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

Heading: The Attempt at Linkage.

Text: 31 This brings us to the question of linkage: whether a creditor's attempt to condition reaffirmation of a secured debt upon reaffirmation of separate, unsecured debts crosses the line and should be deemed coercive as a matter of law. Both the bankruptcy court, Jamo I, 253 B.R. at 127-29, and the BAP, Jamo II, 262 B.R. at 165-66, answered that question affirmatively. For purposes of our review, we focus on the bankruptcy court's decision, scrutinize that court's findings of fact for clear error, and afford de novo review to its conclusions of law, without according any special deference to the BAP's pronouncements. Brandt v. Repco Printers & Litho., Inc. ( In re Healthco Int'l, Inc. ), 132 F.3d 104, 107 (1st Cir.1997). 32 There are two different ways in which a debtor might prevail on the linkage issue. The first is if a per se rule applies, that is, if any and all efforts by creditors to construct such a tie are deemed inherently coercive (and, therefore, violative of the automatic stay). The second is fact-specific; even if an all or nothing negotiating posture is not per se coercive, a creditor still might violate the automatic stay by articulating or acting upon that policy in an inappropriate manner during the course of negotiations. We examine both alternatives. 33 1. The Per Se Rule. Both lower courts took the position that a creditor's refusal to reaffirm a secured debt unless the debtor simultaneously agrees to reaffirm additional, unsecured debts constitutes a per se violation of the automatic stay. Jamo II, 262 B.R. at 165-66; Jamo I, 253 B.R. at 127-29. This is an abstract legal proposition, and, as such, engenders de novo review. 229 Main St. Ltd. P'ship v. Mass. Dep't of Envtl. Prot. ( In re 229 Main St. Ltd. P'Ship ), 262 F.3d 1, 3 (1st Cir.2001); In re Soares, 107 F.3d at 973. 34 To some extent, we write on a pristine page: no federal court of appeals has spoken to the issue. There is, however, a smattering of apposite case law. The bankruptcy courts that have addressed the question mostly reject a per se rule. See, e.g., In re Brady, 171 B.R. 635, 639-40 (Bankr.N.D.Ind.1994); In re Briggs, 143 B.R. 438, 460 (Bankr.E.D.Mich.1992); Schmidt v. Am. Fletcher Nat'l Bank & Trust Co. ( In re Schmidt ), 64 B.R. 226, 228-29 (Bankr.S.D.Ind.1986); but see Green v. Nat'l Cash Register Co. CI Corp. Sys. ( In re Green ), 15 B.R. 75, 78 (Bankr.S.D.Ohio 1981) (holding that such an attempt at linkage is inherently coercive and, therefore, violates the automatic stay). 35 We too reject a per se rule. When an individual debtor voluntarily files for bankruptcy, he usually has the option of proceeding under either Chapter 7 or Chapter 13. Unlike Chapter 7, Chapter 13 contains a cram down provision, 11 U.S.C. § 1325(a)(5)(B), which permits a debtor to retain the collateral underlying a secured obligation without the creditor's approval. Bank of Boston v. Burr ( In re Burr ), 160 F.3d 843, 848 (1st Cir.1998). Even if a debtor belatedly decides that cramming down is in his best interest, a decision to file under Chapter 7 ordinarily is not irrevocable. The Bankruptcy Code, with only a few exceptions, see 11 U.S.C. § 706(a), allows a debtor who initially has filed for Chapter 7 relief to jump midstream to Chapter 13. 36 Conversely, a debtor who persists in traveling the Chapter 7 route knows that reaffirmation depends entirely on his ability to come to terms with the secured creditor. He also knows (or, at least, has every reason to expect) that the creditor may drive a hard bargain. Hence, a debtor must bear some degree of responsibility for choosing to proceed under Chapter 7. 37 Perhaps more important, the Bankruptcy Code does not outlaw linkage as an element of reaffirmation negotiations. The absence of such a prohibition makes sense, for a secured creditor's insistence on linkage does not force a debtor to reaffirm unsecured obligations. As we have explained, reaffirmation agreements are consensual, and a debtor always has the option of walking away from an unattractive proposal. 3 38 Of course, a debtor whose home is at stake is in an unenviable position. But a Chapter 7 discharge is not a walk in the park; it is a benefit that comes with certain costs. In re Burr, 160 F.3d at 848. Consequently, a Chapter 7 debtor is not inoculated against the necessity for making hard choices. If the debtor surrenders his home, he is entitled to erase all his debts (secured and unsecured) and start afresh. If, however, his paramount interest is in keeping his home and he cannot redeem the collateral, he must come to terms with the mortgagee. Bankruptcy, as life itself, is a series of tradeoffs. 39 The debtors argue for a per se rule on policy grounds, but we doubt the prophylactic effects of such a rule. Creditors, as a class, have a highly developed instinct for self-protection, and, as the amici point out, such a rule could open Pandora's jar and produce a distinctly unfavorable climate for debtors. Creditors might become more reluctant to extend both secured and unsecured loans to a particular debtor, or might insist upon cross-collateralization clauses in all loans, or might categorically decide that foreclosure is a more judicious option than reaffirmation negotiations restricted to a single secured debt. Then, too, a creditor intent on negotiating for a linked reaffirmation arrangement simply could petition for relief from the automatic stay and refuse to negotiate until such relief had been obtained. This would not only delay the Chapter 7 proceedings, but also increase the ultimate cost of reaffirmation to the debtor. For these reasons, we find the debtors' policy-based arguments lacking in force. 