This case came on for hearing before the court on April 24, 1998, pursuant to order entered by the court on its own motion, for the purpose of determining whether the reaffirmation agreement entered into between the debtor, Johnny Florer, and Kentucky Finance Company on December 31, 1997 was altered by counsel for the debtor before the agreement was filed with the court. The hearing was prompted by a letter which the court received on March 4, 1998 from Jane Burton, Assistant Vice President, Bankruptcy, Kentucky Finance Company, indicating the reaffirmation agreement in question had been altered by counsel for the debtors without the knowledge and consent of Kentucky Finance Company.

The debtors filed a joint petition for relief under chapter 7 of the Bankruptcy Code on October 28, 1997, at which time they lived at Carlisle, Nicholas County, Kentucky. The petition was prepared in their behalf by Richard J. Getty, their attorney of record. In Schedule D to the petition the debtors list Kentucky Finance Company as a creditor holding a claim in the amount of $4,000 secured by a security interest in miscellaneous household items valued at $1,700.

Schedule D to the petition indicates that essentially the same collateral had been previously pledged to American General Finance Company.

On November 12, 1997 Kentucky Finance Company filed a proof of claim in the amount of $2,677.04 secured by a security interest in personal property described as follows:

The combined note and security agreement evidencing the loan of Kentucky Finance Company and containing a description of the collateral was executed by the debtor Johnny Florer on July 9, 1997.

On November 13, 1997 American General Finance Company filed a proof of claim in the amount of $2,718.58 evidenced by a note dated May 14, 1996 signed by both debtors. The Federal Disclosure Statement executed by both debtors on the same date acknowledged they were giving the lender a security interest in personal property described as

The earlier security agreement of American General makes no mention of the Genie organ, which is described in the security agreement of Kentucky Finance Company. The court notes that neither claim is accompanied by a UCC-1 Form, so the court is uncertain whether either security interest is perfected.

Both of these claims were filed well in advance of the first date set for the meeting of creditors on December 4, 1997 and the continued meeting held on December 22, 1997.

In the transcript of the hearing held on April 24, 1998, Mr. Getty makes much of the refusal of Kentucky Finance Company to provide him with a description of the collateral securing its loan, although the proof of claim accompanied by a description of the collateral had been on file in this case for more than six months.

Following the continued meeting of creditors held on December 22, 1997, Linda Yates, an employee of Kentucky Finance Bankruptcy Center, met with Mr. Getty and his clients, the Florers, to discuss reaffirmation of the debt owed by Mr. Florer to Kentucky Finance Company. Ms. Yates had prepared a reaffirmation agreement which, if signed, would have obligated the debtor, Mr. Florer to pay to "Lender the sum of $2,600 plus interest 15% annual Percentage Rate in monthly installments of $150.00, the first installment being payable on December 8, 1997, and all subsequent installments on the same day of each consecutive month until paid."

The December 8, 1997 date indicates the agreement was prepared in conjunction with the December 4, 1997 date when the initial meeting of creditors was to have been held.

At the meeting of the parties immediately following the continued meeting of creditors held on December 22, 1997 Linda Yates testified she rejected an offer of the debtors’ attorney to permit reaffirmation of the indebtedness to Kentucky Finance for $100.00, and that it was her understanding they reached agreement on reaffirmation of the debt in the amount of $600.00. She marked through the $2,600 figure on the first page of the agreement she had prepared and wrote in the amount of $600. She then signed the agreement on the second page and left the agreement with Mr. Getty to be executed by Mr. Florer and approved by Mr. Getty.

According to the testimony of the debtors they did not agree on the $600.00 figure.

On or about December 31, 1997 Mr. Getty caused the first page of the agreement to be retyped. The language calling for reaffirmation in the amount of $600.00 to be paid with interest in installments of $150.00 per month was omitted. Instead the substituted first page of the agreement provided "[t]hat debtor(s) shall pay to Lender the sum of $100 in full payment of any and all claims."

This agreement was filed with the court on December 31, 1997, the day it was executed, but a copy thereof was not provided to Kentucky Finance Company at that time.

Mr. Florer testified he was at Mr. Getty’s office when Mr. Getty contacted Floyd Bussell, the branch manager of the Kentucky Finance Company in Paris, Kentucky, where the loan originated and that Mr. Bussell approved the $100.00 figure.

