10-41895 Cooper (Doc. # 49)

In Re Cooper, 10-41895 (Bankr. D. Kan. Feb. 21, 2012) Doc. # 49

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SIGNED this 21st day of February, 2012.


In the United States Bankruptcy Court
for the District of Kansas

In re: )
Sabrina Cooper, ) Case No. 10-41895

Debtor. )
________________________________ )

Memorandum Opinion and Order Denying Motion by Credit Union to
Reconsider Order Not Approving Reaffirmation Agreement

Creditor United Northwest Federal Credit Union (“United”) asks me to

reconsider1 my order declining to approve a reaffirmation agreement2between

United and Debtor Sabrina Cooper. United claims that 11 U.S.C. § 524(m)(2)

strips me of authority to review, and decline to approve, the reaffirmation

agreement because United is a credit union. However, as explained below, §


 Doc. 43.


 Doc. 41. The Reaffirmation Agreement is at Doc. 35.

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524(m)(2) does not alter my statutory responsibility and duties under § 524(c)(6)
to determine if a reaffirmation agreement is in Ms. Cooper’s best interest and
whether the agreement would create an undue hardship on her. Therefore, the
motion for reconsideration is denied.

This matter constitutes a core proceedings over which the Court has the
jurisdiction and authority to enter a final order.3

I. Findings of fact
Ms. Cooper filed her Chapter 7 petition in October, 2010 without an
attorney.4 She listed the 2004 Ford Explorer that is the subject of this agreement
on Schedule D, estimating its value at $8,125. She revealed on Schedule I that,
after all deductions from her wages, her net monthly income was $2,229.23 and
her total monthly expenses totaled $1,945.00—leaving her with excess monthly
income of $284.23.

The reaffirmation agreement calls for her to reaffirm a debt of $7,963.44
to United, and United contends the value of the Explorer is $8,400.00 (as
contrasted with Debtor’s listed value of $8,125 a few months earlier). The

3 See 28 U.S.C. § 157(b)(2)(O) (core proceeding) and § 157(b)(1) (authority to hear coreproceedings).

4 Ms. Cooper did receive the assistance of a bankruptcy petition preparer in connectionwith filing the required petition and schedules, but this individual is not representing Ms.
Cooper in any legal capacity, did not sign the reaffirmation agreement, or appear with her atthe hearing on the reaffirmation agreement.


Case 10-41895 Doc# 49 Filed 02/21/12 Page 2 of 14

agreement also indicates that after she filed her petition, her monthly income
decreased by over 25%— to $1,600.00, and her monthly expenses decreased to
$1,183.87—leaving her with excess monthly income of $416.13. In the
agreement, Ms. Cooper explained the reduction in her monthly income by stating
“I no longer have two jobs. I only have one main job.” She explained the
reduction in her expenses by stating “Much of the debt was taken care of in the
bankruptcy.” According to the information contained in the reaffirmation
agreement, United did not alter the principal amount due under the loan, the
interest rate, or the amount of monthly payments.

Although page 2 of the Reaffirmation Agreement Cover Sheet indicates
that Ms. Cooper was represented by counsel during the course of negotiating this
reaffirmation agreement and that her attorney had executed a certification in
support of the reaffirmation agreement, there was no such certification filed with
the Court.5 Ms. Cooper did complete Part E of the reaffirmation agreement,
which is a Motion for Court Approval of Reaffirmation Agreement that is
required to be signed by all debtors who are not represented by counsel.

5 The attorney certification is typically found in Part C of the Reaffirmation Agreement,
which was not present in the document filed with the Court.


Case 10-41895 Doc# 49 Filed 02/21/12 Page 3 of 14

The Clerk issued a Notice of Hearing on Reaffirmation Agreement, setting
the reaffirmation agreement for hearing.6 Counsel for United was electronically
notified and Ms. Cooper was notified by mail. Only Ms. Cooper appeared at the
hearing. At that hearing, I provided Ms. Cooper the information that § 524(d)(1)
requires I provide debtors in this situation and asked her several questions
about the agreement and her finances.

