IN RE: KENNETH L. LANIGAN CASE NO. 94-51532

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

KENNETH L. LANIGAN CASE NO. 94-51532

CONNIE JOANN LANIGAN

DEBTORS

KENNETH L. LANIGAN

CONNIE JOANN LANIGAN PLAINTIFFS

VS. ADVERSARY NO. 95-5046

FIRST RESOURCE FEDERAL

CREDIT UNION DEFENDANT

MEMORANDUM OPINION

This matter is before the court on the motion of the defendant First Resource Federal Credit Union (hereinafter "Credit Union") for summary judgment.

FINDINGS OF FACT:

The debtors filed a joint petition for relief under chapter 7 of the Bankruptcy Code in this court on October 19, 1994. Their Statement of Intention accompanying the petition indicated the debtors intended to reaffirm two debts owed by them to the Credit Union and retain possession of two travel trailers.

On the date of bankruptcy the debtor Kenneth L. Lanigan was obligated to the Credit Union on three debts. The debtor Connie Joann Lanigan was a co-obligor on two of these debts. This is evidenced by the three proofs of claim of the Credit Union dated November 1, 1994, and filed with the court on November 4, 1994.

One proof of claim is filed as a secured claim in the amount of $15,330.93, secured by a security interest in a 1993 Prowler travel trailer. The debtors are jointly obligated on this debt.

Another proof of claim is filed as a secured claim in the amount of $1,003.97, secured by a security interest in a 1992 Wells Cargo travel trailer. The debtor Kenneth L. Lanigan is obligated on this debt which is evidenced by an installment loan agreement dated August 3, 1992, cosigned by Marvin Hatton and James Darling. The debt in the total amount of $3,800.14 was to be repaid in 36 monthly installments of $105.00 each commencing September 13, 1992, and a final installment of $20.14 on September 13, 1995.

A third proof of claim is filed as an unsecured claim in the amount of $1,216.28 on a Visa credit card account. Both debtors are obligated on this debt.

The meeting of creditors pursuant to section 341 of the Bankruptcy Code was held November 17, 1994. On that date the debtors executed an agreement reaffirming the debt to the Credit Union in the amount of $1,003.97, secured by a security interest in the 1992 Wells Cargo travel trailer. According to the pleadings this agreement was tendered to them by the Credit Union. The agreement provided for payment of $105.00 per month commencing on November 13, 1992, and continuing until the debt was fully paid. See Exhibit A to "Motions" of debtor filed May 30, 1995.

According to the pleadings the attorney for the debtor returned the reaffirmation agreement to the Credit Union by letter dated November 18, 1994. The letter requested that the Credit Union prepare an agreed order granting relief from stay with respect to the 1993 Prowler trailer because the debtors could not afford to pay the $15,330.93 indebtedness secured by that trailer.

The Credit Union did not sign the reaffirmation agreement on the 1992 Wells Cargo travel trailer and the agreement was not filed with the court. Apparently the Credit Union took the position that the debts secured by the two trailers were cross-collateralized and was unwilling to accept the agreement of the debtors reaffirming only the small indebtedness on the 1992 Wells Cargo travel trailer. The Credit Union did not seek relief from stay or submit to the court an agreed order granting relief from stay with respect to the 1993 Prowler travel trailer.

On November 21, 1994, the chapter 7 trustee gave notice of abandonment of the estate's interest in both travel trailers based on the encumbrances thereon and the debtors' claim of exemptions therein. There were no timely objections to this action by the trustee.

The abandonment of the estate's interest in the travel trailers revested title thereto in the debtors. According to the pleadings sometime thereafter the debtors placed the 1993 Prowler trailer in storage and commenced paying $30.00 per month for storage of the trailer.

On January 17, 1995, the chapter 7 trustee filed a report of no distribution in the debtors' bankruptcy case. On May 16, 1995, an order was entered granting the debtors a discharge in bankruptcy.

The combination of the abandonment of the estate's interest in the two travel trailers and the entry of the discharge terminated the automatic stay with respect to the estate's interest and the debtors' interest in the two travel trailers. 11 U.S.C. 362(c).

After May 16, 1995, the Credit Union commenced an action in the Boyle Circuit Court to foreclose its liens on the two travel trailers, and, on May 24, 1995, pursuant to an order of delivery issued by that court, the Credit Union, acting through an agent, State-Wide Recovery, Inc., obtained possession of the 1992 Wells Cargo travel trailer.