40 That ends this inquiry. Based on the foregoing analysis, we reject the proposition that a creditor's decision to withhold reaffirmation of a secured debt unless the debtor agrees to reaffirm other, unsecured debts amounts to a per se violation of the automatic stay. 41 2. The Credit Union's Conduct. Even if a creditor's attempt to condition reaffirmation of a secured debt upon reaffirmation of other, unsecured obligations does not constitute a per se violation of the automatic stay, the question remains whether the creditor's conduct in a particular instance amounts to a violation of the automatic stay. While we review the bankruptcy court's findings of fact for clear error, Boroff v. Tully ( In re Tully ), 818 F.2d 106, 108 (1st Cir.1987), we afford plenary review to the question of whether the evidence is legally sufficient to support particular findings. Here, the bankruptcy court calumnized the credit union for improperly bringing leverage to bear on the debtors' reaffirmation decision and, relatedly, for menacing the debtors with threats of foreclosure. Jamo I, 253 B.R. at 129-30. To the extent that these are findings that the credit union engaged in impermissibly coercive conduct, they lack adequate record support. We explain briefly. 42 The bankruptcy court's condemnation of the credit union for using its leverage manifests a fundamental misunderstanding of a creditor's rights vis-à-vis a debtor. In and of itself, the act of filing a bankruptcy petition negates the original pre-bankruptcy bargain between debtor and creditor. In re Burr, 160 F.3d at 848 (explaining that Chapter 7 debtors have no right to maintain with their secured creditors advantageous arrangements in place prior to filing). Thus, subject only to the constraints imposed by section 524(c) or by other provisions of the Bankruptcy Code, the parties to a secured obligation are free to strike a new bargain. 43 So viewed, the bankruptcy court's condemnation of the credit union's use of leverage amounts to a variation of its per se rule — a rule that we already have rejected. See supra Part II(B)(1). A reaffirmation negotiation — like any other negotiation — contemplates give and take between the participants. The fact that one party has a superior bargaining position does not warrant a court in placing a thumb on the scales. See In re Burr, 160 F.3d at 848 (recognizing that an oversecured creditor may attempt to use its superior bargaining power to obtain creditor-favorable terms in negotiating reaffirmation agreements without violating the automatic stay); see also In re Briggs, 143 B.R. at 454 (declaring that it would be absurd to interpret the Bankruptcy Code as prohibiting a secured creditor from using its leverage in negotiating a reaffirmation agreement). 44 That leaves the so-called threats of foreclosure. In theory, threats of foreclosure or repossession might justify a finding that a secured creditor has violated the automatic stay. See In re Duke, 79 F.3d at 44-45; see also In re Brown, 851 F.2d at 86 (noting that the automatic stay continues to preclude creditor communications that threat[en] immediate action by creditors, such as a foreclosure or a lawsuit). The facts of this case, however, do not support such a finding. 45 The bankruptcy court focused on written, rather than oral, communications. In corresponding with the debtors (or, more precisely, with the debtors' counsel), the credit union sent a total of nine separate reaffirmation-related letters. In those letters, it referred three times to foreclosure. The question, then, is whether these references, read favorably to the bankruptcy court's finding, plausibly can be deemed coercive. We think not. 46 The first mention of foreclosure came in a response to the debtors' initial request for reaffirmation of the mortgage indebtedness. After outlining the credit union's all or nothing policy, its lawyer asked the debtors' counsel to ascertain whether the debtors will be discharging all their obligations, and if so, whether they would be amenable to a deed in lieu of foreclosure. 47 The second foreclosure reference transpired after the bankruptcy court rejected the initial reaffirmation proposal. At that point, the debtors' attorney declared that his clients were willing to reaffirm the mortgage indebtedness (but no other obligations) and vowed to fully litigate any foreclosure action instituted by the credit union. Responding to this vow, the credit union's counsel wrote that: 48 [I]t was the Credit Union's desire that the Parties could have arrived at a mutually agreeable resolution. As foreclosing was not on the Credit Union's agenda, it would be premature to extensively respond to your assertions.... Should the Credit Union eventually foreclose, however, the terms of the Jamos' note and mortgage are that the Jamos are liable for the Credit Union's costs and fees of enforcing the obligation, and therefore, should the Credit Union prevail, the amount due increases rapidly as a result of all this litigation. Of course, the Jamos are not personally exposed to this liability, but such sums are secured by the mortgage. 49 The third reference came in a letter to the debtors that limned the terms of the second reaffirmation proposal. In that epistle, the credit union's lawyer expressed his belief that the contemplated overall reduction in payments would eliminat[e] the risks of future litigation, including foreclosure. 50 These references were unarguably benign. The first letter merely inquired whether the debtors, if they decided to discharge all their debts (including the mortgage indebtedness), would be willing to deliver a deed to the credit union in lieu of foreclosure. The next letter was nothing more than a temperate response to statements made by the debtors' counsel. Far from hanging the Damoclean sword of foreclosure over the debtors' heads, the credit union accurately delineated the debtors' foreclosure-related liability and made clear that foreclosure was not on [its] agenda. The final reference to foreclosure was likewise innocuous; in context, it cannot reasonably be deemed tantamount to a threat. 51 To say more on this point would be supererogatory. Because the credit union's passing references to foreclosure cannot reasonably be construed as threatening immediate action against the debtors, In re Brown, 851 F.2d at 86, those references were not impermissibly coercive. Accordingly, the credit union did not violate the automatic stay.