OPINION

O'SCANNLAIN, Circuit Judge:

We must decide whether the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 allows a consumer in bankruptcy to retain personal property subject to a security interest by continuing to make payments under his contract.

I

Antoinette Dumont purchased a car in 2003 from Ford Motor Credit Company ("Ford"). The loan agreement contained a clause stating that Dumont would be in default if she was involved in a bankruptcy proceeding, also known as an "ipso facto" clause.1 Dumont filed for Chapter 7 bankruptcy protection in 2006, subsequent to the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), Pub. L. No. 109-8, 119 Stat. 23. The vehicle was listed on the bankruptcy petition as having a value of $5,800. At the time, she owed $8,288 on it and was making payments of $335.78 per month. In her Bankruptcy

1The contract read: "Default means . . . [y]ou start a proceeding in bankruptcy or one is started against you or your property." It further states that "[i]f you default, we may take (repossess) the vehicle from you if we do so peacefully."

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Statement of Intentions, Dumont stated that she would retain the car and continue to make monthly payments.

Ford's attorney e-mailed Dumont's attorney, asking that Dumont reaffirm the debt. Her attorney declined the offer. It is not clear from the record what the terms of the proposed reaffirmation were.

Ford filed a proof of claim, to which there was no objection; thus Ford's claim was allowed. See 11 U.S.C. ? 502(a). Dumont received a discharge on August 15, 2006. After the discharge, she continued making payments on the car loan. Without advance notice, Ford repossessed her car on November 14, 2006.

Dumont successfully moved to reopen her bankruptcy case and claimed that Ford had violated the discharge injunction by repossessing her car. The bankruptcy court denied the motion to find Ford in violation of the discharge injunction, and the Bankruptcy Appellate Panel (BAP) unanimously affirmed.

II

A

[1] When a debtor files for Chapter 7 bankruptcy, she is required to state her intentions with regard to any property2

2In this case, the property was owned by an individual debtor and was used for personal rather than business purposes. The bankruptcy laws often treat individuals differently from other entities which may file for bankruptcy. See, e.g., 11 U.S.C. ? 521(a)(2) (applying only to "individual debtor[s]"). We also note that the property in dispute here was personal property, not real property. We accordingly have no need to determine whether debtors may retain their real property via ride-through. See id. ? 362(h)(1) (referring to "personal property of the estate"); In re Caraballo, 386 B.R. 398, 402 (Bankr. D. Conn. 2008) ("Code ? ? 521(a)(6) and 362(h) abrogated the ride through option as it pertains to personal property. However, courts have concluded that the ability of a debtor to choose the ride though option as it relates to real property was not abrogated by BAPCPA."). Our analysis may not necessarily hold where the debtor is not an individual or where real property is involved.

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which is subject to a security interest. 11 U.S.C. ? 521(a)(2). Prior to BAPCPA, our circuit law allowed the debtor to choose among four options. First, she could merely surrender the collateral. Second, she could redeem such collateral--that is, pay the creditor its present fair market value. See id. ? 722. The debtor could also reaffirm the debt on terms she and the creditor agreed on. Reaffirmation allowed the debtor to keep her collateral, but re-exposed her to personal liability should she fail to make payments as promised. See id. ? 524(c) (setting conditions for reaffirmations and exempting them from the discharge injunction). The final option--recognized in only some circuits--was the so-called "ride-through" or "pay and drive." Under this plan, the debtor continued to make payments as if the bankruptcy had never occurred. The creditor was forbidden by the automatic stay (and later, by the discharge injunction) from repossessing the collateral unless the buyer defaulted. If the buyer stopped making payments or otherwise defaulted, then the creditor could reclaim its collateral but could not pursue a deficiency judgment against the debtor.

Unsurprisingly, the ride-through system proved popular for debtors. Debtors usually need a car3 to travel to and from work, school, medical appointments, and other important activities. Having just filed for bankruptcy, they understandably expect to experience difficulty securing financing for another vehicle. Accordingly, they were often willing to continue payments on loans that were "underwater" (i.e., loans for which the amount due exceeded the value of the collateral).

Some creditors embraced ride-through, even allowing the debtor to keep making payments in circuits which did not recognize the option. See, e.g., Jean Braucher, Rash and Ride-

3Ride-through was not limited to automobile loans. However, as the name implies, ride-through was used most frequently to allow debtors to hold on to an automobile.

