Opinion ID: 199890
Heading Depth: 2
Heading Rank: 1

Heading: The Statutory Interface.

Text: 13 To put this case into perspective, it is necessary to understand how the practice of reaffirmation and the operation of the automatic stay implicate bankruptcy practice. We turn to that task. 14 1. Reaffirmation. Within thirty days of filing a bankruptcy petition, a Chapter 7 debtor must serve a statement of intention with respect to outstanding consumer debts that are secured by property of the bankrupt estate. 11 U.S.C. § 521(2)(A). The debtor may, of course, surrender the collateral to the secured creditor. Id. To retain it, however, he must (a) demonstrate the applicability of a recognized bankruptcy exemption, (b) pay off the secured creditor in full (thereby redeeming the collateral), or (c) reaffirm the secured debt. 2 Id. The focus here is on reaffirmation. 15 The reaffirmation option is spelled out in 11 U.S.C. § 524(c). We recently explained that section 524(c) requires reaffirmation agreements to satisfy five general criteria. Such an agreement must 16 (i) be executed before the [general] discharge has been granted; 17 (ii) be in consideration for a dischargeable debt, whether or not the debtor waived discharge of the debt; 18 (iii) include clear and conspicuous statements that the debtor may rescind the reaffirmation agreement at any time prior to the granting of the general discharge, or within sixty days after the execution of the reaffirmation agreement, whichever occurs later, and that reaffirmation is neither required by the Bankruptcy Code nor by nonbankruptcy law; 19 (iv) be filed with the bankruptcy court; and 20 (v) be accompanied by an affidavit of the debtor's attorney attesting that the debtor was fully advised of the legal consequences of the reaffirmation agreement, that the debtor executed the reaffirmation agreement knowingly and voluntarily, and that the reaffirmation agreement would not cause the debtor undue [ e.g., financial] hardship. 21 Whitehouse v. LaRoche, 277 F.3d 568, 574 (1st Cir.2002). 22 There is, however, an overarching requirement. Section 524(c) makes manifest that reaffirmation requires a meeting of the minds. The statutory text uses the word agreement no less than nineteen separate times, and this pervasive emphasis can only mean that Congress envisioned reaffirmations as consensual. In conventional legal parlance the essence of an agreement is the existence of mutual consent, e.g., Black's Law Dict. 67 (7th ed.1999); Restatement (Second) of Contracts § 3 (1981), and the presumption is that Congress knew and adopted the widely accepted legal definitions of meanings associated with the specific words enshrined in the statute, United States v. Nason, 269 F.3d 10, 16 (1st Cir.2001). 23 We conclude, therefore, that section 524(c) envisions reaffirmation agreements as the product of fully voluntary negotiations by all parties. Whitehouse, 277 F.3d at 575; Gen. Motors Acceptance Corp. v. Bell ( In re Bell ), 700 F.2d 1053, 1056 (6th Cir.1983). Two things follow from this conclusion. First, both the creditor and the debtor must consent to reaffirmation. See In re Turner, 156 F.3d 713, 718 (7th Cir.1998); Home Owners Funding Corp. v. Belanger ( In re Belanger ), 962 F.2d 345, 348 (4th Cir.1992); see also 4 Collier on Bankruptcy ¶ 524.04[1] (15th rev. ed. 2001) ([T]o be an enforceable agreement, the reaffirmation agreement must ... be one to which both the debtor and creditor agree.). Second, just as a debtor is not obliged to seek reaffirmation, so too a creditor retains the right to reject any and all reaffirmation proposals, for whatever reason. In re Turner, 156 F.3d at 718-19; Brown v. Pa. State Employees Credit Union ( In re Brown ), 851 F.2d 81, 85 (3d Cir.1988); In re Bell, 700 F.2d at 1056. 24 We add a caveat. Although reaffirmation is consensual in nature, the myriad safeguards erected by Congress reflect its recognition that a debtor's decision to enter into a reaffirmation agreement is likely to be fraught with consequence. In point of fact, reaffirmation represents the only vehicle through which an otherwise dischargeable debt can survive the successful completion of Chapter 7 proceedings. Moreover, once a debt is reaffirmed, the creditor can proceed to enforce its rights as if bankruptcy had not intervened. Because reaffirmation constitutes a debtor-invoked exception to the tenet that underpins the bankruptcy system — the fresh start principle — a reaffirming debtor must be afforded some protection against his own (potentially) short-sighted decisions. 