Bankr. L. Rep. P 71,503 Chandler Bank of Lyons v. David Jay Ray and Jerold E. Berger, 804 F.2d 577, 10th Cir. (1986)
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Scribd Government DocsBankr. L. Rep. P 71,503 Chandler Bank of Lyons v. David Jay Ray and Jerold E. Berger, 804 F.2d 577, 10th Cir. (1986)
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Scribd Government Docs804 F.
2d 577
Bankr. L. Rep. P 71,503
CHANDLER BANK OF LYONS, Plaintiff-Appellant,
v.
David Jay RAY and Jerold E. Berger, Defendants-Appellees.
No. 83-1271.
United States Court of Appeals,
Tenth Circuit.
Oct. 14, 1986.
Dale L. Somers of Eidson, Lewis, Porter & Haynes, Topeka, Kan. (Anne
L. Baker was also on the brief), for plaintiff-appellant.
Dan E. Turner, Topeka, Kan., for defendants-appellees.
Before HOLLOWAY, Chief Judge, and SETH and DOYLE,* Circuit
Judges.
PER CURIAM.
This case involves the administration of a bankruptcy estate and the question of
whether the Chandler Bank's lien in collateral survives the debtor's discharge in
bankruptcy. The trial judge ruled that subsequent to the debtor's discharge the
creditor who has taken no action to preserve its pre-filing lien rights in the
debtor's personal property does not have an in personam right against the debtor
and is subject to being enjoined from enforcing his lien against the property of
the debtor.
The Bank had filed an action in the Bankruptcy Court naming the debtor and
seeking to reopen the case and to obtain an order of replevin of its collateral.
Following a ruling of the Bankruptcy Court the Bank appealed. It was at the
time of the filing that the debtor sought to exempt from the estate the 1978
Firebird which had been purchased with the Bank's money as a means of
conveyance pursuant to K.S.A. Sec. 60-2304(3). The exemption was granted
without there being any objection. This was in accordance with local rule 4004
which was adopted from the Interim Rules submitted by the Advisory
Committee on Bankruptcy of the Judicial Conference.
3
It was in January 1981, following the filing of bankruptcy in December, 1980
that the Bank received notice of the Chapter 7 filing and of a projected May 28,
1981 discharge for the debtor. Soon thereafter, on February 6, 1981 the Bank
filed a proof of claim which reflected a secured claim, and as collateral, a 1973
Suzuki and a 1978 Firebird. No relief was sought by the Bank from the 11
U.S.C. Sec. 362 stay or abandonment under 11 U.S.C. Sec. 554, or
reaffirmation under 11 U.S.C. Sec. 524. Bankruptcy Reform Act of 1978, 11
U.S.C. Sec. 101, et seq. (hereinafter "the Code"). The Bank did not participate
in any court proceeding or action to get possession of its collateral prior to the
debtor's discharge of May 28, 1981. At the discharge hearing it was announced
that no reaffirmation agreement had been made and that an agreement to
redeem had been made with one secured creditor. The Notice of Debtor's
Discharge was mailed to all creditors on June 3, 1981.
There was filed on May 13, 1981 by the Trustee of debtor's estate a no asset
report and notice of intended abandonment of unadministered assets upon
closing the case. Indeed the case was closed on June 3, 1981.
It is important to note that in this case after the close of Chapter 7 bankruptcy,
the Bank filed a complaint in an adversary proceeding in which it sought the
following relief:(1) An order of the court allowing the case to be reopened.
(2) An order of abandonment of the automobile and motorcycle to the Bank.
(3) Replevin of the automobile and motorcycle.
(4) Reaffirmation of the indebtedness.
The Bank was simply seeking to establish in the adversary proceeding that its
lien with respect to the mortgage on the property involved could be pursued by
the Bank. Thus it was strictly an in rem action. It did not seek generally to
proceed against the bankrupt in an in personam action. Therefore, its in rem
action on the secured claim survived the bankruptcy.
10
It should be noted that the argument for a contrary result is advanced by Judge
Pusateri in this action and by him in the better known case of In re Williams, 9
B.R. 228 (B.C.D.Kan.1981). However, other bankruptcy judges in Kansas have
taken the position adopted by this court that an in rem action on a secured
claim survives the bankruptcy although the creditor did not participate by way
of urging a reaffirmation or otherwise. See 3 Collier on Bankruptcy Sec.
524.01, at 529-15, 529-16 n. 176 (15th Ed.). Judge Franklin in In re Weathers,
15 B.R. 945 (B.C.D.Kan.1981) and Judge Morton in In re Grimes, 6 B.R. 943
(B.C.D.Kan.1980) ably articulated the basis for this court's ruling: that for
sections in the Code which relate to automatic stays and to lien avoidance to
have any substance at all necessarily leads to the conclusion that unavoided
liens pass through Sec. 506(d) without action by the lien holder. Thus the
injunction on discharge under Sec. 524 of the Code does not preclude in rem
actions by secured creditors.
11
Specifically, Code Sec. 524(a)(2) states in part that the discharge:
12
(2) operates as an injunction against the commencement or continuation of an
action, the employment of process, or any act, to collect, recover or offset any
such debt as a personal liability of the debtor, or from property of the debtor,
whether or not discharge of such debt is waived; ...
13
There was a change in wording from Sec. 14(f) of the former Bankruptcy Act.
The trial judge in this case held that "property of the debtor" included property
subject to a creditor's lien and that the injunctive portion thus precluded in rem
proceedings if the creditor had not participated in the bankruptcy proceedings.
He thus would require the creditor to enter the proceedings and apparently enter
into proceedings or negotiations relating to reaffirmation. As stated previously,
this reading is plainly contrary to the specific sections of the Code relating to
automatic stays and to lien avoidance, which to have any substantive meaning
must be read to allow unavoided liens to pass through Sec. 506(d) without any
action by the lien holder.
14
The legislative history of the Code further supports this court's ruling. Referring
to the lien avoidance provisions of the Code, the legislative history reveals:
15 bankruptcy discharge will not prevent enforcement of valid liens. The rule of
The
Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886), is accepted with
respect to the enforcement of valid liens on nonexempt property as well as on
exempt property. Cf. Louisville Joint Stock Land Bank v. Redford [Radford], 295
U.S. 555, 583, 55 S.Ct. 854, 860, 79 L.Ed. 1593 (1935).
16
H.R.Rep. No. 595, 95th Cong., 1st Sess. 361 (1977); S.Rep. No. 989, 95th
Cong., 2d Sess. 76 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787,
5862, 6317. This indicates that the provisions for avoidance of liens contain a
solution for problems in this area. The reference is made in the quotation to
exempt property. It is generally held that an exemption as such does not
invalidate liens. Consequently, the Congressional intent is clear that valid liens
may be enforced, and the phrase "the property of the debtor" in Sec. 524(a)(2)
merely refers to property acquired by the debtor after filing of the bankruptcy
petition.
17
We conclude that the trial court erred and that the matter should be reversed.
18
It should be noted that the Bankruptcy Court had jurisdiction over the matter
pursuant to Interim Rule 42 adopted by the Tenth Circuit Judicial Council and
by the United States District Court for the District of Kansas. Because the
matter did not involve "related proceedings" as defined by Section (d)(3)(A) of
the Interim Rule, the order of the bankruptcy judge was effective upon entry by
the Clerk of the Bankruptcy Court. Interim Rule 42(d)(2). That order was then
appealed by agreement of the parties directly to this court pursuant to 28 U.S.C.
Sec. 1293.
This opinion was prepared and agreed upon before Judge Doyle's death and is
filed as the opinion of the court