After the disclosures and discussion about her income and expenses, I
found that the reaffirmation agreement was not in Ms. Cooper’s best interest,
as § 524(c)(6)(A) requires, and issued an order not approving the reaffirmation
agreement. United then timely filed its motion for reconsideration. The sole
basis for the motion is the assertion that the Court has no authority to
disapprove the reaffirmation agreement as a result of the language contained in
§ 524(m)(2).

Additional facts will be discussed below, when necessary.

II. Standard for a Motion for Reconsideration
Rule 9023 of the Federal Rules of Bankruptcy Procedure incorporates Rule
59 of the Federal Rules of Civil Procedure, and allows for alteration or
amendment of judgments on the grounds for relief set forth in Rule 60(b) of the


 Doc. 38.


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Federal Rules of Civil Procedure, as incorporated in Bankruptcy Rule 9024.7
Grounds for relief include mistake, inadvertence, surprise, excusable neglect,
fraud or newly discovered evidence. A motion to reconsider that is filed within
fourteen days of the entry of judgment is treated as a motion to alter or amend.8

The legal standard for granting a motion for reconsideration is narrow. “A
motion for reconsideration should be granted only to correct manifest errors of
law or to present newly discovered evidence.”9 “Such motions are not appropriate
if the movant only wants the Court to revisit issues already addressed or to hear
new arguments or supporting facts that could have been presented originally.”10

III. Analysis
A. Background on reaffirmation agreements and protections
afforded to debtors who enter into such agreements.
The goal of debtors who file for protection under Chapter 7 of the
Bankruptcy Code is to emerge from the bankruptcy process with a “fresh start.”
The cornerstone of this fresh start is the discharge of personal liability on debts

7 See In re Colley, 814 F.2d 1008, 1010 (5th Cir. 1987).

8 In re American Freight System, Inc., 168 B.R. 245, 246 (D. Kan. 1994).


Adams v. Reliance Standard Life Ins. Co., 225 F.3d 1179, n.5 (10th Cir. 2000)
(internal quotations omitted).

10 Zhou v. Pittsburg State Univ., 252 F. Supp. 2d 1194, 1199 (D. Kan. 2003) (citing Van
Skiver v. U.S., 952 F.2d 1241, 1243 (10th Cir. 1991).


Case 10-41895 Doc# 49 Filed 02/21/12 Page 5 of 14

owed prior to bankruptcy.11 With limited exceptions—such as for those debts
found in 11 U.S.C. § 523 or priority debts—a Chapter 7 debtor is no longer
personally liable on prepetition debts once a discharge is granted under § 727.
One additional exception to this “fresh start” is secured debts in which a debtor
voluntarily reaffirms personal liability pursuant to § 524©. Given the potentially
negative effect reaffirmation agreements can have on a debtor’s fresh start,
Congress built protections into § 524 to ensure that debtors were not
indiscriminately giving away a portion of their fresh start, but instead were
doing so only when it would not create an undue hardship on the debtor and the
debtor’s dependents, and when doing so was in the debtor’s best interest.12

One protection the Code afforded debtors is the requirement that their
attorney, if represented during the negotiation of the reaffirmation agreement,
must sign a certification indicating that:

this agreement represents a fully informed and voluntaryagreement by the debtor;
11 See Standiferd v. U.S. Trustee (In re Standiferd), 641 F.3d 1209, 1212 (10th Cir. 2011)
(noting that “[a] central purpose of the Bankruptcy Code is to give debtors a fresh start bydischarging their preexisting debts”).

12 See In re Jamo, 283 F.3d 392, 398 (1st Cir. 2002) (noting that “[a]lthoughreaffirmation is consensual in nature, the myriad safeguards erected by Congress reflect itsrecognition that a debtor’s decision to enter into a reaffirmation agreement is likely to befraught with consequence”) and In re Minardi, 399 B.R. 841, 848 (Bankr. N.D. Okla. 2009)
(stating “[b]ecause reaffirmation constitutes a debtor-invoked exception to the tenet thatunderpins the bankruptcy system—the ‘fresh start’ principle—a reaffirming debtor must beafforded some protection against his own (potentially) short-sighted decisions”).


