The Bankruptcy Abuse Prevention and Consumer Protection Act created two new provisions—11 U.S.C. §§362(h) and 521(a)(6)—that automatically terminate the stay imposed by §362(a) and remove property from the bankruptcy estate. The language used in §362(h), however, appears to be much broader than the language used in §521(a)(6), and the timelines used in §362(h) are much more restrictive. Thus, the question arises of when, if ever, will §521(a)(6) apply to a case: Is the entire section meaningless surplusage?¹

Comparing the language of the two statutes is instructive. Both are applicable only in an individual's chapter 7 case, and then only when the debtor has personal property subject to a security interest.² The security interests covered by §362(h) are those that "secur[e] in whole or in part a claim" against the debtor's personal property. This language is different, and broader, than the security interests described in §521(a)(6), which only applies to creditors that have "an allowed claim for the purchase price [of the personal property] secured in whole or in part by an interest in such personal property...." A creditor generally only has an "allowed claim" if it files a proof of claim in accordance with §501.³ Moreover, read literally, §521(a)(6) also requires that the claim be for the "purchase price" of the personal property. As noted by Bankruptcy Judge Thomas Small, the term "purchase price" means a claim for the "full purchase price," which is not the same as a claim for "any portion of the purchase price," or a "claim attributable in whole or in part to the purchase price."⁴ Regardless of how a court will chose to read the statute—either literally or in accordance with what the court believed Congress intended—the inescapable conclusion is that, as written, §521(a)(6)'s language is more narrow than the language used in §362(h). Stated differently, no security interest defined by §521(a)(6) will be outside the scope of the security interests defined in §362(h).

Tracking the language of §362(h) reveals three circumstances under which the automatic stay terminates and under which property is removed from the bankruptcy estate. First, in §362(h) (1)(A), if a debtor fails to file a timely statement of intention, then the stay terminates with respect to the personal property collateral and the collateral is no longer property of the estate on the 31st day after the petition is filed.⁵ Second, if a debtor timely files a statement of intention, but fails to indicate that the debtor intends to redeem, reaffirm or surrender the personal property collateral, then the stay terminates and the personal property collateral is no longer property of the estate on the 31st day after the petition is filed.⁶ Thus, if a debtor writes on the statement of intention "retain and pay," or "sell," or some designation other than redeem, reaffirm or surrender, then the debtor has not filed a statement of intention in accordance with §362(h)(1)(A) and the submission of the "improper" statement of intention will not act to inhibit the termination of the automatic stay or prevent the property from leaving the estate.⁷

Third, §362(h)(1)(B) provides that if a debtor timely files a proper statement of intention within 30 days after the filing of the petition—stating that the debtor intends to either redeem, reaffirm or surrender the personal property collateral—the stay will nevertheless terminate and the personal property will no longer be property of the estate if the debtor fails to "take timely the action specified," which means that the debtor must take action within 30 days after the date set for the meeting of creditors under §341(a).⁸

Positing this understanding of the automatic termination of the bankruptcy stay under §362(h), and an understanding of the applicable time periods of (1) 30 days after the petition date and (2) 30 days after the date first set for the meeting of creditors, when if ever, will the deadlines and penalties of §521(a)(6) apply? These authors can think only of a few extraordinary circumstances, but first, a closer examination of the time line provided in §521(a)(6) is warranted.

Pursuant to §521(a)(6), an individual chapter 7 debtor who has personal property that secures, in whole or in part, a creditor's allowed claim for the purchase price of the collateral shall not retain possession of the personal property collateral unless—"not later than 45 days after the first meeting of creditors under section 341(a)"—the debtor either enters into a reaffirmation agreement or redeems the property.⁹ The penalty for failing to enter into a reaffirmation agreement or to redeem the personal property collateral within the 45-day period is that the bankruptcy stay is terminated with respect to the personal property collateral and that the property is no longer property of the estate.¹⁰ This is the exact remedy provided by §362(h), which, in almost every case, will take effect no later than 30 days after the debtor's meeting of creditors.

[T]he remedies provided in §§362(h) and 521(a)(6) are identical; if the debtor fails to timely act on a statement of intention, then the bankruptcy stay automatically terminates and the personal property collateral is no longer property of the estate.

