Opinion ID: 200185
Heading Depth: 2
Heading Rank: 1

Heading: The Bankruptcy Discharge Injunction.

Text: 19 The most pervasive issue in this case hinges on the scope and operation of the bankruptcy discharge injunction, 11 U.S.C. § 524. This is a matter of statutory construction, and we approach it by examining the language of the pertinent statutes. United States v. Charles George Trucking Co., 823 F.2d 685, 688 (1st Cir.1987). In determining the meaning of a statute, we presume that Congress intended all of the constituent words and passages to have meaning and effect. Lopez-Soto v. Hawayek, 175 F.3d 170, 173 (1st Cir.1999). Concomitantly, we defer to Congress's choice of phrase and give words used in a statute their ordinary and accepted meaning. C.K. Smith & Co. v. Motiva Enters. LLC, 269 F.3d 70, 76 (1st Cir.2001). 20 Section 524(c) deals specifically with agreements between debtors and those who hold claims against them. It states in pertinent part: 21 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 ... [and] only if [certain elements not relevant here are satisfied]. 22 11 U.S.C. § 524(c). For present purposes, then, the threshold inquiry is whether the consideration underlying a particular redemption agreement is based to any degree on a debt that is dischargeable (or that has been discharged) in bankruptcy. This inquiry involves two different bodies of law: the dischargeability of a debt is a matter of federal bankruptcy law, but whether the consideration for the underlying agreement is based on that debt is a matter of state contract law. 23 We start with the federal question. Although the terms discharge and dischargeable are not explicitly defined in the Bankruptcy Code, 11 U.S.C. § 524(a) sheds considerable light upon the matter. It states that a discharge ... voids any judgment ... to the extent that [it] is a determination of the personal liability of the debtor ... [and enjoins] the commencement or continuation of an action, the employment of process, or any act, to collect, recover or offset any such debt as a personal liability of the debtor.... Id. § 524(a)(1)-(2) (emphasis supplied). Thus, only a debtor's personal liability is dischargeable in a Chapter 7 case. It follows, therefore, that the strictures of section 524(c) apply only to those agreements the consideration for which involves, in whole or in part, the imposition (or reimposition) of personal liability with respect to a debt dischargeable (or previously discharged) in bankruptcy. 24 This brings us to the second phase of our inquiry. Here, the relevant state law is the law of Rhode Island. Under Rhode Island law, [u]nambiguous language is to be accorded its plain and natural meaning. Newport Plaza Assocs. v. Durfee Attleboro Bank, 985 F.2d 640, 645 (1st Cir.1993). The interpretation of such language presents a question of law. Id. at 644 (citing Judd Realty, Inc. v. Tedesco, 400 A.2d 952, 955 (R.I.1979)). And when intent is plainly revealed by the express terms of a written contract, an inquiring court should not search for some undisclosed intent ... but [rather, look to that intent] ... expressed by the language contained in the contract. Woon. Teachers' Guild, Local 951 v. School Comm., 117 R.I. 373, 367 A.2d 203, 205 (R.I.1976). 25 Each redemption agreement at issue here contains an explicit acknowledgment that the Debtor's failure to redeem as described within this agreement shall not impose any personal liability on the Debtor. Each agreement adds that if the debtor fails to pay the redemption amount, Sears' only recourse is against the collateral. This language appears just above the agreement's signature line and just below the underscored heading: No Personal Liability. The appellants do not allege that they were unaware of this language; indeed, their complaints confirm that they consented to this very formulation. Given these facts, the agreements cannot plausibly be interpreted to impose personal liability on the appellants in any way. To cinch matters, the appellants do not allege any facts which, under Rhode Island law, might justify judicial disregard of the clear contractual text. We conclude, therefore, that because these agreements do not purport to impose any personal liability on account of discharged debts, section 524(c) does not affect their enforceability. 26 The appellants labor to avoid this dead end. Their escape route involves two related points: that Sears, by means of its self-serving valuation tables, greatly overstated the worth of the collateral, and that the district court disregarded the method of Rule 12(b)(6) when it failed to indulge the appellants' allegation that these inflated valuations represented veiled attempts to collect on account of discharged debts. But this route also leads to a blind alley, for it overlooks the express terms of the redemption agreements. 27 In these agreements, the appellants attest that they agreed [to] the replacement value of the ... property, for the purpose of redemption. They then agreed that, upon payment of the stipulated amount(s), Sears [sic] security interest in the ... merchandise shall be terminated. Each agreement, therefore, makes manifest the parties' objective intent: to leave the goods in situ, settle upon an agreed fair market value, and exchange that sum for extinguishment of Sears's right of repossession. The appellants' attempt to contradict this clear contractual language cannot be credited. See Clorox, 228 F.3d at 32. 28 In an effort to rebut this reasoning, the appellants suggest that the redemption agreements lack force because they were not judicially approved. This is a red herring: neither the Bankruptcy Code nor the implementing rules demand judicial approval of all redemption agreements. The relevant section of the Bankruptcy Code provides that an individual debtor may redeem certain property. 11 U.S.C. § 722. In a similar vein, the relevant bankruptcy rule provides that the court may authorize the redemption upon the debtor's motion. Fed. R. Bankr.P. 6008. These provisions are obviously precatory. There is no imperative requiring judicial approval in every instance; only when there is some disagreement between the individual debtor and the secured creditor, usually... over value, is the court called upon to act. 10 Lawrence P. King et al., Collier on Bankruptcy ¶ 6008.04 (15th rev. ed.2002). The complaints in these cases do not contain any allegation that the parties reached any such impasse in their redemption negotiations. 