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this agreement does not impose an undue hardship on the debtor orany dependent of the debtor; and
[the attorney] ha[s] fully advised the debtor of the legal effect andconsequences of this agreement and any default under this
Thus, for represented debtors, under § 524(k)(5), their attorney fills the critical
role of educating them of the potential pitfalls and consequences of reaffirming
a debt under § 524, and makes an initial determination whether the
reaffirmation agreement will create an undue hardship on the debtor.14

Congress provided another protection to debtors in § 524(m)(1). Under that
subsection, there is a presumption that a reaffirmation agreement will create an
undue hardship on a debtor and the debtor’s dependents if the debtor’s monthly
expenses exceed monthly income. Judges are required to review this
presumption and, if not satisfied with the explanation of how the debtor can
afford the reaffirmed debt,“may disapprove” such agreement.15

13 11 U.S.C. § 524(k)(5)(A).

14 See In re Perez, 2010 WL 2737187, *3 (Bankr. D. N.M. July 12, 2010) (“The decisionto reaffirm an otherwise dischargeable debt affects the debtor’s fresh start and ordinarily is oneof the most important decisions to be made by an individual debtor in a chapter 7 consumercase. Debtor’s counsel plays a critical role in protecting the interests of the debtor in makingthis important decision.”).

15 11 U.S.C. § 524(m)(1). It is the practice of this Court to enter an order either“disapproving” or “not disapproving” a reaffirmation agreement in any case in which thepresumption of undue hardship arises. The purpose of this order is to inform all interestedparties that the Court has performed the mandatory review of the presumption of unduehardship and whether that presumption has been satisfactorily rebutted.


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The protections provided in § 524(k)(5) and § 524(m)(1) do not, however,
reach all debtors. When the debtor is not represented by counsel—either in
general or in the negotiation of the reaffirmation agreement—the gatekeeper
role played by the attorney, and evidenced by the certification under § 524(k)(5),
is absent. In addition, the requirement that the court review a reaffirmation
agreement in those cases where there is a presumption of undue hardship under
§ 524(m)(1) are not applicable under § 524(m)(2) if the creditor is a credit union,
as defined in § 19(b)(1)(A)(iv) of the Federal Reserve Act.16

To protect debtors who are not represented by an attorney in the course
of negotiating a reaffirmation agreement, however, the Bankruptcy Code places
additional procedural safeguards in completely different subsections of § 524—
subsections (c)(6) and (d). Section 524(c)(6)(A) states that in cases in which a
debtor is proceeding pro se, a reaffirmation agreement is only enforceable if “the
court approves such agreement as (1) not imposing an undue hardship on the
debtor or a dependent of the debtor; and (2) in the best interest of the debtor.”17
In addition, § 524(d) requires that the court conduct a hearing to inform the
debtor that the agreement is not required under any law or prior agreement
between the parties and to advise the debtor of the legal effect and consequences

16 11 U.S.C. § 524(m)(2).
17 11 U.S.C. § 524(c)(6)(A).


Case 10-41895 Doc# 49 Filed 02/21/12 Page 8 of 14

of the reaffirmation agreement and any default under the agreement.18 At that
hearing, the court is also required to determine whether the agreement complies
with the requirements of § 524(c)(6).19 Unlike the requirements of § 524(m)(1),
which do not apply to debts owed to credit unions, the only exception to the
requirements of § 524(c)(6) are reaffirmation agreements where the debt is a
consumer debt secured by real property.20

The Court had the authority to disapprove the reaffirmation
Ms. Cooper is proceeding pro se and was not represented by an attorney
in the course of negotiating the reaffirmation agreement with United. Therefore,
pursuant to § 524(d), I was required to conduct a hearing to inform Ms. Cooper
of the legal effect and consequences of the agreement and to inform her that she
was not required by any law or prior agreement with United to sign the
reaffirmation agreement. Furthermore, because the reaffirmed debt in this case
was not secured by real estate, § 524(d)(2) required me to determine whether the
reaffirmation agreement would impose an undue hardship on her and whether
it was in her best interest.

18 11 U.S.C. § 524(d)(1).

19 11 U.S.C. § 524(d)(2). It is the practice of this Court to enter an order either“Approving” or “Not Approving” a reaffirmation agreement in cases where the debtor isproceeding pro se.