In conformity with the reaffirmation agreement which they executed on November 17, 1994, the debtors had continued to make the regular $105.00 monthly payments on the indebtedness on the 1992 Wells Cargo trailer. They made the payments for November and December of 1994 and January, February, March, April and May, 1995, seven payments in all. The balance due on the principal amount of the debt when the trailer was repossessed on May 24, 1995, was $309.01. The debtors allege and the Credit Union admits the debtors also made another payment on the debt on June 13, 1995, after the Credit Union had repossessed the trailer, further reducing the balance due on the debt. The trailer is valued at $1,500.00.

At the time the 1992 Wells Cargo trailer was repossessed it had in it personal property which belonged to Mark Atkins and Kenna Atkins. Kenna Atkins is the daughter of the debtors. The demand of the debtors that this personal property be returned to the Atkins by the Credit Union or its agent was resolved by an order of the court entered on October 16, 1995.

Following the May 24, 1995 repossession of the 1992 Wells Cargo travel trailer by the Credit Union, the debtors, by counsel, filed in their bankruptcy case motions --

1. to hold the Credit Union in contempt for violation of the automatic stay by repossession of the 1992 Wells Cargo travel trailer;

 

2. for an order enforcing the reaffirmation agreement executed by the debtors on November 17, 1994, and returned by mail to the Credit Union on November 18, 1994;

 

3. for an order requiring the Credit Union to return the 1992 Wells Cargo travel trailer to the debtors;

 

4. for an order allowing the debtors to redeem the travel trailer from the lien of the Credit Union by paying the Credit Union the balance due on the debt;

 

5. for an order requiring the Credit Union to take possession of the 1993 Prowler travel trailer and to reimburse the debtors for four months storage charge at the rate of $30.00 per month incurred by the debtors for storage of the travel trailer;

 

6. for an order requiring the Credit Union to reimburse the debtors for attorney fees incurred by the debtors as a result of having to file these motions in the bankruptcy court.

 

The court directed that the motions be treated as a complaint, that summons be issued thereon, and the Credit Union be afforded an opportunity to file responsive pleadings.

The answer of the Credit Union admits its agent repossessed the 1992 Wells Cargo travel trailer on May 24, 1995.

The Credit Union alleges the debt evidenced by the Installment Loan Agreement and Security Agreement pursuant to which the debtor, Kenneth Lanigan, purchased the 1992 Wells Cargo travel trailer, is cross-collateralized with the obligation of the debtors for the purchase of the 1993 Prowler travel trailer with the result that the 1992 Wells Cargo travel trailer secures the latter obligation and other obligations of the debtors to the Credit Union. Accordingly, the Credit Union denies the debtors are entitled to redeem the 1992 Wells Cargo travel trailer merely by payment of the balance due on the purchase price of the trailer.

The security agreement dated August 3, 1992, granting the Credit Union a security interest in the 1992 Wells Cargo travel trailer provides: "Any collateral securing other loans with First Resources Credit Union also secures this loan." The security agreement dated April 7, 1993, granting the Credit Union a security interest in the 1993 Prowler travel trailer provides: "Collateral securing other debts with the Credit Union may also secure this debt." Underscoring supplied. Assuming without deciding that the August 3, 1992 agreement encompasses future as well as pre-existing loans, it may be that the 1993 Prowler travel trailer secures the earlier loan on the 1992 Wells Cargo travel trailer. However, it is clear from the above-quoted language of the April 7, 1993 security agreement that the debtor, Kenneth L. Lanigan, did not specifically grant the Credit Union a security interest in the 1992 Wells Cargo travel trailer to secure payment of other indebtedness owed by him to the Credit Union.

At the hearing held in this matter on October 4, 1995, counsel for the Credit Union avowed that the 1993 Prowler travel trailer had disappeared from the site where the debtors had placed it in storage, for which reason the Credit Union had been unable to obtain possession of that vehicle.

In their brief in behalf of the motion of the Credit Union for summary judgment counsel itemizes the costs incurred by the Credit Union in obtaining possession of the 1992 Wells Cargo travel trailer as follows as billed by the repossessing agent, State-Wide Recovery, Inc.

Repossession fee $140.00

Towing/Driver's fee 45.00

Charge for inventorying

personal property 15.00

Mileage 70 miles @ .50 per mile 35.00

Storage from 5-24 to 10-2, 1995

at $5.00 per day 655.00

$890.00

 

plus an additional $5.00 per day for storage until the trailer is redeemed.

It is the position of the Credit Union that the debtors should be required to pay these amounts plus the balance due on the purchase price of the trailer plus interest thereon as a condition of redeeming the 1992 Wells Cargo travel trailer.

