Hall et al

Filing 10

OPINION and ORDER Reversing Bankruptcy Court's Order and Remanding for further Proceedings. Signed by District Judge Paul D. Borman. (DTof)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
FORD MOTOR CREDIT COMPANY,
Appellant,

Case No. 16-13333
Paul D. Borman
United States District Judge

v.
WILLIAM MCKINLEY HALL and
LATANYA BRIDGES-HALL,

Walter Shapero
United States Bankruptcy Judge

Appellees.
______________________________/
OPINION AND ORDER:
(1) REVERSING THE BANKRUPTCY COURT’S “ORDER
DISAPPROVING REAFFIRMATION AGREEMENT BUT
PROVIDING DEBTOR WITH OTHER RELIEF” (EXHIBIT D,
APPELLANT’S BRIEF); AND
(2) REMANDING FOR FURTHER PROCEEDINGS
Appellant Ford Motor Credit Company (“FMCC”) challenges the
Bankruptcy Court’s Order of August 29, 2016 (ECF No. 5, Appellant’s Br. Ex. D),
which rejected the reaffirmation agreement executed by Appellant and Appellees
William McKinley Hall and Latanya Bridges-Hall. That agreement had
incorporated the Appellees’ intent to reaffirm their contract with Appellant FMCC
on a vehicle. The Bankruptcy Court not only rejected Appellees’ reaffirmation
request, but then proceeded sua sponte to improperly (1) rewrite the contract
between the parties, and (2) issue an injunction against Appellant. For the reasons
set forth below, the Court REVERSES the Bankruptcy Court Order and

REMANDS this case to the Bankruptcy Court for further proceedings consistent
with this Order.
BACKGROUND
On June 21, 2014, Appellees Hall entered into an installment contract with
Appellant FMCC to purchase a 2014 Ford Escape vehicle. (ECF No. 5, Appellant’s
Br. Ex. A, Vehicle Retail Installment Contract.) The total amount financed
pursuant to the contract was $35,165.52, which Appellees agreed to pay in equal
monthly increments for 72 months. (Id. at 19, Pg ID 36.) The contract also
included a default-on-filing clause (also known as an “ipso facto clause”), which
provided that Appellees would be in default on the contract if “[y]ou file a
bankruptcy petition or one is filed against you.” (Id. at 20, Pg ID 37.)
Nearly 25 months later, on July 19, 2016, Appellees filed a pro se petition
for Chapter 7 bankruptcy. (In re Hall, Case No. 16-bk-50148, ECF No. 1,
Voluntary Petition (Chapter 7).) Along with their petition, Appellees filed a
Statement of Intention for Individuals Filing Under Chapter 7 (Official Form 108),
pursuant to 11 U.S.C. § 521(a)(2)(A), in which they stated their intention to retain
the vehicle and to enter into a reaffirmation agreement with Appellant. (Id. at 62.)
On August 9, 2016, Appellees executed their stated intention, pursuant to 11
U.S.C. § 521(a)(2)(B), by filing a reaffirmation agreement signed by Appellees and
by Appellant’s counsel. (Appellant’s Br. Ex. B, Reaffirmation Agreement.) At the
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same time, Appellees filed a Motion for Approval of Reaffirmation Agreement.
(Appellant’s Br. Ex. C, Debtor’s Motion for Approval.)
After an August 25, 2016 hearing on Appellees’ motion, the Bankruptcy
Court, on August 29, 2016, entered an “Order Disapproving Reaffirmation
Agreement But Providing Debtor With Other Relief.” (Appellant’s Br. Ex. D,
Bankruptcy Court Order.) In that Order, the Bankruptcy Court analyzed Appellees’
financial circumstances, determined that the value of the vehicle was some 25%
less than what Appellees owed on their contract, with the disparity likely to
increase over time. The Bankruptcy Court concluded that
either a presumption of undue hardship arose in this case, and, the
Debtors have failed to rebut the indicated presumption or, in any event
even if that presumption did not arise, given the indicated facts and
the totality of the circumstances, the subject reaffirmation agreement
imposes an undue hardship on the Debtors and is not in their best
interest.
(Bankruptcy Court Order, August 29, 2016 at 3.)
The Bankruptcy Court refused to approve Appellees’ reaffirmation
agreement under 11 U.S.C. §§ 524(c)(6) and 524(m), and then held that
as long as the Debtors are complying with the monetary and other
obligations under the agreement(s) with said Creditor in respect to
said debt and is not in default thereunder, Creditor may not seek to
enforce its rights in respect thereto and repossess the vehicle, unless
(and notwithstanding the bankruptcy or discharge of the debt itself) it
is clearly permitted to do so under applicable law.
(Bankruptcy Court Order at 3.)
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On September 14, 2016, Appellant filed this appeal (ECF No. 1, Notice of
Appeal), and on October 21, 2016, filed its brief in support of the appeal (ECF No.
5, Appellant’s Br.). Appellees have not filed a response brief.
On October 26, 2016, the Bankruptcy Court granted a discharge to
Appellees under 11 U.S.C. § 727. (In re Hall, Case No. 2:16-bk-50148, ECF No.
37, Order of Discharge.)
A hearing on this appeal was held on April 13, 2017. Appellees, who were
present at the hearing, not represented by counsel, stated that they have kept
current in their car payments to Appellant.
JURISDICTION AND LEGAL STANDARDS
The Court has jurisdiction over this appeal pursuant to 28 U.S.C. §
158(a)(1). District courts review factual findings of bankruptcy courts for clear
error, and their legal conclusions de novo. See In re Global Technovations Inc.,
694 F.3d 705, 714 (6th Cir. 2012) (quoting Nicholson v. Isaacman (In re
Isaacman), 26 F.3d 629, 631 (6th Cir. 1994)).
DISCUSSION
Appellant