20 11 U.S.C. §§ 524(c)(6)(B) and (d)(2).


Case 10-41895 Doc# 49 Filed 02/21/12 Page 9 of 14

At the conclusion of the hearing, I found it was not in Ms. Cooper’s best
interest to reaffirm the debt. I thus entered an order not approving the
reaffirmation agreement. I based my conclusion that entering into this
agreement was not in Ms. Cooper’s best interest for several reasons—including
the fact that vehicles are typically a depreciating asset, and there is very little,
if any, equity in the collateral to protect her in the event she had any
interruption in income over the remaining life of the loan, or any unexpected
expenses. I am always concerned, especially in the face of depreciating assets,
that a debtor might face a deficiency judgment in the event of an unexpected
reduction in income or increase in expenses. In addition, Ms. Cooper did not
receive any tangible benefit from entering into the agreement to offset the risks
of maintaining personal liability, such as a reduced principal or interest on the
debt, or a lowering of the payments.

Another factor I considered was Ms. Cooper’s $629 per month reduction
in income between the time she filed her petition and the time she entered into
the reaffirmation agreement—over a 25% decrease in income. To make the
reaffirmation “work,” Ms. Cooper also indicated that her monthly expenses had
rather magically decreased by over $750 per month—nearly a 40%
reduction—between the time of filing her petition and the filing of the
reaffirmation agreement. The only explanation Ms. Cooper provided for this


Case 10-41895 Doc# 49 Filed 02/21/12 Page 10 of 14

drastic reduction in expenses—which was necessary if the paperwork was to
show she could “afford” this reaffirmed debt—is that “much of the debt has been
taken care of in the bankruptcy.”

A review of Schedule J, which lists Ms. Cooper’s expenses on the date of
filing, however, shows that very few, if any, of the expenses listed would be
eliminated by the discharge she will receive. For example, Ms. Cooper’s expenses
for rent, utilities, food, clothing, transportation, and health insurance would
likely be unaffected by her bankruptcy filing. Those essential expenses, when
combined with the payments required by the reaffirmation agreement on her
vehicle, exceed her current monthly income—and this does not account for
additional expenses most people have, such as medical and dental expenses not
covered by insurance.21 Based on the information available, I found—and
continue to find—that it is not in Ms. Cooper’s best interest to commit to the
retention of personal liability this reaffirmation agreement would require.22

United filed its motion for reconsideration, claiming only that “[i]t appears
that per 11 U.S.C. § 524(m)(2), the Court may not have the authority to make

21 At the hearing on this matter, I asked Ms. Cooper how she had been able to reduceher monthly living expenses by over $750 each month—as she claimed in the reaffirmationagreement. Ms. Cooper was able to explain how her expenses had decreased to some degree,
but she was unable to offer any explanation for approximately $345 in alleged monthly savings.

22 I did advise Ms. Cooper that in my experience, most creditors with depreciatingcollateral seem to prefer to receive timely monthly payments rather than the return of thecollateral, and that the Code permits debtors to voluntarily repay any debt, as § 524(f) clarifies.


Case 10-41895 Doc# 49 Filed 02/21/12 Page 11 of 14

the ruling set out in the Order entered February 9, 2012.” United states that
“[t]he court should consider the impact of 11 U.S.C. § 524(m)(2), in reviewing the
court’s decision.” Its one page motion simply fails to mention, let alone analyze,
the rest of § 524; it also fails to cite a single case in support of its position.

While § 524(m)(2) is pertinent, because United is a credit union, I disagree
that § 524(m)(2) required a different result in this case. Section 524(m)(2)—by
its own terms—applies only to eliminate the protections afforded a debtor under
§ 524(m)(1). I did not rely on § 524(m)(1) when deciding to not approve Ms.
Cooper’s reaffirmation agreement. Instead, I relied on the duties and
responsibilities required of me under §§ 524(c)(6) and 524(d)(2).

The requirements of § 524(c)(6) operate wholly independently of the
requirements of § 524(m)(1), and are not affected by the provisions of §
524(m)(2). The only exception to the requirements of § 524(c)(6) is if the debt is
a consumer debt that is secured by real estate. Obviously that is not the
situation here.

