Arvin Payton, Sr. and Joan A. Payton

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Arvin Payton Sr. and Joan A. Payton
05-51104
Memorandum Opinion re: [11-1] Motion For Reaffirmation With Wells Fargo
Financial Acceptance by Arvin Payton Sr., Joan A. Payton .
Received on: 2006-03-16 09:21:36.000
2006-03-16 00:00:00.000
2006-03-16 00:00:00.000
James Burke
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1 The Court also called Mr. Paul Kienzle, who listened in on
the hearing. 	Mr. Kienzle has previously stated that he provides
legal advice to Wells Fargo about reaffirmations. 	However, Mr.
Kienzle was not representing Wells Fargo in connection with this
reaffirmation agreement, and sending to him the notice (doc 12)
of this hearing did not constitute notice to Wells Fargo.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
Arvin Payton Sr.
and Joan A. Payton,
Debtors. 	No. 7 - 05-51104 - SF
MEMORANDUM OPINION AND ORDER DENYING APPROVAL OF
REAFFIRMATION AGREEMENT WITH
WELLS FARGO FINANCIAL ACCEPTANCE
The reaffirmation agreement between the Debtors and Wells
Fargo Financial Acceptance (“Wells Fargo”) filed February 14,
2006 (doc 11) came before the Court for a hearing on March 2,
2006. 	Mr. Arvin Payton Sr. appeared and spoke for himself and
for Ms. Joan Payton, who was unavailable because of a critical
medical procedure scheduled by her doctor on short notice. 	No
notice of the hearing was sent to Wells Fargo. 1 	The Debtors are
due to receive their discharge no sooner than about April 4,
2006. 	For the reasons set forth, the Court does not approve the
reaffirmation agreement.
Background
The Debtors filed their chapter 7 petition on December 27,
2006, thereby making them and Wells Fargo subject to the
provisions of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (“BAPCPA”) for purposes of the agreement.
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2 The Debtors signed the agreement and forwarded it to Wells
Fargo, which completed the agreement and filed it.
3 The underscored portions are handwritten additions to the
printed text. 	Based on Mr. Payton’s statements and the
legibility of the handwriting, the Court finds that the
handwriting is that of the Wells Fargo person who assisted the
Debtors in completing the agreement. 	Mr. Payton also stated that
the Debtors provided the figures to the Wells Fargo person in the
course of a conversation with her; i.e., the Wells Fargo person
did not make up the figures. 	However, Mr. Payton was unable to
explain to the Court how the Debtors arrived at the Part D
figures after they had listed much different figures in Schedules
I and J.
Page -2-
In conformity with BAPCPA, the Debtors and Wells Fargo 2 filed a
lengthy reaffirmation agreement which appears to contain the
requisite disclosures and warnings.
The agreement reaffirms, without reduction, a debt of
$20,938.23 for a 2006 Chevrolet K1500 (“truck” or “collateral”).
The agreement does not state the value of the collateral, but the
attached purchase contract states that the “cash price” of the
truck was $21,546.85. 	The original interest rate was 15.9%; the
agreement reduces that to 8%, so that the Debtors under the
agreement become obligated to make 69 monthly payments of $380.00
rather than $463.88.
Part D of the agreement is signed by the Debtors and recites
as follows: 3
1. I believe this reaffirmation agreement will not
impose an undue hardship on my dependents or me. 	I can
afford to make the payments on the reaffirmed debt
because my monthly income (take home pay plus any other
income received) is $2,800.00, and my actual current
monthly expenses including monthly payments on post-
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4 Rule 4008. 	Discharge and Reaffirmation Hearing
Not more than 30 days following the entry of an order
granting or denying a discharge, or confirming a plan in a
chapter 11 reorganization case concerning an individual debtor
and on not less than 10 days notice to the debtor and trustee,
the court may hold a hearing as provided in § 524(d) of the Code.
(continued...)
Page -3-
bankruptcy debt and other reaffirmation expenses
including monthly payments on post-bankruptcy debt and
other reaffirmation agreements total $2,048.00, leaving
$752.00 to make the required payments on this affirmed
[sic; should be “reaffirmed”] debt. 	I understand that
if my income less my monthly expenses does not leave
enough to make the payments, this reaffirmation
agreement is presumed to be an undue hardship on me and
must be reviewed by the court. However, this
presumption may be overcome if I explain to the
satisfaction of the court how I can afford to make the
payments here: We are comfortable with our payment at
$380.00. 	We can make our payments.
Except as noted, this language is identical with what the
relevant portion of § 524(k)(6)(A) requires.
The income and expense figures in the agreement vary
substantially from those in the Debtor’s schedules I and J.
