Opinion
Case No. 95-13201-AM
September 18, 1995
James M. Collins, Esquire, Woodbridge, VA, Of Counsel for the debtor
Kathleen H. Michener, Woodbridge, VA, Of Counsel for the movants
MEMORANDUM OPINION AND ORDER
Before the court is a Petition for Rule to Show Cause filed by Ulysses and Margaret Shields on September 8, 1995, requesting that the debtors be required to show cause why they should not be held in contempt "for their failure to surrender property of the estate which secures scheduled consumer debts in accordance with their Statement of Intention" which this filed under § 521 of the Bankruptcy Code.
The record reflects that the debtors filed a voluntary chapter 7 petition in this court on July 21, 1995. They listed among their assets real estate located at 15431 Inlet Place, Dumfries, Virginia, described as Lot 21, Section 6, Montclair, Prince William County, Virginia which they hold under a contract for deed. The property is scheduled as having a fair market value of $110,000.00 and as being subject to two claims, one for $110,000.00 and the other for $6,500.00, in favor of "Mr. and Mrs. Ulysses E. Shields." With their petition, each of the debtors filed a Statement of Intention in which they state that they intend to surrender Lot 21, Section 6, Montclair, Prince William County, Virginia, to Mr. and Mrs. Shields and further state:
The debtor's schedule A contains the additional explanation: "Title to the Property shall be conveyed by Sellers by an unrecorded deed. Title shall not convey among the public records." The court construes this to mean that a deed has been executed but is being held by an escrow agent and will not be delivered or recorded until the purchase price has been paid in full. The schedules do not indicate whether the contract for deed was itself recorded.
I understand that section 521(2)(B) of the Bankruptcy Code requires that I perform the above-stated intentions within 45 days of the filing of this statement with the court, or within such additional time as the court, for cause, within such 45 day period fixes.
The petition for rule to show cause alleges that the 45 day period expired on September 5, 1995; that no extension has been granted by the court; and that to date the debtors have failed and refused to surrender and vacate said property.
Section 521 of the Bankruptcy Code provides:
(2) if an individual debtor's schedule of assets and liabilities includes consumer debts which are secured by property of the estate —
(A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, the debtor shall file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specify that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property;
(B) within forty-five days after the filing of a notice of intent under this section, or within such additional time as the court, for cause, within such forty-five day period fixes, the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph.
Unfortunately, while the mandate of § 521(2) could hardly be clearer, the statute itself does not contain a penalty provision, which has led at least one court to conclude that "there is no statutory authority to force a debtor to file the required statement of intent." In re Mercier, No. 94-61722, 1995 Westlaw 404723 (Bankr.N.D.Ohio, June 16, 1995). Nor does § 521 provide a remedy if the debtor files the statement of intent but then does not carry out that stated intent. Indeed, it is questionable whether there is any remedy, other than a grant of relief from the automatic stay to the affected secured creditor, if a debtor fails to comply with the his or her stated intention. In re Crooks, 148 B.R. 867 (Bankr.N.D.Ill. 1993). Possible remedies include dismissal of the petition, an order to the debtor to comply, and an award of attorneys fees and costs to the affected creditor as a sanction under F.R.Bankr.P. 9011. Id. at 869. What does seem clear is that a finding of civil contempt cannot be based simply on the failure to comply with the statement of intent. Mercier, supra; Crooks, supra. For one thing, the requirement of § 521(2) for the filing of a statement of intent is purely a procedural requirement and does not create any substantive right against the debtor, and it appears that the debtor, even after filing the statement of intention, retains the right to change that intent. Crooks, 148 B.R. at 867. Additionally, there is some question whether the affected secured creditor has standing to raise an issue of the debtor's noncompliance with § 521(2) or whether, under § 704(3), only the chapter 7 trustee has such standing. Id. at 872.
In this District, Local Rule 205(C) requires the Clerk to enter an order dismissing an individual chapter 7 consumer debtor's case if the Statement of Intent is not filed within the required period of time. The rule does not, however, address failure to comply with a timely-filed statement of intent.
Of course, if the court were to issue an order requiring the debtors to comply with their statement of intent, and the debtors failed to do so, a finding of civil contempt might then be justified.
All these are issues which should be determined after a full opportunity to be heard on the merits. Accordingly, the court will not enter an order to show cause why the debtors should not be held in contempt but will treat the Petition for Order to Show Cause as a motion for an order requiring the debtors to comply with their statement of intent or for alternate relief in the form of dismissal of the petition and an award of sanctions and will set the matter for a hearing prior to the date the debtors are scheduled to receive their discharge. The court invites the views of the chapter 7 trustee and the United States Trustee at that hearing as to the appropriate action that should be taken.
It is therefore
ORDERED:
1. A hearing will be held before this court on October 10, 1995, at 9:30 a.m. at 206 N. Washington Street, Room 322, Alexandria, Virginia 22314 to consider and determine whether the debtors should be ordered whether to comply with their statement of intent; whether their petition should be dismissed; and whether sanctions should be awarded.
2. The petitioners shall give at least 15 days mailed notice of the hearing to the debtors, debtors counsel, the chapter 7 trustee, and the United States Trustee.
3. The entry of this order is without prejudice to the right of the movants to file a motion seeking relief from the automatic stay.
4. The clerk shall mail a copy of this order to counsel for the petitioners, counsel for the debtors, the chapter 7 trustee, and the United States Trustee.