In Re Dabbs
1991 Bankr. LEXIS 800, 1991 WL 102573, 128 B.R. 307 (1991)
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Rule of Law:
A reaffirmation agreement is enforceable, even without a § 524(d) hearing, if the debtor was represented by counsel who filed an affidavit affirming the agreement was voluntary and not an undue hardship, and the time for the debtor to rescind the agreement has already expired.
Facts:
- On November 6, 1989, the debtors filed for Chapter 7 bankruptcy protection.
- The debtors indicated their intention to retain their Pontiac Firebird, which was subject to a security interest held by Tyndall Federal Credit Union ('Tyndall').
- On December 14, 1989, the debtors entered into a reaffirmation agreement with Tyndall for the car loan.
- The debtors' attorney filed an affidavit along with the agreement, stating it was entered into voluntarily and would not impose an undue hardship.
- The debtors received their bankruptcy discharge on February 21, 1990.
- Following the discharge, the debtors made two payments to Tyndall but failed to cure the pre-existing default on the loan.
- The debtors never exercised their right to rescind the reaffirmation agreement before their discharge or within sixty days of its filing.
- Tyndall subsequently repossessed the automobile.
Procedural Posture:
- The debtors filed a Chapter 7 petition in the U.S. Bankruptcy Court.
- After the debtors defaulted, Tyndall repossessed the car and sought a deficiency judgment in state court.
- The state court denied Tyndall's motion for summary judgment based on its interpretation of 11 U.S.C. § 524.
- Tyndall then filed a motion in the U.S. Bankruptcy Court to reopen the debtors' bankruptcy case to determine the validity of the reaffirmation agreement.
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Issue:
Does a reaffirmation agreement become unenforceable solely because the court did not hold a § 524(d) admonishment hearing, when the debtor was represented by counsel who submitted the required affidavit and the time for the debtor to rescind the agreement had already expired?
Opinions:
Majority - Killian, Jr., Bankruptcy Judge
No. A reaffirmation agreement is enforceable even without a hearing where holding one would be moot. While § 524(d) directs courts to hold a hearing to admonish debtors, the purpose of this hearing is to inform them of the consequences and their right to rescind. When a debtor is represented by counsel who has filed the required affidavit, and the time to rescind the agreement (prior to discharge or within 60 days of filing) has passed, the hearing serves no purpose. At that point, the court cannot disapprove the agreement and the debtor cannot rescind it. To hold a hearing then would be akin to giving 'post-conviction Miranda warnings.' Interpreting the statute to require a pointless hearing would lead to an absurd result, allowing debtors to use the lack of a hearing as a 'sword' to escape a valid agreement, contrary to Congress's intent for the provision to be a 'shield' protecting debtors from overreaching creditors.
Analysis:
This decision represents a significant pragmatic departure from the strict, literal interpretation of 11 U.S.C. § 524(d) adopted by other courts. By prioritizing the statute's purpose over its plain text, the court avoids what it considers an absurd outcome where a procedural requirement with no practical effect could invalidate a substantively sound agreement. This ruling creates a precedent within its jurisdiction that when the core protections for a debtor (i.e., legal counsel's review and approval) are in place, the failure to perform a purely ministerial judicial admonishment after the fact will not void the agreement. It provides creditors with greater certainty but may reduce the finality of judicial oversight intended by the statute.