Schedule I shows income of $3,480.11 ($2,132.44 and $1,347.67 for
Mr. and Ms. Payton respectively). 	These figures are consistent
with their income in previous years as disclosed in Question 1 of
the Statement of Financial Affairs. 	Schedule J shows expenses of
$3,878, for a monthly deficit of almost $400. 	(Schedule J
includes the $463 payment to Wells Fargo on the truck.) 	The
agreement was not accompanied by an explanation of the difference
in the figures between the agreement and the schedules and SOFA,
in violation of NM IBR 4008. 4
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4(...continued)
A motion by the debtor for approval of a reaffirmation agreement
shall be filed before or at the hearing. 	The debtor’s statement
required under § 524(k) shall be accompanied by a statement of
the total income and total expense amounts stated on schedules I
and J. 	If there is a difference between the income and expense
amount stated on schedules I and J and the statement required
under § 524(k), the accompanying statement shall include an
explanation of any difference.
5 It occurred to the Court, belatedly, that in the spirit of
Francis Bacon’s parable about the scholars debating the number of
teeth in a horse’s mouth, the Court should have just asked Mr.
Payton to go outside and check the odometer.
Page -4-
Schedules I and J also disclose that both Debtors are
employed, and that they have four children, the oldest of which
is 17. 	During the hearing, Mr. Payton stated that Ms. Payton was
having a kidney biopsy that day and will be out of work for some
time afterward. 	Thus the Debtors’ income has declined without a
concomitant decline in the level of expenses.
Attached to the agreement is the title, which states that
the truck was purchased 90 days before the petition was filed and
that the actual mileage reading on the odometer was eight miles.
The Debtor testified the truck was purchased new. 	In Schedule
B/25, the Debtors listed two vehicles: a 2004 Pontiac Grand Am
with 48,000 miles in good condition and a “2006 Chevy Pickup
44,000 Mi[les] Good Cond[dition]”. 	Mr. Payton said that he
thought the mileage figure stated in Schedule B was too high but
was unable to say what the correct number was. 5 	In their
Statement of Intention (doc 2), the Debtors recite that they will
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6 The Debtors were assisted in preparing and filing their
case by a bankruptcy petition preparer. 	How the Debtors could
have elected to reaffirm the debt on their mobile home and
“retain and pay” on the vehicles absent some fairly explicit
legal advice from the petition preparer is not at all clear to
the Court. 	What is clear is that the Congressional policy of
expecting petition preparers to aid debtors without providing
legal advice is completely unworkable.
7 Thus not approving this reaffirmation agreement merely
carries out the Debtors’ original intention expressed in the
Statement of Intention.
Page -5-
reaffirm on their mobile home but that, as to each vehicle,
“Debtor will retain collateral and continue to make regular
payments.” 6 	Despite the “retain and pay” language, the Debtors,
probably at the suggestion of Wells Fargo, now seek to reaffirm
the debt on the truck. 7
Analysis
The Code requires the Court to advise unrepresented debtors
of the legal effect and consequences of a reaffirmation agreement
and default thereunder. 	§ 524(d)(1)(B). 	The Code also requires
the Court to approve or disapprove the agreement based on what
the Court determines is in the best interest of the debtors and
their dependents. 	§ 524(c)(6)(A). 	To do that, the Court
obviously needs to consider all the relevant facts, not just what
is contained in the proposed agreement.
Section 524(m)(1) provides as follows:
Until 60 days after an agreement of the kind specified
in subsection (c) is filed with the court (or such
additional period as the court, after notice and a
hearing and for cause, orders before the expiration of
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Page -6-
such period), it shall be presumed that such agreement
is an undue hardship on the debtor if the debtor's
monthly income less the debtor's monthly expenses as
shown on the debtor's completed and signed statement in
support of such agreement required under subsection
(k)(6)(A) is less than the scheduled payments on the
reaffirmed debt. This presumption shall be reviewed by
the court. The presumption may be rebutted in writing
by the debtor if the statement includes an explanation
that identifies additional sources of funds to make the
payments as agreed upon under the terms of such
agreement. If the presumption is not rebutted to the
satisfaction of the court, the court may disapprove
such agreement. No agreement shall be disapproved
without notice and a hearing to the debtor and
creditor, and such hearing shall be concluded before
the entry of the debtor's discharge.
This section requires in part that, if the monthly income
and expense figures set out in part D of the agreement show a
loss or a net gain that is less than the payment sought to be
reaffirmed, a presumption arises that the agreement constitutes
an undue hardship on the debtor, and “this presumption shall be
reviewed by the court.” 	The debtor may rebut the presumption by
providing written evidence of additional sources of income to
make the payments. 	Nevertheless, and despite the odd wording of
the statute, § 524(m) does not require the Court to rely only on
the income and expense figures set out in part D of a
reaffirmation agreement. 	Indeed, the requirements of NM IBR 4008
(quoted above) suggest precisely the opposite.