Ostensibly, §521(a)(6) applies some additional penalties. Section 521(a)(6) further states that should the stay terminate and the property leave the estate, then "the creditor may take whatever action as to such personal property as is permitted by applicable nonbankruptcy law...."¹¹ This language must be read in tandem with that of §521(d), with provides that if a debtor "fails timely to take the action specified in subsection (a)(6)...or in paragraphs (1) and (2) of§362(h)...nothing in this title shall prevent or limit the operation of a provision in the underlying agreement that has the effect of placing the debtor in default...by reason of the occurrence...of a proceeding under this title...."¹²

The language of §§521(a)(6) and (d), however, merely states the obvious: Once the automatic stay terminates and the property is no longer property of the estate, nonbankruptcy law would govern the parties' rights and duties as a matter of law.¹³ Nothing in these subsections alters a creditor's right to repossess personal property collateral under state law; the significance of the language in the combined subsections is that it "eliminates limitations previously imposed by the Bankruptcy Code on the operation of ipso facto clauses."¹⁴ Sections 521(a)(6) and (d) do not create a statutory remedy and do not write ipso facto clauses into contracts where none exists.¹⁵

In fact, applicable state law may prohibit the use of ipso facto clauses where a debtor is current on payments. For example, in West Virginia, the state legislature specifically provides that "a creditor may not accelerate maturity of the unpaid balance of any...installment obligation...commence any action or demand or take possession of collateral on account of default until 10 days after notice has been given to the consumer of his or her right to cure such default."¹⁶ Until that 10-day period expires, a West Virginia debtor has "the right to cure any default by tendering the amount of all unpaid sums due at the time of tender, without acceleration...."¹⁷ Query whether the ride-through option may remain available in the state of West Virginia despite Congress's attempt to eliminate it in the Code.¹⁸

Accordingly, the remedies provided in §§362(h) and 521(a)(6) are identical; if the debtor fails to timely act on a statement of intention, then the bankruptcy stay automatically terminates and the personal property collateral is no longer property of the estate. The only real difference is that the stay terminates and the property leaves the estate sooner in §362(h) than in §521(a)(6). Moreover, the circumstances under which §362(h) would apply also encompass almost every circumstance whereby §521(a)(6) might be applicable.

Of course, it is possible to concoct some unlikely factual scenario whereby §521(a)(6) might operate to terminate the automatic stay before §362(h). For example, if a debtor's meeting of creditors is held at its earliest permissible date—20 days from the petition date—the termination of the automatic stay under §521(a)(6) would occur 45 days after that event. If, however, the court had previously granted a debtor an extension of time to file a statement of intent, say until 50 days after the meeting of creditors, then it would seem that §521(a)(6) would be applicable and terminate the automatic stay notwithstanding the fact that a statement of intention would be timely filed under §§362(h) and 521(a)(2)(A).

A few other differences in the language of the statutes are worth noting. Section 521(a)(6) states that a debtor shall "not retain possession" of personal property collateral if the debtor fails to timely enter a reaffirmation agreement or redeem the personal property within 45 days of the first meeting of creditors. The phrase "not retaining possession" does not appear in §362(h). The stated remedy for retaining possession, however, is listed in the hanging paragraph following §521(a)(6), and in §521(d), the automatic stay terminates, the property is no longer property of the estate, "the creditor may take whatever action...as is permitted by applicable nonbankruptcy law," and there is no applicable bankruptcy prohibition on ipso facto clauses. Although the language of the hanging paragraph is more explicit in that it endorses/ recognizes the creditor's remedy, that remedy would seem to be already implemented by operation of §362(h), which, similar to §521(a)(6), provides that "the stay...is terminated...and such personal property shall no longer be property of the estate." Of course, by its language, §521(d) applies to both §§362(h) and 521(a)(6).

Another notable difference is that the triggering events in each section are worded differently. In a case where a timely and proper statement of intention is filed, the triggering event in §362(h)(1)(B) is the debtor's failure to "timely take the action specified" in the statement of intention. The penalties in §521(a)(6) are applicable unless a debtor "enters into" a reaffirmation agreement or "redeems" the personal property collateral. The authors are unsure of the exact meaning of the language used, and whether the different wording has any substantive effect. For example, if a debtor "timely take[s] the action specified," as required by §362(h)(1)(B), does that mean that the debtor must complete a redemption or reaffirmation within 30 days of the date first set for the meeting of creditors, or just have begun the process of redemption or reaffirmation?¹⁹ What if the court wishes to examine the terms of the redemption or reaffirmation, or what if there is a dispute as to the redemption value that necessitates a court hearing after the 30-day period expires? Similarly, the language of §521(a)(6)—"enters" or "redeems"—uses the present tense of the verbs, indicating the action is ongoing and need not be completed. If Congress had used the imperfect past tense—"has entered" or "has redeemed"—then an argument could be made that while §362(h) required a debtor to initiate the "action specified" on the statement of intent within 30 days of the meeting of creditors, §521(a)(6) required that the specified action be completed within 45 days of the meeting of creditors. The point here is only that §362(h)'s language of "timely take the action specified" can be construed to be at least as broad, if not broader, than the present tense language of "enters" or "redeems" in §521(a)(6).

Footnotes

1 Although lacking the stamina or will to actually count the words of the statute, the authors note that the length of 11 U.S.C. §521(a)(6) is comparable to the length of the Gettysburg Address. See In re Toro-Arcila, 334 B.R. 224, 227 (Bankr. S.D. Tex. 2005) (stating that Lincoln's address at Gettysburg was 278 words in length and concluding that the statute at issue in the case—also 278 words in length—must have some meaning under the presumption that "Congress did not codify words of comparable length with no meaning whatsoever").

