Opinion
22-31433
05-05-2023
In re DANIEL COLE RODDY, STEVIE RENEE RODDY, Debtors.
Chapter 7
ORDER DENYING DEBTORS' MOTION REQUESTING APPROVAL OF REAFFIRMATION AGREEMENTS, OR IN THE ALTERNATIVE, REQUESTING A HEARING (DOC. 35)
Guy R. Humphrey, United States Bankruptcy Judge
On April 3, 2023 the debtors, Daniel and Stevie Roddy (the "Debtors"), filed a Motion Requesting Approval of Reaffirmation Agreements, or in the Alternative, Requesting a Hearing (doc. 35). Attached to the motion were two proposed reaffirmation agreements between the Debtors and River Valley Credit Union, Inc. (the "Creditor") seeking to reaffirm debts with the Creditor, one loan secured by a 2016 Kia Sedona and the other by a 2014 Ford Escape. However, the proposed reaffirmation agreements do not contain the acceptances of the Creditor in Part III and, therefore, no agreements have been reached. The Creditor filed Creditor's Memorandum in Opposition to Debtors' Motion Requesting Approval of Reaffirmation Agreements, or in the Alternative, Requesting a Hearing (doc. 39) on April 21, 2023. The Creditor amended its response on April 24, 2023 (doc. 40).
The facts are undisputed. The Creditor added language to the initial unexecuted reaffirmation agreement proposed to the Debtors. The language allows the Creditor to rescind the agreement upon the later of the Debtors' discharges or 60 days from the filing date of the reaffirmation. This language mirrors the statutory right of the Debtors to rescind. 11 U.S.C. § 524(c)(4). The language includes other provisions that allow the Creditor to retain any funds received up to the time of the Creditor's recission. Doc. 35, Exhibit A. The Debtors signed the proposed reaffirmation agreements but struck the language concerning the Creditors' right to recission. The Creditor apparently notified the Debtors, through counsel, that it would not sign the reaffirmation agreement without the rescission language. The Debtors argue that "[c]reditor's right of rescission is limited typically to acts of fraud, or mutual mistake, not simply allowed carte blanche or to allow Creditor retention of payments received up to the date when they arbitrarily choose to rescind the agreement." Doc. 35 at 2. The Debtors further asserted this language was not negotiated between the parties. Id.
The Debtors correctly note that this court did not enforce similar language in an unreported decision. In re Jenkins, No. 17-30753, 2017 WL 7069076, 2017 Bankr. LEXIS 3436 (Bankr. S.D. Ohio Sept. 26, 2017). In Jenkins, the parties entered a reaffirmation agreement and 56 days after the reaffirmation agreement was filed and 13 days post-discharge, the creditor rescinded the reaffirmation agreement. Id. at *1, 2017 Bankr. LEXIS 3436, at *1. The debtor objected, arguing the rescission was unenforceable. The court determined that the creditor had included this rescission language in an inconspicuous manner within the mandatory disclosures to the debtor required in any reaffirmation agreement. Id. at *7, 2017 Bankr. LEXIS 3436, at *20-21. Therefore, the key issue was whether the creditor's language affected the mandatory disclosures required by the Bankruptcy Code. The court stated that "[t]he attempt to intersperse contractual terms into those mandatory disclosures serves to dilute, confuse, and contaminate those disclosures . . . ." Id. at *6, 2017 Bankr. LEXIS 3436, at *17. In this instance, the parties have not yet entered a reaffirmation agreement on either debt, and the Debtors are fully aware of the conditions and terms of the Creditor's offer to reaffirm. Further, the language at issue is not included within the statutory disclosures but placed within the reaffirmation agreement itself.
Still, the Debtors argue that these terms have not been negotiated. But a reaffirmation agreement, like any contract, does not require a specific form of negotiation. The Creditor made an offer for the terms of new contracts, and the Debtors counter-offered by removing these terms. The Creditor has not accepted that change to the contracts (and is not required to do so), and therefore there are presently no agreements between the parties. Reaffirmation agreements, unlike redemptions, are voluntary agreements of both the debtor and creditor and cannot be imposed upon either party by this court. See 11 U.S.C. § 524(c) (describing a reaffirmation as "[a]n agreement between a holder of a claim and debtor").
Nevertheless, the Debtors argue that the Creditor cannot seek this time-limited but otherwise unfettered right to rescission because such a right is generally limited to acts of fraud or mutual mistake. In the Jenkins decision, the court did comment that Ohio contract law allows recission as a matter of law in certain circumstances, including fraud or mutual mistake. Id. at *5, 2017 Bankr. LEXIS 3436, at *15. It did so to make the specific point that "there is no reason that the Credit Union could not have negotiated its right to rescind the agreement and placed that right of recission with the text of the reaffirmation agreement in an appropriate manner." Id. at *5, 2017 Bankr. LEXIS 3436, at *15.
Is the unconditional recission language of the creditor unenforceable? The Debtors do not point to any specific case law that such a provision cannot be freely agreed to by the parties but, in any event, the court finds it is inappropriate to address the question. Enforceability of reaffirmation agreements, like any contract, typically is governed by state law. In re Gavitt, 514 B.R. 243, 246 (Bankr. S.D. Ohio 2014); see also 11 U.S.C. § 524(c) (stating that, if the requirements of § 524(c) are met, a reaffirmation agreement is enforceable "only to any extent enforceable under applicable nonbankruptcy law"). Such enforcement is a matter for state courts. Id. at 250.
The court also finds no basis for a hearing in these circumstances because of the court's limited and defined role in reaffirmation agreements. The Debtors have counsel to negotiate any reaffirmation agreement, and therefore the requirement for a hearing for pro se debtors does not apply. 11 U.S.C. § 524(c)(6). Further, the undue hardship test is inapplicable because the Creditor is a credit union. 11 U.S.C. § 524(m)(2). Finally, the mandatory disclosures are included and therefore, unlike Jenkins, are not an issue in this case. See 11 U.S.C. § 524(c)(2) (providing the mandatory disclosures of section (k) must be received by the debtor "at or before the time at which the debtor signed the agreement."). This court cannot grant the relief that the Debtors specifically request and approve a reaffirmation agreement that excludes certain terms included in the Creditor's offer to reaffirm. To do so would be to impose the terms of that agreement by judicial fiat.
For all these reasons, all relief sought in the Debtors' Motion is denied.
The parties have until and including May 26, 2023 to file any reaffirmation agreement on the debts with the Creditor. See Doc. 37. In the absence of an appropriate motion to further delay the issuance of the discharges, if otherwise appropriate, it appears that the Clerk will issue the Debtors' discharges after May 26, 2023.
IT IS SO ORDERED.