In this case, even before the family lost Ms. Payton’s
income due to the medical procedure, the Debtors were
“underwater” on the monthly budget by almost $400. 	Deleting the
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8 “Although conscientious courts will no doubt seek to urge
debtor to reconsider proceeding with reaffirmation agreements,
the new provisions clearly make the easier path that of approval
notwithstanding the outcome of the calculation of the undue
(continued...)
Page -7-
$463 truck payment leaves the Debtors about $66 in the black.
Adding back in the proposed lower payment of $380 leaves the
Debtors $314 in the red. If the figures in Schedules I and J were
to have been inserted into Part D of the agreement, the
presumption of undue hardship would have arisen. 	There has been
no suggestion whatever of any additional source of income to make
up any shortfall in the budget. 	Therefore under § 524(m) the
Court would have been authorized to disapprove the agreement.
But even assuming that Ms. Payton’s income were available to
the Debtors, and that their income exceeded the total of their
expenses plus the $463 or $380 truck payment, the Court would
still not approve the agreement. 	Nothing in § 524(m) explicitly
or implicitly requires the Court to approve a reaffirmation
agreement. 	It is true that the statute recites that if the
presumption is not otherwise rebutted, the court “may” disapprove
the agreement. 	That is simply another way of saying that even if
the debtor will go further underwater each month by making the
payments, the court has the authority to approve the agreement.
The language of the subsection certainly evidences a
Congressional preference for the approval of virtually all
reaffirmation agreements 8, but that is not the same as
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8(...continued)
hardship formula.” 	David B. Wheeler and Douglas E. Wedge, A
Fully Informed Decision: Reaffirmation, Disclosure and the
Banruptcy Abuse Prevention and Consumer Protection Act of 2005,
79 Am. Bankr. L.J. 789, 813 (2005).
Page -8-
staightforwardly requiring that a reaffirmation agreement be
approved, which is how Congress could have chosen to write the
statute. 	In any event, such a preference or requirement would
run directly contrary to §§ 524(d)(2) and (c)(6)(A) that mandate
that the driver of the decision to approve a reaffirmation
agreement be the best interests of the debtor and the debtor’s
dependents.
The facts of this case demand that the agreement not be
approved. 	If the truck does have 44,000 miles on it already, or
anything close, its value is rapidly dropping. 	The Debtors
valued this truck at $25,000 on Schedule B; that is more than the
cash purchase price. 	That valuation suggests that the Debtors
either negotiated a stunningly good price with the salesperson
(who may have told them just that), or they are unable to value
their assets as accurately as they need to. 	The former is
unlikely, and the latter does not bode well for the future.
Ms. Payton’s medical problem also suggests the fragility of
their financial situation. 	Even if she returns to work quickly
and is able to resume earning her full-time wages, the Debtors
may still be faced with something going slightly (or not so
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9 The Court acknowledges a certain amount of unreality to
treating the Debtors’ budget numbers as if they were so firm.
However, the Court needs to use some figures to make the
calculations required by the statute, and the Debtors’ estimated
numbers are probably the best that are reasonably available.
10 The extension of the times between discharges in chapter
7 and 13 cases, see §§ 727(a)(8) and 1327(f) respectively,
provide a significant additional incentive for debtors’ counsel
and the courts to refuse debtors’ requests to approve
reaffirmation agreements.
Page -9-
slightly) wrong for a month or two which forces the Debtors to
choose between paying for the truck or after-school care.
If the Debtors were to become re-obligated on this debt,
even at the lower interest rate, they would be going underwater
each month by $314. 9 	Not only is that a bad lesson for Debtors
to be receiving from a bankruptcy court, but it sets them up for
a default and the resulting deficiency judgment, garnishment of
wages and execution on their assets. 	The Debtors would thus be
vulnerable to collection efforts and unable to obtain a discharge
for years afterward, a situation highly advantageous for the
creditor but reciprocally a disaster for the Debtors and their
children. 10
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11 The Court does not mean to suggest that in such
circumstances Wells Fargo would necessarily engage in intensive
collection activities against the Debtors. 	The Court does not
know what Wells Fargo would do. 	(The fact that Wells Fargo has
hired Mr. Kienzle certainly suggests a serious commitment to
assuring compliance with the statute, and that provides a measure
of reassurance.) 	But the Court must take into consideration what
Wells Fargo in this case (and other creditors in other cases)
could do. 	Thus, in a sense, the Court needs to act on what would
be the worst reasonably possible outcome for the Debtors.
