Mobile Home Debtors Can’t ‘Ride Through’ Ch. 7 With No Action

By Diane Davis

Chapter 7 debtors can’t keep their mortgaged mobile home without redeeming the property or reaffirming the debt, the U.S. Bankruptcy Court for the Western District of Texas held.

When debtors file their “statement of intention” form listing their secured creditors and their plans with respect to property, they must surrender, redeem, or reaffirm it, Chief Judge Ronald B. King wrote Nov. 13 ( In re Marquez , 2017 BL 406852, Bankr. W.D. Tex., 17-60594-RBK, 11/13/17 ).

“Ride-through,” where a debtor retains property without reaffirming or redeeming it so long as they remain current on payments, isn’t available under Bankruptcy Code Section 521(a)(2), the court said.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 resolved a circuit split over whether ride-through was available to Chapter 7 debtors. Now, the automatic bankruptcy stay may be lifted and property taken out of the bankruptcy estate if debtors attempt to ride through.

When Anthony and Victoria Marquez filed Chapter 7, 21st Mortgage held a lien on their mobile home. They wanted to continue making payments without reaffirming the debt.

21st Mortgage asked the court to force the Marquezes to either surrender, redeem, or reaffirm the property.

The court required the Marquezes to amend their statement of intention within 30 days, following the Fifth Circuit’s reasoning in Johnson v. Sun Fin. Co. (In re Johnson) which required debtors to select between the three options listed in the statute: surrender, redeem, or reaffirm.

Though some courts still allow a “backdoor to ride-through,” it applies in very limited circumstances, the court said. Even if backdoor ride-through was an option in general, it wasn’t available here because the debtors hadn’t “substantially complied with Section 521(a)(2),” the court said.

The debtors were trying to use a loophole to stay in the home without reaffirming or redeeming the property, the court said.

Allowing the Marquezes to ride-through the bankruptcy would amount to “forcing 21st Mortgage into an involuntary reaffirmation agreement while also discharging Debtors’ personal liability on the debt,” the court said.

Ride-through would give the debtors a “head start” rather than a “fresh start” as promised by the Bankruptcy Code, the court said.

Erin B. Shank, of Erin B. Shank P.C., Waco, Texas, represented the Marquezes. Chapter 7 Trustee James Studensky, Waco, Texas, represented himself.

To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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