CONCLUSIONS OF LAW:

Upon the commencement of their case under the Bankruptcy Code, the interest of the debtors in the travel trailers became property of the estate. When the trustee in bankruptcy abandoned the estate's interest in the travel trailers, title thereto revested in the debtors. The two-pronged automatic stay provided for by title 11 U.S.C. 362(a) takes into account this change by operation of law in ownership of interests in property by staying enforcement of liens against property of the estate, 362(a)(4), and against property of the debtor, 362(a)(5). The stay terminates programmatically, under (a)(4) when property is no longer property of the estate, and under (a)(5) when the debtor is granted a discharge. 11 U.S.C. 362(c)(1) and (c)(2)(C). When the debtor receives a discharge the temporary stay provisions of title 11 U.S.C. 362(a) are superseded by the permanent stay provisions (discharge provisions) of title 11 U.S.C. 524. The latter do not prohibit enforcement of nonavoidable liens against property abandoned to the debtor or set aside to the debtor as exempt. Consequently, the commencement of the action in the Boyle Circuit Court by the Credit Union to enforce its security interests in the two travel trailers was not a violation of the automatic stay.

A reaffirmation agreement is enforceable only if the agreement is made before the granting of the discharge and is filed with the court. 11 U.S.C. 524(c). The agreement in question was not signed by the Credit Union and was not filed with the court. Under these circumstances the agreement is not enforceable by or against the debtor.

Under title 11 U.S.C. 722 an individual debtor may, whether or not the debtor has waived the right to redeem under that section, redeem personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if the property is exempted under section 522 or has been abandoned under section 554 of title 11, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien.

The Statement of Intention accompanying the joint petition of the debtors indicated they intended to reaffirm and pay the indebtedness on the 1992 Wells Cargo travel trailer rather than redeem the trailer from the lien of the Credit Union. However, the submission of the Statement of Intention in this form does not rise to the level of a waiver of the debtors' right to redeem, and, even if it did such a waiver is immaterial under the language of section 722 of the Code.

In its answer the Credit Union alleged that the 1992 Wells Cargo travel trailer was pledged as collateral securing not only the debt evidenced by the installment loan agreement covering the purchase of the trailer, but other obligations of the debtors to the Credit Union as well. However, counsel for the Credit Union appear to have abandoned this contention in their brief in behalf of the Credit Union. In any event, the court has found as a fact that the 1992 Wells Cargo travel trailer does not secure other obligations of the debtors to the Credit Union.

In their brief counsel for the Credit Union raise an issue as to whether the 1992 Wells Cargo travel trailer is property intended primarily for personal, family or household use within the meaning of title 11 U.S.C. 722, suggesting the travel trailer may have been used by the debtors for a business purpose. Counsel for the debtors would have the court note that both of the joint debtors were unemployed when the petition was filed and were not engaged in business at that time. This disputed factual issue is not properly before the court. It is not raised by the pleadings and is not apparent from any evidence in the record.

The action of the Credit Union in refusing to enter into the reaffirmation agreement with the debtors with respect to the indebtedneses secured by the 1992 Wells Cargo travel trailer and in repossessing that vehicle despite the fact the debtors had continued to make payments on the indebtedness in accordance with the terms of the installment loan agreement dated August 3, 1992, and the reaffirmation agreement which the debtors executed appears to have been based on the erroneous belief that this item of collateral secured other obligations of the debtor to the Credit Union.

The debtors should not be saddled with the expenses incurred by the Credit Union in acting on this erroneous assumption. Accordingly, the court is of the opinion that the debtors should be permitted to redeem the 1992 Wells Cargo travel trailer by payment of the principal balance and any interest accrued on the debt evidenced by the installment loan agreement dated August 3, 1992.

The other motions of the debtors are overruled.

The motion of the Credit Union for summary judgment is overruled.

Dated: Jan. 17, 1996.

By the court -

 

_____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Jeffrey C. Ralston, Esq.

Dean Langdon, Esq.

Robert J. Brown, Esq.

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

KENNETH L. LANIGAN CASE NO. 94-51532

CONNIE JOANN LANIGAN

 

DEBTORS

 

 

KENNETH L. LANIGAN

CONNIE JOANN LANIGAN PLAINTIFFS

 

VS. ADVERSARY NO. 95-5046

 

FIRST RESOURCE FEDERAL

CREDIT UNION DEFENDANT

 

 

ORDER

 

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that the motion of First Resource Federal Credit Union for summary judgment be and the same is hereby overruled. The debtors are hereby permitted to redeem the 1992 Wells Cargo travel trailer by payment of the principal balance and accrued interest due on the debt evidenced by the installment loan agreement dated August 3, 1992.

All other motions of the debtors are overruled.

Dated: Jan. 17, 1996.

By the court -

 

_____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

Jeffrey C. Ralston, Esq.

Dean Langdon, Esq.

Robert J. Brown, Esq.