challenges

the

Bankruptcy

Court

“Order

Disapproving

Reaffirmation Agreement But Providing Debtor With Other Relief.” Appellant
contends that the Bankruptcy Court “abused its discretion in several ways: First by
imposing an injunction on Appellant when none was sought; second, when
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Appellant was not notified that an injunction was to be issued against it; and third,
when no evidence in support of an injunction was considered or even requested by
the court . . . .” (Appellant’s Br. at 12, Pg ID 29.) Appellant concluded that the
Bankruptcy Court did not notice up the injunction issue for consideration that
would have permitted it to proceed with the findings and conclusions that it is
required to make before awarding injunctive relief.
Appellant’s argument has merit. The Bankruptcy Court exceeded its
authority when it sua sponte and without notice imposed an injunction against
Appellant in the August 29, 2016 Order. The legal basis for that injunction is not
apparent from the Order. Indeed, Title 11 U.S.C. § 524(m)(1) states: “No
agreement shall be disapproved without notice and a hearing to the debtor and
creditor . . . .” The Bankruptcy Court did not set forth specific findings or
conclusions that would justify a “necessary or appropriate” injunction under 11
U.S.C. § 105(a).1 Further, the Bankruptcy Court’s Order would still have run afoul
of Fed. R. Civ. P. 65(a), which provides that a preliminary injunction may be
issued “only on notice to the adverse party.” Appellant was given no such notice.

1

See In re DeLorean Motor Co., 755 F.2d 1223, 1228 (6th Cir. 1985) (explaining
that a bankruptcy court must make “specific findings concerning . . . four factors,
unless fewer are dispositive of the issue[,]” for a § 105(a) injunction: “(1) the
likelihood of plaintiff's success on the merits; (2) whether the injunction will save
the plaintiff from irreparable injury; (3) whether the injunction would harm others;
and (4) whether the public interest would be served by the injunction”).
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The Court also finds error in the Bankruptcy Court’s determination that the
reaffirmation agreement imposed undue hardship on Appellees. A presumption of
undue hardship did not arise in this case, since Appellees’ signed statement in
support of the reaffirmation agreement indicated that Appellees’ net monthly
income exceeded their monthly expenses added to the monthly payment under the
reaffirmation agreement. Specifically, Appellees represented in their bankruptcy
petition that their gross monthly income was $2,824 and that their monthly
expenses (minus their payments on the vehicle) totaled $1,845, leaving a net
monthly income of $979. (In re Hall, Case No. 16-bk-50148, ECF No. 1,
Voluntary Petition (Chapter 7) at 42-46.) Appellees would have been required to
make $488 in monthly payments (as well as a single late-charge payment of
$73.26) under the proposed reaffirmation agreement. (Appellant’s Br. Ex. B,
Reaffirmation Agreement at 24, Pg ID 41.) The Bankruptcy Code is clear that the
undue hardship presumption arises only “if the debtor's monthly income less the
debtor's monthly expenses as shown on the debtor's completed and signed
statement in support of such agreement . . . is less than the scheduled payments on
the reaffirmed debt.”2 11 U.S.C. § 524(m)(1) (emphasis added).

