In the Matter of William Duke, Debtor-Appellant
35 Collier Bankr. Cas. 2d 686, 1996 U.S. App. LEXIS 4591, 79 F.3d 43 (1996)
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Rule of Law:
A creditor's non-coercive offer to reaffirm a pre-petition debt, sent to a debtor's attorney with a copy to the debtor, does not violate the automatic stay provision of 11 U.S.C. § 362(a)(6).
Facts:
- On September 23, 1994, William Duke filed a Chapter 7 bankruptcy petition.
- William Duke listed Sears, Roebuck & Co. (Sears) as one of his creditors, with an outstanding balance of $317.10.
- Sears sent a letter to William Duke’s attorney, Robert L. Adams, with a copy addressed to William Duke “for information purposes.”
- The letter offered William Duke the reinstatement of charge privileges with a $500 line of credit if he elected to reaffirm the Sears account upon liquidation of the outstanding $317.10 balance.
- The letter included copies of a proposed Reaffirmation Agreement.
Procedural Posture:
- William Duke filed a Chapter 7 bankruptcy petition.
- Duke claimed that the letter sent by Sears, Roebuck & Co. amounted to an impermissible attempt to collect a claim in violation of 11 U.S.C. § 362(a)(6) before the bankruptcy court.
- The bankruptcy court ruled against Duke.
- Duke appealed the bankruptcy court's ruling to the district court.
- The district court ruled that Sears had played by the rules, affirming the bankruptcy court's decision.
- William Duke appealed the district court's judgment to the United States Court of Appeals for the Seventh Circuit.
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Issue:
Does a creditor's non-threatening letter, sent to a represented debtor's attorney with a copy to the debtor, offering to reaffirm a pre-petition debt in exchange for new credit, constitute an impermissible attempt to collect a claim in violation of the automatic stay under 11 U.S.C. § 362(a)(6)?
Opinions:
Majority - diane p. wood
No, a creditor's non-coercive letter offering to reaffirm a pre-petition debt, sent to a debtor's attorney with a copy to the debtor, does not violate the automatic stay provision of 11 U.S.C. § 362(a)(6). The court noted that the automatic stay's purpose is to prevent harassment and frustration of rehabilitation efforts, not to prohibit all communication between creditors and debtors regarding dischargeable debts. To broadly prohibit such offers would render the detailed rules for reaffirmation agreements under 11 U.S.C. § 524 largely meaningless. Section 524 includes safeguards like attorney affidavits, court filings, and a right to rescind, which are designed to ensure voluntariness and guard against creditor overreaching. The court found that Sears' letter was 'bare-bones and straightforward,' containing 'not a hint of unfavorable action' if Duke did not reaffirm, merely offering a 'carrot' of new credit. Sending a copy of the letter directly to the debtor for information purposes was not inherently coercive, especially since the debtor's attorney has an ethical and statutory duty to inform the client of such offers. The court concluded that neither the letter itself nor the act of copying the debtor violated the automatic stay.
Analysis:
This case clarifies the permissible scope of creditor communication with debtors during bankruptcy regarding reaffirmation agreements. It balances the protective intent of the automatic stay with the statutory allowance for reaffirmation. By affirming that non-coercive offers are permissible, the court ensures that the reaffirmation provisions of the Bankruptcy Code remain viable while also signaling that the line between a permissible offer and an impermissible collection attempt lies in the presence of threatening or harassing language. Future cases will likely scrutinize the specific content and tone of such communications to determine if they cross into coercion or harassment, rather than presumptively banning all creditor-initiated offers.