29 That omission conclusively rebuts the appellants' suggestion. Taken in light of the explicit terminology of the redemption agreements, the omission reveals the appellants' motive allegation to be nothing but a bald assertion about an undisclosed intent. Because such an assertion flies in the teeth of explicit contractual language, it must be disregarded. To hold otherwise would frustrate both Rhode Island contract law, e.g., Newport Plaza, 985 F.2d at 644-46; Woon. Teachers' Guild, 367 A.2d at 205, and federal procedural orthodoxy, e.g., Young, 305 F.3d at 10; Clorox, 228 F.3d at 32. 30 The appellants next asseverate that Sears violated section 524 by deliberately awaiting the conclusion of bankruptcy proceedings before asserting its right of repossession. They say that redemption under 11 U.S.C. § 722 is supposed to occur during the pendency of a bankruptcy proceeding, and that, therefore, Sears had no right to wait until after the granting of a discharge to propose settlement terms. Because Sears failed to file a claim during the bankruptcy proceedings, this thesis runs, any payment for the goods would necessarily be on account of discharged debt (and, thus, violative of the bankruptcy discharge injunction). To this they add that the district court erred in finding, contrary to the allegations of the complaints, that Sears only sought to recover property in which it had a security interest. Arruda, 273 B.R. at 344. These contentions are meritless. 31 It is hornbook law that a valid lien survives a discharge in bankruptcy unless it is avoidable and the debtor takes the proper steps to avoid it. Holloway v. John Hancock Mut. Life Ins. Co. ( In re Holloway ), 81 F.3d 1062, 1063 (11th Cir. 1996). A surviving lien remains enforceable, for a bankruptcy discharge extinguishes only one mode of enforcing a claim — namely, an action against the debtor in personam — while leaving intact another — namely, an action against the debtor in rem. Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991). 32 Generally speaking — the possible exceptions are not apposite here — nothing in the Bankruptcy Code imposes an affirmative duty on a lienholder to assert its in rem rights prior to the debtor's securing of a discharge. See Farrey v. Sanderfoot, 500 U.S. 291, 297, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991). This flexible sequencing is fully consistent with the Bankruptcy Code's automatic stay provision, 11 U.S.C. § 362, which — unless and until the stay is lifted — ordinarily will prevent a creditor from attempting to take possession of any part of the debtor's estate prior to discharge. Accordingly, we conclude that a lienholder does not violate section 524(a) by waiting until a bankruptcy case is closed before asserting its in rem rights. 33 We also conclude, notwithstanding the appellants' importunings, that a lienholder does not violate any provision of the Bankruptcy Code merely by proposing redemption terms to a debtor after the latter has received a general discharge. Cf. Jamo v. Katahdin Fed. Credit Union ( In re Jamo ), 283 F.3d 392, 399 (1st Cir. 2002) (holding, in the bankruptcy reaffirmation context, 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). Even after the termination of a bankruptcy case, a discharged debtor who wishes to redeem property pursuant to section 722, but who believes that the terms proposed by the lienholder are unfair, can ask the bankruptcy court to reopen the bankruptcy case and adjudicate the matter. See In re Cassell, 41 B.R. 737, 740 (Bankr.E.D.Va. 1984). It follows that, at least in the absence of factually supported allegations of coercion or harassment, 2 the appellants fail to state a claim simply by juxtaposing Sears's timing and its proposed settlement terms. 34 The appellants' last bankruptcy-related argument hinges on their assertion that Sears never wanted to enforce its rights in the property, but, rather, aspired all along to collect money. The district court found this argument unpersuasive, Arruda, 273 B.R. at 344-45, and so do we. 35 Home State Bank makes clear that the in rem right that survives bankruptcy is a `right to payment' in the form of [the lienholder's] right to the proceeds from the sale of the debtor's property. 501 U.S. at 84, 111 S.Ct. 2150. Section 722 gives the debtor, in effect, a right of first refusal ... in consumer goods that might otherwise be repossessed. H.R.Rep. No. 95-595, at 381 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6337. Thus, the lienholder's right to repossess is nothing more than a right to an equitable remedy for the debtor's default. Home State Bank, 501 U.S. at 84, 111 S.Ct. 2150. The fact that this surviving right is in rem only limits the recourse that the lienholder can take to repossession or obtaining an amount of money reflecting the value of the collateral. 36 Here, all the complaints admit that the parties agreed to the values and that Sears's only proposed course of action, absent such an agreement, was replevin. Given these uncontested facts, the complaints fail to state a cognizable claim, for Sears was acting within the scope of its in rem rights — rights that survived the granting of the debtors' bankruptcy discharges. Consequently, any conflict between the allegation that Sears was more interested in money than in goods and the district court's conclusion that Sears's intent was to repossess property is harmless. 37 That ends our inquiry into the alleged Bankruptcy Code violations. The redemption agreements that Sears proposed do not seek to impose personal liability on the debtors on account of discharged debts — indeed, they relate to discharged debts in only the most tangential way. They therefore fall outside the purview of section 524(c). Thus, the district court correctly concluded that the facts as alleged in the several complaints failed to state actionable claims for federal bankruptcy-law violations. 3