Absent Reaffirmation is a Post-bk Ipso Facto Repo Wrongful? Can bk judge enter a final order?

I think the answers are yes and yes.  Here is why.

Post-discharge and case closure, while debtor remains current on the payment and hasn’t otherwise defaulted under the contract terms, the 9th Circuit Court of Appeals decision In re Parker still applies and the ipso facto clause is unenforceable as a matter of law.

While Stern v. Marshall restricts Bankruptcy Courts from entering final orders in traditional common law matters not necessary to resolve allowance of claims in the case, it does not prohibit the Bankruptcy Court from entering a final order in an action involving a right derived exclusively from the Bankruptcy Code despite that it relates to a traditional commonly law contract creating other “private rights” that are not governed by the Bankruptcy Code.

I.   Wrongfulness of Repossession Based Upon Ipso Facto Clause After Debtor Satisfies 521 Requirements, Despite That Court Does Not Approve The Reaffirmation Agreement

This conclusion that Parker still applies to prevent a creditor from repossessing a debtor vehicle, after entry of a Chapter 7 discharge, only based upon a default consisting of the debtor filing the bankruptcy, is supported by the recent case In re Chim, 381 B.R. 191 (Bankr. D. Maryland 2008), see reasoning at page 7:

“Prior to the enactment of BAPCPA, the Court of Appeals for the Fourth Circuit held in Home Owners Funding Corp. v. Belanger (In re Belanger), 962 F.2d 345 (4th Cir. 1992) that an individual Chapter 7 debtor's actions with respect to a secured debt and its corresponding collateral were not confined to those options enumerated then in place 11 U.S.C. § 521(2). 12 Id. at 348. [*199] Specifically, the Court held that a debtor was not required to reaffirm a debt securing property, or redeem or surrender the same. Instead, the Court agreed with those courts that follow the ride-through approach,  [**21] and held that a debtor who is current on the payments under the loan agreement may retain the property without reaffirming the debt which it secures. Id. In reaching this conclusion, the Court expressly rejected the holding in In re Bell, 700 F.2d 1053 (6th Cir. 1983) which held that an ipso facto clause becomes effective when the trustee abandons the collateral. Id. at 1058. Following its own precedent, the Belanger Court held that “…a default-on-filing clause in an installment loan contract was unenforceable as a matter of law.” Belanger, 962 F2d at 348 (citing Riggs Nat'l Bank v. Perry, 729 F2d 982, 984-85 (4th Cir. 1984)).” (emphasis added in bold)


There is no reason to conclude that the rationale of Belanger should not apply with equal vigor to post-BAPCPA cases where a debtor complies with Section 521(a)(2) but the Court rejects the reaffirmation agreement. To be sure, the creditor relief provisions of Sections 362(h), 521(a)(6), and 521(d) may impact upon a debtor's option of having a credit agreement ride through the bankruptcy case in certain circumstances where the debtor fails to comply with Section 521(a)(2). However, where a court rejects a reaffirmation agreement that was timely entered into by a debtor, the debtor is left in the same position as a  [**23] debtor who elected to have the loan contract ride through bankruptcy prior to the adoption of the creditor relief provisions in BAPCPA, and the rationale of Belanger continues to apply.” (emphasis added in bold).

and based upon In re Dumont 581 F.3d 1105 (9th Cir. 2009) (which involved a vehicle purchase contract), see page 7:

“The parties' contract, in conjunction with state law, determines when a debtor has defaulted on an automobile loan. There is an important caveat, however: 11 U.S.C. § 365(e)(i)(B) generally renders unenforceable any contractual term which purports to create a default solely based on the commencement of a bankruptcy case. Dumont's loan contained an ipso facto clause, but unless section 365(e) is trumped Ford cannot rely on the clause to justify its actions.” (emphasis added in bold)

and see Dumont holding:

At least where the debtor has not attempted to reaffirm, our decision in Parker has been superceded by BAPCPA. Accordingly, Ford did not violate the discharge injunction in repossessing Dumont's vehicle. The bankruptcy court rightly held that the propriety of Ford's actions under state law was not before it.” (emphasis added, underline)

The Dumont holding implies that the ride-through protection of Parker still applies post-BAPCPA when a debtor satisfies the requirements of 521.

II.  Bankruptcy Court Jurisdiction And Ability to Enter Final Order In Wrongful Repossession Based Upon A Right Created Under The Bankruptcy Code

Article I section 8 of the U.S. Constitution grants Congress power to establish uniform laws on the subject of Bankruptcy throughout the United States. District Courts have original and exclusive jurisdiction over cases and controversies pursuant to Article III section 2 and of all title 11 cases pursuant to 28 U.S.C. § 1334(a).  District Courts have supplemental jurisdiction pursuant to 28 U.S.C. § 1367 over other claims that are so closely related to the title 11 claims for which they have original jurisdiction that those related claims form part of the same case or controversy.

Bankruptcy Courts as units of the District Court have jurisdiction over title 11 cases, and Bankruptcy Judges as judicial officers of the District Court exercise the power of the District Court, pursuant to 28 U.S.C. § 151, subject to the procedures set forth under 28 U.S.C. §  157.

A Bankruptcy Court will have jurisdiction over an action for wrongful foreclosure where the right of the debtor is founded in the Bankruptcy Code.  Despite that the contract is otherwise governed by state law and involves common law “private rights” of the parties, the debtor’s “right” to protection from repossession of the vehicle, due to a contractual default consisting exclusively of filing a bankruptcy case, is a “right” derived only under the bankruptcy code.

The debtor’s “right” to not have her vehicle repossessed after satisfying the requirements set forth under 11 U.S.C. Section 521(d) is not dependent upon entry of an order granting the reaffirmation agreement, that is not a requirement of 521.

III. Conclusion

When a Chapter 7 debtor takes all the steps required under 521 to reaffirm and the Bankruptcy Court denies reaffirmation of the debt, In re Parker still applies to prevent repossession after enter of discharge and closing of the case, where the only default consists fo the filing of the bankruptcy itself.  Whether the wrongfulness of repossession, is a right under 521 or 365, or a combination of both, the right is created by the Bankruptcy Code and that means Bankruptcy Judges have jurisdiction to hear the wrongful foreclosure actions and they can enter final orders.


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