1:07-bk-10900•James N. Smith and Laura R. Smith
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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION In Re James N. Smith Laura R. Smith Debtor ) ) ) ) ) ) Case No. 07-10900 Chapter 7 Judge Burton Perlman ORDER RE: REAFFIRMATION This is a Chapter 7 bankruptcy case in which debtors seek to reaffirm a debt on a vehicle. A Reaffirmation Agreement has been presented to the court. The court denied approval of the Reaffirmation Agreement by Order dated May 8, 2007. Approval was declined because the attorney for the debtors had not completed Part C of the Reaffirmation Agreement. Re-submission of the agreement was invited if this deficiency was remedied. The court was informed that counsel would not complete Part C, and that she had expressly excepted consideration of Reaffirmation Agreements This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio. IT IS SO ORDERED. Dated: July 18, 2007 ____________________________________________________________ Case 1:07-bk-10900 Doc 19 Filed 07/18/07 Entered 07/18/07 16:36:44 Desc Main Document Page 1 of 9
2 from her retention agreement with the debtors. Counsel informed the court that it was her uniform practice in all cases where approval of reaffirmation agreements might arise, not to complete Part C, to exclude taking the position on reaffirmation required by Part C, and to exclude that need expressly by the terms of her retention agreement. The court now writes sua sponte. It perceives a question of whether an attorney representing a client in a case where reaffirmation is concerned can refuse to complete Part C. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became effective October 17, 2005. The statute itself deals at some length with the subject of reaffirmation. Thus, at 11 U.S.C. § 524(c) the statute says: §524 Effect of discharge. * * * (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, whether or non discharge of such debt is waived, only if- (1) such agreement was made before the granting of the discharge under section 727, 1141, 1228, or 1328 of this title; (2) the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the agreement; (3) such agreement has been filed with the court and, if applicable, accompanied by a declaration or an affidavit of the attorney Case 1:07-bk-10900 Doc 19 Filed 07/18/07 Entered 07/18/07 16:36:44 Desc Main Document Page 2 of 9
3 that represented the debtor during the course of negotiation an agreement under this subsection, which states that - (A) such agreement represents a fully informed and voluntary agreement by the debtor; (B)such agreement does not impose an undue hardship on the debtor or a dependent of the debtor; and (C) the attorney fully advised the debtor of the legal effect and consequences of- (i) an agreement of the kind specified in this subsection; and (ii) any default under such an agreement; (4)the debtor has not rescinded such agreement at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later, by giving notice of rescission to the holder of such claim; * * * The statute further provides at 11 U.S.C. § 524(k)(1): * * * (k)(1) The disclosures required under subsection (c)(2) shall consist of the disclosure statement described in paragraph (3), completed as required in that paragraph, together with the agreement specified in subsection (c), statement, declaration, motion and order described, respectively, in paragraphs (4) through (8), and shall be the only disclosures required in connection with entering into such agreement. After § 524(k)(1), specific provisions which must be included in a reaffirmation agreement are provided. Section 524(k) then continues at §524(k)(5) with the following: Case 1:07-bk-10900 Doc 19 Filed 07/18/07 Entered 07/18/07 16:36:44 Desc Main Document Page 3 of 9
4 * * * (5) The declaration shall consist of the following: (A) The following certification: “Part C: Certification by Debtor’s Attorney (If Any). “I hereby certify that (1) this agreement represents a fully informed and voluntary agreement by the debtor;(2) this agreement does not impose an undue hardship on the debtor or any dependent of the debtor; and (3) I have fully advised the debtor of the legal effect and consequences of this agreement and any default under this agreement. “Signature of Debtor’s Attorney: Date:”. (B)If a presumption of undue hardship has been established with respect to such agreement, such certification shall state that in the opinion of the attorney, the debtor is able to make payment. * * * The statute also includes §524(m): (m)(1) 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 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 Case 1:07-bk-10900 Doc 19 Filed 07/18/07 Entered 07/18/07 16:36:44 Desc Main Document Page 4 of 9
5 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 is not the first court to have dealt with a reaffirmation situation where counsel has failed to sign Part C of the reaffirmation agreement. In In re Husain,364 B.R. 211, 215- 216(Bankr.E.D.VA., 2007), the court, faced with this situation, commented that BAPCPA contemplated only two situations. “[E]ither (1) a debtor presenting a reaffirmation agreement to the Court was represented by counsel throughout the negotiation of the agreement, or (2) the debtor was totally unrepresented by counsel throughout the negotiation.” The court there eventually concluded that where counsel failed to execute Part C, in effect, debtor was unrepresented by counsel for purposes of reaffirmation, and the court held a hearing pursuant to l1 U.S.C. § 524(d). At the hearing counsel appeared with debtor, advocating on behalf of debtors that the reaffirmation agreement be approved. The court then remarked that even if counsel had signed Part C, it would still be obliged to consider independently the merits of the reaffirmation request because the presumption of undue hardship applied. In the end, the court denied the request for approval of the reaffirmation agreement, but Case 1:07-bk-10900 Doc 19 Filed 07/18/07 Entered 07/18/07 16:36:44 Desc Main Document Page 5 of 9