Page -10-
That potential nightmare 11 for these Debtors and their
children can be avoided by not approving the reaffirmation
agreement. 	That does not mean of course that the Debtors
necessarily lose the use of the truck. 	§ 524(f) specifically
allows the Debtors to make voluntary payments to Wells Fargo.
Compare LaFave v. Ford Motor Credit Co. (In re LaFave), 9 B.R.
859, 861 (Bankr. M.D. Penn. 1982) (voluntary payments to retain
or use vehicle allowed) with Mickens v. Waynesboro Dupont
Employees Credit Union (In re Mickens), 229 B.R. 114, 117 (Bankr.
W.D. Vir. 1999) (§ 524(f) does not allow a transaction that
leaves the debtor obligated or believing that he or she is
obligated). 	In other words, there is nothing to prevent Wells
Fargo from agreeing with the Debtors that they can continue to
possess and use the truck as long as they make the monthly
payments and keep it insured, with the clear understanding that
if the Debtors ever stop making the payments or maintaining the
insurance, as they are free to do, Wells Fargo can repossess the
truck, but it will not be able to obtain a deficiency judgment or
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12 Nothing in this memorandum opinion is intended to
constitute an endorsement of Chevrolet trucks as being any
“tougher” than, say, trucks from Ford, Dodge, Nissan, Toyota,
Cadillac, etc.
Page -11-
take any other collection efforts. 	Indeed, because Wells Fargo
is presumably much more interested in a stream of payments from
the Debtors instead of the truck, it may well be that Wells Fargo
and the Debtors agree to reduce the interest rate even without
the reaffirmation agreement.
It is unquestionably true that each Debtor in this case
needs to have a vehicle. 	The family lives in Thoreau, a very
small semi-rural community. 	With only a few exceptions, the
communities in New Mexico have little or no mass transportation,
particularly any that is conducive to managing a six-person
family on a daily basis. 	Mr. Payton is a “Service Tech” for D&H
Pump Service out of El Paso, Texas; that presumably means that he
travels all over northwestern New Mexico servicing oil and gas
pumps. 	He needs a truck, and a pretty good-size rugged one at
that. 12
However, an arrangement with Wells Fargo that is truly and
completely voluntary will serve them just as well if they are
able to keep and use the truck. 	Of course Wells Fargo, in the
pursuit of its own best interests as it judges, is perfectly
entitled not to go along with a purely voluntary agreement that
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13 Based on this Court’s experience, that is not likely to
happen. 	But if it does, the Debtors still have whatever state
court remedies may be available to them to prevent or undo a loss
of the vehicle.
14 It is common knowledge that once the Debtors receive
their discharge, they will receive a number of credit offers.
Page -12-
allows the Debtors to retain and continue to pay for the truck. 13
In that instance the Debtors are still probably better off, even
if it means starting anew with another vehicle that, one hopes,
will fit their budget better and present less risk of default. 14
The Court had no obligation to notify Wells Fargo of the
hearing. 	Section 524(m)(1) provides in part that “[n]o agreement
shall be disapproved without notice and a hearing to the debtor
and creditor,...” 	But that notice requirement applies only if
the budget numbers in the agreement reflect a deficit if the
debtor makes the payment required by the agreement. 	In this
instance, the agreement says there is a monthly surplus of $752
which exceeds the $380 monthly payment. 	That those numbers in
the agreement differ so significantly from the figures in
Schedules I and J (which show that the $380 monthly payment puts
the Debtors $314 in the red each month) is irrelevant for
purposes of notice to the creditor.
Conclusion and Order
For the foregoing reasons, the Court finds that obligating
the Debtors on this reaffirmation agreement would impose an undue
hardship on Debtors and their dependents, and would not be in the
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Page -13-
best interests of the Debtors and their dependents. 	The Court
also finds that there was no obligation to provide notice of the
hearing on the approval of the reaffirmation agreement to Wells
Fargo.
IT IS THEREFORE ORDERED that the proposed reaffirmation
agreement filed February 14, 2006 between the Debtors and Wells
Fargo Financial Acceptance (doc 11) is not approved.
Honorable James S. Starzynski
United States Bankruptcy Judge
I hereby certify that on March 16, 2006, a true and correct copy
of the foregoing was electronically transmitted, faxed,
delivered, or mailed to the listed counsel and/or parties.
Arvin Payton, Sr.
PO Box 1435
Thoreau, NM 87323
Joan A. Payton
PO Box 1435
Thoreau, NM 87323
Wells Fargo Financial Acceptance NM
PO Box 250
Essington, PA 19029
Paul Kienzle
PO Box 587
Albuquerque, NM 87103-0587
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