All posts tagged ipso facto clause

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:

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