Section 524(c)(6) is an important part of the overall protections afforded
by Congress to pro se debtors who are seeking to reaffirm debts with any
creditor, including credit unions. I do not think it was merely an oversight by
Congress. In fact, Congress required that the disclosures mandated in every
reaffirmation include these sentences: “If you were not represented by an


Case 10-41895 Doc# 49 Filed 02/21/12 Page 12 of 14

attorney during the negotiation of your reaffirmation agreements, it will not be

effective unless the court approves it. . . . The bankruptcy court must approve

your reaffirmation agreement as consistent with your best interests [unless debt

secures real property].”23 Nothing in the statutorily mandated disclosures

excepts reaffirmation agreements with credit unions.

In cases in which a debtor is represented by an attorney, the attorney

serves the role of counselor and gatekeeper to ensure the debtor is only giving

up a portion of the debtor’s fresh start when it is in the debtor’s best interest to

do so. Although Congress was willing to eliminate, pursuant to § 524(m)(2), the

protection judicial oversight affords represented debtors who do business with

credit unions because of the critical role the attorney serves in advising the

23 11 U.S.C. § 524(k)(3)(J)(i)(7). See In re Ong, 461 B.R. 559, 563 (9th Cir. BAP 2011)
(distinguishing between represented and unrepresented debtors when determining whetherBankruptcy Code provides for independent court review of reaffirmation agreements withcredit unions); In re Obmann, 2011 WL 7145760 (9th Cir. BAP 2011) (holding that becausedebtors were pro se, “the bankruptcy court was required to decide whether the Reaffirmationimposed an undue hardship and was in their best interest” despite the fact the agreement wasentered into with a credit union); In re Grisham, 436 B.R. 896, 905 n.6 (Bankr. N.D. Tex. 2010)
(recognizing if no attorney is involved and personal property is involved, the court must set ahearing to consider whether reaffirmation with credit union is in debtors’ best interest); In re
Morton, 410 B.R. 556. 562-63 (6th Cir. BAP 2009) (noting that the court’s review ofreaffirmation agreements to see whether the agreement is in the debtor’s best interest islimited to cases involving pro se debtors if the creditor is a credit union); In re Huskinson, 2008
WL 2388113 at n.7 (Bankr. N.D. Ohio 2008) (holding that unrepresented debtors can beprevented from entering into financially unsound agreements with credit unions, citing §
524(c)(6)); In re Moustafi, 371 B.R. 434, 438 (Bankr. D. Ariz. 2007) (declining to approve areaffirmation agreement with a credit union where it was not in the debtor's best interest); In
re Hoffman, 358 B.R. 839, 843 (Bankr. W.D. Va. 2006) (holding that court is required todetermine whether reaffirmation agreement between unrepresented debtor and Salem FederalCredit Union was in debtors’ best interest).


Case 10-41895 Doc# 49 Filed 02/21/12 Page 13 of 14

debtor, it recognized that judicial oversight was still important for
unrepresented debtors. When no attorney is present to advise and negotiate the
best terms possible on behalf of a debtor, § 524(c)(6) requires the Court step in
and essentially perform the role of counsel to ensure that the debtor is fully
educated about the effect and consequences of a reaffirmation agreement, and
that the debtor’s best interest is being protected. And that responsibility exists
to unrepresented debtors regardless the identity of the creditor; in other words,
regardless if the creditor is a credit union.24

IV. Conclusion
United’s motion for reconsideration must be denied. Contrary to the
assumptions made by United in suggesting that § 524(m)(2) forbids the Court
from declining to approve a reaffirmation agreement based upon a determination
that the agreement was not in Ms. Cooper’s best interest pursuant to § 524(c)(6),
the Court was required to perform the analysis.

It is, therefore, by the Court ordered that the Motion to Reconsider
Order Not Approving Reaffirmation Agreement is denied.25
# # #

24 See In re Reed, 403 B.R. 102, 105 (Bankr. N.D. Okla. 2009) (noting that therequirements of § 524(c)(6) “represent an attempt to insure that a debtor does notimprovidently enter into reaffirmation agreements, and that the vitality of a debtor’s ‘freshstart’ is preserved”).

25 Doc. 43.


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