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Through Redux, 13 AM. BANKR. INST. L. REV. 457, 474-81 (2005). On the other hand, creditors might believe that the buyer was unlikely to follow through with the plan or that the collateral might decrease in value faster than payments were coming in. See Till v. SCS Credit Corp., 541 U.S. 465, 479 (2004) (plurality opinion) (acknowledging the increased risk of non-payment by bankrupt debtors in the Chapter 13 "cramdown" context); id. at 502 (Scalia, J., dissenting) (noting the risk due to depreciation).4

B

[2] Prior to BAPCPA, we had held that ride-through was

available to debtors. McClellan Fed. Credit Union v. Parker

(In re Parker), 139 F.3d 668 (9th Cir. 1998). The Second, Third, Fourth, and Tenth Circuits held likewise.5 Other circuits rejected ride-through.6

In Parker, we relied on the clear language of the statute,7

4The BAP expressed some confusion about Ford's decision to repossess given that Dumont was making payments. In re Dumont, 383 B.R. 481, 489 n.17 (BAP 9th Cir. 2008). We decline to speculate as to Ford's motivations in this case; we only note that a decision to repossess might make financial sense under certain sets of assumptions.

5See Price v. Del. State Police Fed. Credit Union (In re Price), 370 F.3d 362 (3d Cir. 2004); Capital Commc'ns Fed. Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43 (2d Cir. 1997); Home Owners Funding Corp. of Am. v. Belanger, 962 F.2d 345 (4th Cir. 1992); Lowry Fed. Credit Union v. West, 882 F.2d 1543 (10th Cir. 1989).

6See Bank of Boston v. Burr (In re Burr), 160 F.3d 843 (1st Cir. 1998); Johnson v. Sun Fin. Co. (In re Johnson), 89 F.3d 249, 252 (5th Cir. 1996); Taylor v. Age Fed. Credit Union (In re Taylor), 3 F.3d 1512 (11th Cir. 1993); In re Edwards, 901 F.2d 1383 (7th Cir. 1990). The Sixth Circuit rejected a proposal similar to ride-through in General Motors Acceptance Corp. v. Bell (In re Bell), 700 F.2d 1053, 1056-58 (6th Cir. 1983). However, that decision predated the 1984 amendments to the Bankruptcy Code, which "include[d] the language that gave rise to the ride-through dispute." Coastal Fed. Credit Union v. Hardiman, 398 B.R. 161, 171 n.8 (E.D.N.C. 2008).

7At the time Parker was decided, the relevant statute, 11 U.S.C. ? 521(2) read:

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holding that the debtor was required only to file a statement of intention under then-current section 521(2)(A). We read the statute to require the debtor to declare an intent to redeem, reaffirm, or surrender only " `if applicable,'--that is, if the debtor plan[ned] to choose any of the three options listed . . . in the statute." Parker, 139 F.3d at 673 (quoting then-current 11 U.S.C. ? 521(2)(A)). "The debtor's other options remain[ed] available, as unambiguously stated in [thencurrent] ? 521(2)(C): "[N]othing in subparagraph[ ](A) . . . shall alter the debtor's or the trustee's rights with regard to such property under this title." Id. (final two alterations in original).8

C

[3] BAPCPA wrought several changes in the Code which

[I]f an individual debtor's schedule of assets and liabilities includes consumer debts which are secured by property of the estate[, the debtor shall] --

(A) within thirty days after the date of 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 such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property;

(B) within forty-five days after the filing of a notice of intent under this section, or within such additional time as the court, for cause, within such forty-five day period fixes, the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; and

(C) nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title[.] 8Subparagraph (C) became known as the savings clause.

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may be applicable to ride-through. First, it amended section 521(2), which is now section 521(a)(2). Most relevant for our purposes, the savings clause in subparagraph (C) now reads: "[N]othing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h)." (emphasis added). 11 U.S.C. ? 362(h), added by BAPCPA, states that the automatic stay is terminated and the "property shall no longer be property of the estate if the debtor fails"

(A) to file timely any statement of intention required . . . 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 [,reaffirm,] or assume such unexpired lease pursuant to section 365(p)9 if the trustee does not do so, as applicable; and

(B) to take timely the action specified in such statement, . . . unless such statement specifies the debtor's intention to reaffirm such debt on the original contract terms and the creditor refuses to agree . . . .

A new section 521(a)(6) was added as well.10

A new section 521(d) provides that

9Section 365(p) addresses the assumption of unexpired leases. Added by BAPCPA, it appears to have no relevance to this case.

10It read, in part: "[The debtor shall] 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 [timely] either . . . [reaffirms] or . . . redeems such property . . . ." Later, it continues: "If the debtor fails to so act . . ., the stay under section 362(a) is terminated with respect to the . . . affected [property], 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." Id. at ? 521(a).

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