6 took no position with respect to whether counsel was required to take some act in regard to Part C. Again, in In re Riggs, 2006 WL 2990218 (Bankr W.D. Mo. October 12, 2006) after commenting that counsel had failed to sign Part C of the reaffirmation agreement, the only action by the court was to conduct a hearing after which the court reached a conclusion after considering the merits, that the reaffirmation should not be approved. In this court the general practice is to conduct a hearing with respect to reaffirmation agreements only where the debtor is pro se. The court is aware that to conduct a hearing in cases where debtor is represented by counsel means that the debtor must appear, taking a day off from work, and counsel must also appear, incurring additional expense for the debtor. At the same time, it is apparent that Part C does place counsel in an untenable position. It presents only two scenarios, at the conclusion of either of which counsel is approving reaffirmation if he or she signs. No provision is made in Part C for a situation where counsel after due consideration in the course of representing his or her client concludes that approval cannot be recommended by that counsel. It is, then, unfair in the opinion of this court to require counsel to sign Part C unless provision is made for the situation where counsel signing Part C is not recommending approval of reaffirmation. Case 1:07-bk-10900 Doc 19 Filed 07/18/07 Entered 07/18/07 16:36:44 Desc Main Document Page 6 of 9
7 This court had originally set this matter by Order to Show Cause. Counsel responded to that order in writing as follows: Counsel in her contract with debtors, dated January 2, 2007 and attached hereto and marked as Debtors’ Exhibit 1, specifically excepted from representation “the signing off” on reaffirmation agreements. Counsel did in fact counsel and review with the debtors the terms of the agreement and discussed whether a redemption would have been more beneficial for them. The contract entered into between counsel and debtors limited counsel to reviewing said agreements with debtors and if necessary appearing before the court on any hearing set by the court for the approval of the agreement. The contract merely excluded counsel’s “signing off” on the agreement. This was also repeated to debtors at the time of signing of the petition, as evidenced by the checklist signed by counsel and debtors and attached hereto and marked as Debtors’ Exhibit 2. Again, counsel would not “sign off” on the agreement but would review it and appear in court with debtors, if necessary. By use of the phrase “signing off”, the court understands counsel to be saying that she declines to sign Part C because it includes the language: “(2) this agreement does not impose an undue hardship on the debtor or any dependent of the debtor.” However, her statement makes clear that she does in fact comply with the other requirements of the first paragraph Part C, that she has fully informed the debtors on the subject of reaffirmation agreements and that it is voluntary on their part, as well as the further requirement that she has “fully advised the debtor of the legal effect and consequences of this agreement and any default under this agreement.” This court holds that the conduct of counsel in this case is correct. The court believes that in representing a bankruptcy Case 1:07-bk-10900 Doc 19 Filed 07/18/07 Entered 07/18/07 16:36:44 Desc Main Document Page 7 of 9
8 debtor, it is the obligation of counsel to inform the client about the legal effect and consequences of a reaffirmation agreement or any default under the agreement, and that obligation cannot be contracted away. Counsel should not, however, be placed in the position of attesting that a debtor will not suffer an undue hardship if he or she enters into the reaffirmation agreement and that debtor will be able to make payments on the reaffirmed debt, for that could conceivably expose counsel to liability. See In re Mendoza, 347 B.R. 34,38 (Bankr. W.D. Tex., 2006) Finally, this court is not willing to make an assumption, where debtor is represented by counsel, and counsel has not signed Part C, that debtor is unrepresented as to the reaffirmation, for that would require that the court hold a hearing before the reaffirmation could be approved. Where debtor is represented by counsel the court is not obliged to hold a hearing even where undue hardship exists. (The court concludes that the phrase “undue hardship” means that Schedule J, Debtor(s) Expenditures exceeds Schedule I, Debtor(s) Income. See Section 524(m)). Our conclusion, then, is that if debtor is represented by counsel, that the representation will include fully informing the client about the consequences of reaffirmation and any default thereunder. The reaffirmation, if undue hardship is shown to exist, will then be reviewed by the court without the necessity of a court appearance by debtor or counsel, unless the court orders otherwise. Case 1:07-bk-10900 Doc 19 Filed 07/18/07 Entered 07/18/07 16:36:44 Desc Main Document Page 8 of 9
9 Copies to: Henry D. Acciani 1014 Vine Street Cincinnati, OH 45202 Jayma Bagliore 1014 Vine Street Cincinnati, OH 45202 Harold Jarnicki, Trustee 586 Mound Court Ste B Lebanon, OH 45036 James Smith 1301 Market Street Cincinnati, OH 45215 Laura Smith 1301 Market Street Cincinnati, OH 45215 U.S. Trustee 36 E. 7th Street Suite 2030 Cincinnati, OH 45202 ### Case 1:07-bk-10900 Doc 19 Filed 07/18/07 Entered 07/18/07 16:36:44 Desc Main Document Page 9 of 9
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