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The net monthly income indicated on Appellees’ signed statement in support of
the proposed reaffirmation agreement was $491 rather than $979, but that lower
figure appears to have the $488 monthly vehicle payment amount already
subtracted from it, since the income and expense totals on Appellees’ proposed
reaffirmation agreement were drawn from Schedules I and J on Appellees'
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Further, at the hearing, the Bankruptcy Judge questioned Appellees about
their income and their expenses, producing the following numbers: a total monthly
income of $1695, factoring in salary ($395), disability assistance ($1100), and food
stamps ($200); and (excluding the $488 monthly car payment) total monthly
expenses of $1060, factoring in the costs of food ($150), housekeeping supplies
($15), rent ($625), utilities ($120), transportation ($120), and health insurance
($30). (See In re Hall, Case No. 16-bk-50148, ECF No. 36, Transcript of August
25, 2016 Hearing at 4-10.) Accordingly, no such undue hardship presumption was
present in this case.
To the extent that the Bankruptcy Court made its determination
independently of any statutory presumption of undue hardship, that determination
fails. The Bankruptcy Court appears to have disregarded the Appellees’
representations as to their financial status in the proposed reaffirmation agreement,
and also in their responses to the Bankruptcy Court at the hearing again
establishing that their net monthly income exceeded their car payments. In view of
this, the Court finds that the Bankruptcy Court did not establish that the proposed
reaffirmation agreement imposed undue hardship on Appellees.

bankruptcy petition, which included the $488 car payment among Appellees’
monthly expenses. (Appellant’s Br. Ex. B, Reaffirmation Agreement at 21-27, Pg
ID 38-44.) Even with this error, the signed statement’s indication of Appellees’ net
monthly income ($491) exceeds the projected monthly car payment ($488), so
there is no question that a presumption of undue hardship did not arise in this case.
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On a broader level, Appellant aptly points out that the “Other Relief”
awarded to Appellees by the Bankruptcy Court resembles a “ride-through” (or
“pay and drive”), a judicially-created remedy by which some bankruptcy courts
would permit debtors with personal property securing a portion of their debt to
retain the property after bankruptcy without having to choose one of the statutorily
provided options of redeeming the property or entering into a reaffirmation
agreement with their creditors. See In re Dumont, 581 F.3d 1104, 1108–09 (9th
Cir. 2009) (summarizing the use of and controversy over the “ride-through”
remedy).
The transcript of the August 25, 2016 hearing on the reaffirmation
agreement strongly suggests that the Bankruptcy Court was creating a ridethrough:
THE COURT: . . . There’s a middle ground I’m allowed to permit and
that is the following. I can decide that I won’t allow the reaffirmation
of the debt, but I can [enter] an order that says that you could keep the
car without the reaffirmation unless and until you default and they’re
entitled to take the car back by reason of the contractual relationships
or state law. That’s a middle ground I sometimes order in cases where
I’m concerned about whether or not there is a financial hardship. . . .
You will receive shortly in the mail from me an order as to whether or
not I’m going to reaffirm the debt or not reaffirm it, but indicate some
other relief that I give you to enable you to keep the car.
(In re Hall, Case No. 16-bk-50148, ECF No. 36, Transcript of August 25, 2016
Hearing at 12.)
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Certain United States Courts of Appeal that have addressed the issue have
held that Congress eliminated the “ride-through” when it enacted the Bankruptcy
Abuse Prevention and Consumer Protection Act (“BAPCPA”), Pub.L. No. 109–8,
119 Stat. 23, in 2005. See, e.g., In re Jones, 591 F.3d 308, 310–12 (4th Cir. 2010)
(analyzing various provisions added to the United States Bankruptcy Code by
BAPCPA and concluding that they eliminated the “ride-through” option permitted
in some circuits prior to BAPCPA); Dumont, 581 F.3d at 1112–18 (9th Cir.)
(same). This Court recognizes that some District Court and Bankruptcy Court
decisions have approved a “ride-through” option. See, e.g., In re Baker, 400 B.R.
136, 139 (D. Del. 2009); Coastal Fed. Credit Union v. Hardiman, 398 B.R. 161
(E.D.N.C. 2008). This Court rejects that option because it was specifically rejected
by Congress in 2005.
Appellant argues that the Bankruptcy Court overstepped its authority in this
case in sua sponte rewriting the contract between the parties, and issuing an
injunction without notice. This Court agrees with Appellant. The error necessitates
reversal and remand.

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CONCLUSION
For the reasons set forth above, the decision of the Bankruptcy Court is
REVERSED, and this case is REMANDED to the Bankruptcy Court for further
proceedings consistent with this Opinion and Order to enforce the provisions of the
contract entered into between Appellant FMCC and Appellees Hall.
IT IS SO ORDERED.

s/Paul D. Borman
Paul D. Borman
United States District Judge
Dated: July 20, 2017

CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing order was served upon
each attorney or party of record herein by electronic means or first class U.S. mail
on July 20, 2017.
s/D. Tofil
Deborah Tofil, Case Manager

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