Opinion ID: 2830279
Heading Depth: 2
Heading Rank: 1

Heading: Validity of the Post-Discharge Agreements

Text: “A reaffirmation agreement is one in which the debtor agrees to repay all or part of a dischargeable debt after a bankruptcy petition has been filed.” In re Duke, 79 F.3d 43, 44 (7th Cir. 1996). Prior to 1978, the Bankruptcy Act looked to state law to determine the validity of reaffirmation agreements. In many States, the moral obligation to repay a discharged debt was regarded as sufficient consideration. See In re Bennett, 298 F.3d 1059, 1066 (9th Cir. 2002). In the 1978 Bankruptcy Code, Congress sought to equalize the unequal bargaining positions of experienced creditors and unsophisticated bankruptcy debtors by enacting § 524(c) of the Code, which provides in relevant part: (c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law . . . only if -- (1) such agreement was made before the granting of the discharge ...; -5- (2) the debtor received the disclosures described in subsection (k) ...; (3) such agreement has been filed with the court . . . . Section 524(c) “reflects Congress’s intent to . . . safeguard[] debtors against unsound or unduly pressured judgments about whether to attempt to repay dischargeable debts.” In re Jamo, 283 F.3d 392, 398 (1st Cir. 2002). Under § 524(c), reaffirmation agreements are enforceable only if they are enforceable under state law and meet the requirements of federal law in § 524(c). See, e.g., Bennett, 298 F.3d at 1066. Thus, the bankruptcy court erred in ruling that the Change in Terms Agreements are valid if either (1) “the post-petition agreements comply with the requirements of 11 U.S.C. section 524(c) or (2) all of the essential elements of a contract are present in the post-petition agreements.” If the Agreements violate § 524(c), they are unenforceable as a matter of federal law, whether or not they would be enforceable under applicable state law contract principles. It is undisputed that the post-discharge Change in Terms Agreements were not enforceable § 524(c) reaffirmation agreements, most obviously because they were entered into after Howard’s bankruptcy discharge and were not filed with the bankruptcy court. Venture Bank argues, however, that the agreements are nonetheless valid because they are supported by consideration separate from Howard’s discharged personal debt. The Bank had a right to foreclose on the family home after Howard’s discharge lifted the automatic stay in bankruptcy, and its agreement not to foreclose was adequate consideration under Minnesota law and protected co-borrower Holter-Lapides (who did not file for bankruptcy) from a deficiency judgment. -6- As we have explained, we need not consider whether a promise not to foreclose on a mortgage is adequate consideration under Minnesota law if the Change in Terms Agreements were contrary to § 524(c). The Agreements served no purpose other than reaffirmation agreements in which Howard agreed to repay all of his discharged personal debt. The Agreements were titled Change in Terms; like the pre-petition Change in Terms Agreements, the change in terms extended the maturity date of “Promissory Note #13440,” a pre-petition debt. The Agreements contained Howard’s promise to pay the unpaid principal balance of note 13440 and described the prepetition collateral Howard provided for note 13440, including his personal residence. Like Howard’s prior post-petition voluntary payments, the Agreements were entered into to induce Venture Bank to refinance the Lapideses’ heavily mortgaged residence. They were not part of a complex refinancing; rather, they incorporated the terms of the parties’ failed attempt to fashion an enforceable § 524(c) reaffirmation agreement prior to Howard’s discharge. Instead of continuing to accept Howard’s voluntary payments, a post-discharge arrangement both parties were free to continue, Venture Bank insisted that Howard again promise to repay the entire discharged personal debt in order to continue the refinancing negotiations. When a post-discharge agreement does nothing but obligate a debtor to repay a discharged debt, it is inconsistent with § 524(c), a statute declaring that agreements removing specific personal debts from the benefits of discharge must be negotiated and filed with the court before discharge, when a debtor has the protection of his bankruptcy attorney and the bankruptcy court. Venture Bank relies on In re Heirholzer, 170 B.R. 938, 940-41 (Bankr. N.D. Ohio 1994), which held that a secured creditor’s post-discharge promise to forbear from foreclosing on a mortgage was “new and sufficient consideration to support a binding post-discharge obligation” to repay the discharged secured debt. Like the bankruptcy court and our sister circuits that have considered Heirholzer’s holding, we instead conclude that a secured creditor’s post-discharge forbearance is not sufficient to take a reaffirmation -7- agreement outside the purview of § 524(c). See In re Am. Rice, Inc., 448 F. App’x 415, 420 (5th Cir. 2011); In re Lopez, 345 F.3d 701, 710 (9th Cir. 2003). When post-discharge agreements have included significant contractual terms going well beyond the debtor’s promise to pay all or part of a discharged pre-petition debt, unlike the Change in Terms Agreements in this case, we find the prior case law and expert commentary replete with irreconcilable conflict and confusion. Some cases, like our decision in DuBois v. Ford Motor Credit Co., 276 F.3d 1019, 1022-23 (8th Cir. 2002), have upheld payments under a voluntary post-discharge agreement involving new collateral despite the lack of a pre-discharge § 524(c) reaffirmation agreement. Other cases have declined to void a broad new post-discharge agreement but have declared unenforceable terms in which the debtor promised to pay a discharged debt. See In re Rajotte, 81 F. App’x 29, 33-34 (6th Cir. 2003); In re Smith, 224 B.R. 388, 398-99 (Bankr. N.D. Ill. 1998). Other authorities have broadly asserted, without analyzing the meaning of the word “dischargeable” in § 524(c), that a post-discharge agreement to pay a discharged debt “is without legal effect.” 4 Alan N. Resnick & Henry J. Sommer, Collier on Bankruptcy ¶ 524.04 at 524-41 (16th ed. 2015). We decline to take a position on the appropriate legal standard for deciding these more difficult cases. We simply conclude that the post-discharge Change in Terms Agreements are unenforceable because they were nothing more than reaffirmation agreements that did not comply with § 524(c).