Mr. Bussell denies he ever had any discussions with Mr. Getty regarding reaffirmation of the debt in question. (Tr. 4)

Mr. Florer testified he overheard the conversation between Mr. Getty and Mr. Bussell on speakerphone in Mr. Getty’s office. He stated the conversation might have been on the 3rd. That date would coincide with the date of the receipt Mr. Florer received from Mr. Getty for the $100.00 payment. The receipt, Debtor’s Exhibit No. 2, is dated January 3, 1998, which, of course, is after the December 31, 1997 date of the reaffirmation agreement.

According to the testimony of Linda Yates she learned in a conversation with Mr. Getty in February 1998 that the reaffirmation agreement had been filed with the court. (Tr. 36). It was shortly thereafter that Kentucky Finance Company requested the court to examine into the propriety of Mr. Getty’s conduct in altering the reaffirmation agreement. See letter of Kentucky Finance dated March 3, 1998 to the undersigned.

At the hearing on this matter on April 24, 1998 Mr. Getty acknowledged he had not forwarded to Kentucky Finance Company the $100.00 he had received from Mr. Florer. (Tr. 62). There is no indication on the receipt dated January 3, 1998 that the $100.00 payment was placed in Mr. Getty’s escrow account.

Without regard as to whether the parties reached an agreement on the amount for which Mr. Florer was to reaffirm the debt to Kentucky Finance Company, it was highly improper for Mr. Getty to cause the first page of the agreement to be changed and to cause the new first page to be attached to the second page bearing Ms. Yates’ signature, and for Mr. Getty and the debtor to then execute the agreement on the second (signature) page and to cause the agreement so altered to be filed with the court without the knowledge or consent of Ms. Yates.

Whether Mr. Bussell may or may not have consented to this change is immaterial. It is clear from the evidence that Mr. Bussell was not Ms. Yates’ superior. He testified he had no authority to concur in changes in the agreement without her consent.

Also, this is just another in a number of cases in which it has been revealed that Mr. Getty is less than diligent in handling the affairs of clients.

As noted in the findings of fact the proof of claim of Kentucky Finance Company has been on file in the record in this case since November 12, 1997. Accompanying the claim is the security agreement executed by Mr. Florer in conveying to Kentucky Finance Company a security interest in specified personal property. Counsel for the debtor suggested that he could not obtain this information from the local state courthouse because Kentucky Finance Company doesn’t always cause security agreements to be recorded; that is, the company does not always perfect its security interests by filing a UCC-1 Form. (Tr. 7-10). As a matter of fact, there is no UCC-1 Form accompanying the proof of claim filed by Kentucky Finance Company in this case which would be a basis for objecting to the allowance of the claim of Kentucky Finance Company as a secured claim in this case. Counsel for the debtors has not exercised this right nor has he sought to exercise the right of the debtors to avoid the lien of Kentucky Finance Company under section 522(f) of the Bankruptcy Code. Rather, counsel for the debtors signed a declaration that the reaffirmation agreement represents a "fully informed and voluntary agreement by the debtor(s)," which seems rather doubtful on the facts of this case.

On the facts of this case the court concludes that neither the debtor nor Kentucky Finance Company are bound by the reaffirmation agreement on file in the record in this case.

The conduct of Mr. Getty in altering the agreement, in the prolonged retention of client funds, and in not fully informing himself as to whether the lien of Kentucky Finance Company was perfected before allowing his clients to enter into a reaffirmation agreement warrants sanctions.

An order will be entered requiring Mr. Getty to pay Kentucky Finance Company $500.00 and to refund to the debtors $100.00, all as a monetary sanction for the conduct of Mr. Getty in this case.

Dated:

By the court –

________________________________
JOE LEE, U.S. BANKRUPTCY JUDGE

Copies to:

Richard J. Getty, Esq.

David Andrews, Esq.

Debtors

Stephen Palmer, Esq., Trustee

U.S. Trustee

In conjunction with the memorandum opinion of the court this day entered, IT IS ORDERED that counsel for the debtors, Richard J. Getty, forthwith pay to Kentucky Finance Company the sum of $500.00, and that Richard J. Getty also refund to the debtors, Johnny and Betty Florer, the sum of $100.00 as a monetary sanction.

IT IS FURTHER ORDERED that Mr. Getty file with the court a certification that the funds have been paid to the above parties within 10 days.

Dated:

By the court –

________________________________
JOE LEE, U.S. BANKRUPTCY JUDGE

Copies to:

Richard J. Getty, Esq.

David Andrews, Esq.

Johnny & Betty Florer, Debtors

Stephen Palmer, Esq., Trustee

U.S. Trustee