25 Section 524(c) reflects Congress's intent to provide this protection, thereby safeguarding debtors against unsound or unduly pressured judgments about whether to attempt to repay dischargeable debts. In re Duke, 79 F.3d 43, 44 (7th Cir.1996); 4 Collier on Bankruptcy, supra, ¶ 524.04. To cloak debtors in this protective garb, courts generally have insisted that reaffirmation agreements strictly comply with the conditions enumerated in the statute. E.g., Whitehouse, 277 F.3d at 575; DuBois v. Ford Motor Credit Co., 276 F.3d 1019, 1022 (8th Cir.2002); Bessette v. Avco Fin. Svcs., 230 F.3d 439, 444 (1st Cir.2000), cert. denied, 532 U.S. 1048, 121 S.Ct. 2016, 149 L.Ed.2d 1018 (2001). By like token, courts have insisted upon a showing that a reaffirmation agreement is not the product of abusive creditor practices. In re Duke, 79 F.3d at 44-45. 26 2. The Automatic Stay. The automatic stay is one of the fundamental protections that the Bankruptcy Code affords to debtors. As its name suggests, the stay springs into effect upon the filing of a bankruptcy petition. Sunshine Dev., Inc. v. FDIC, 33 F.3d 106, 113 (1st Cir.1994). The stay effectively suspends all collection efforts (including foreclosures), thus giving the debtor breathing room. See Soares v. Brockton Credit Union ( In re Soares ), 107 F.3d 969, 975 (1st Cir.1997); see also 11 U.S.C. § 362(a)(6) (prohibiting any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the [bankruptcy proceeding]). The automatic stay remains in effect unless and until a federal court either disposes of the underlying case, 11 U.S.C. § 362(c)(2), or grants relief to a particular creditor, id. § 362(d)-(f). 27 3. The Interplay. Congress's encouragement to creditors and debtors alike to move expeditiously to negotiate reaffirmation agreements is in some tension with the automatic stay. Although Congress has explicitly excepted a handful of actions from the purview of the stay, see id. § 362(b)(1)-(18), this enumeration does not include the negotiation of reaffirmation agreements. Taken to an extreme, the automatic stay could be construed to prohibit all post-petition contact between creditors and debtors pertaining to dischargeable debts, including the negotiation of reaffirmation agreements. But the Bankruptcy Code should be read as a whole, with a view toward effectuating Congress's discerned intent. MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 914 (9th Cir.1996). Such a commonsense approach leads us to reject a reading of the automatic stay provision that would effectively preclude all post-petition negotiations anent reaffirmation. To read the automatic stay provision that expansively would emasculate section 524(c) and thwart Congress's evinced intent of allowing parties to reach arm's-length reaffirmation agreements without undue delay. As the Seventh Circuit astutely observed: 28 The option of reaffirming would be empty if creditors were forbidden to engage in any communication whatsoever with debtors who have pre-petition obligations. If that were the rule, it is also hard to see what purpose the detailed rules governing enforceability of reaffirmation agreements contained in § 524(c) would serve. 29 In re Duke, 79 F.3d at 45. 30 To be sure, there is a fine line between hard-nosed negotiations and predatory tactics — and if the automatic stay is to have any bite, it must forfend against the latter. Courts have labored long to plot this line. The most sensible rule — and one that we endorse — is that a creditor may discuss and negotiate terms for reaffirmation with a debtor without violating the automatic stay as long as the creditor refrains from coercion or harassment. Cox v. Zale Del., Inc., 239 F.3d 910, 912 (7th Cir.2001); Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 423 (6th Cir.2000). We believe that this measured approach gives effect to all parts of the statutory scheme, affording all parties a reasonable opportunity to consummate binding reaffirmation agreements while at the same time shielding debtors from unseemly creditor practices. Accordingly, we hold that, while the automatic stay is in effect, a creditor may engage in post-petition negotiations pertaining to a bankruptcy-related reaffirmation agreement so long as the creditor does not engage in coercive or harassing tactics.