2 Cf. 11 U.S.C. §362(a)(1) ("In a case in which the debtor is an individual, the stay is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim..."); with §521(a)(6) ("[I]n a case under chapter 7 of this title in which the debtor is an individual, [the debtor shall] not retain possession of personal property as to which a creditor has an allowed claim for the purchase price secured in whole or in part by an interest in such personal property..."). The conclusion that §362(h) only applies in chapter 7 cases is reached because the penalties listed in that section are tied to whether or not a debtor files a proper statement of intention and whether or not the debtor timely acts on that intention. A statement of intention is only required in chapter 7 cases. §521(a)(2) (limiting the requirement to file a statement of intention to chapter 7 cases); Fed. R. Bankr. P. 1007(b)(2) ("An individual debtor in a chapter 7 case shall file a statement of intention as required by §521(a) if the Code...").

3 §501(a) ("A creditor may file a proof of claim..."); Fed. R. Bankr. P. 3001(f) ("A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim"); In re Donald, 343 B.R. 524, 535 (Bankr. E.D.N.C. 2006) (stating generally that a creditor must file a claim before the creditor has an "allowed claim"); 4 Collier on Bankruptcy ¶521.10[4] (Alan N. Resnick & Henry J. Sommer eds. 15th ed. rev. 2006) ("[T]he reach of §521(a)(6) is more limited than §521(a)(2). It applies only to allowed claims and only to purchase money security interests. Generally, in order for a claim to be allowed, it must be filed in accordance with §501. Few creditors file proofs of claim in chapter 7 no-asset cases"). At least two courts, however, have determined that giving a plain-meaning interpretation to the term "allowed claim" simply cannot be done because creditors are instructed not to file claims in no-asset chapter 7 cases and it makes little or no sense to limit §521(a)(6) to asset chapter 7 cases where a creditor files a proof of claim. In re Rowe, 342 B.R. 341, 348 (Bankr. D. Kan. 2006) ("The court does not believe that Congress could have intended the phrase 'allowed claim' to have the clear meaning ascribed to it by operation of §502, since this construction of 'allowed claim' renders the section applicable only in asset chapter 7 cases when a secured creditor files a proof of claim after the clerk has given notice that assets are available for distribution"); In re Steinhaus, No. 06-429, 2006 Bankr. LEXIS 2116 (Bankr. D. Idaho Sept. 1, 2006) ("Strictly reading the term 'allowed' and limiting §521(a)(6) relief to creditors with filed proofs of claim also appears inconsistent with the balance of the amendments... [T]he word 'allowed' has no clearly intended function when the BAPCPA amendments on the 'ride-through' issue are considered as a whole"). The Rowe court opined that because a literal reading of 'allowed claim' would produce a result demonstrably at odds with the intention of its drafters, a literal reading should not be followed. 342 B.R. at 349 (citing the Report of the Committee on the Judiciary, House of Representatives, to Accompany S. 256, H.R. Rep. No. 109-31, Pt. 1, at 70-71 (2005), for the proposition that Congress did not intend to limit the applicability of §521(a)(6) to those creditors holding "allowed claims"). For a contrary opinion, see Judge Small's opinion in the case of In re Donald, 343 B.R. at 535-36 ("This court respectfully disagrees that the word 'allowed' should be ignored. The term 'allowed claim,' although not defined in the Code, is generally recognized, frequently used, and well understood... If a debtor who is current in the debtor's payments to the creditor is not permitted to retain the debtor's personal property—for example, an automobile or mobile home—because of an ipso facto clause, it is not too much to require that the secured creditor file a proof of claim").

4 In re Donald, 343 B.R. at 536-37 ("Clearly, if Congress intended in §521(a)(6) for a 'claim for the purchase price' to mean something less than the full purchase price, it would have said so as it did in §522(f)(1)(B), §524(k)(3)(G), §1325(a)(4) and §1326(a)(4). In §521(a)(6) itself, there is a reference to the claim being secured 'in whole or in part by an interest in such personal property.' If Congress had meant that the claim could be for less than the full purchase price, it could have used the same 'in whole or in part' language to the describe the debt that it used to describe the collateral"); contra, In re Steinhaus, 2006 Bankr. LEXIS 2116 at *29-30 ("This court respectfully disagrees [with Donald]. [I]t appears unmistakable that Congress drafted...provisions with 'loose' and imprecise language. The legislative history...indicates an intention that §521(a)(6) encompass 'personal property securing, in whole or part, a purchase money security interest.' In reviewing the several places in BAPCPA where similar but not identical phrasings are used, the court can divine no cogent, or even plausible, reason why Congress would have intended to limit §521(a)(6) relief to only those creditors who have secured claims for the 'full' purchase price").

5 11 U.S.C. §§362(h)(1)(A) ("[If the debtor fails] to file timely any statement of intention required under §521(a)(2) with respect to such personal property [then the automatic stay shall terminate and such personal property shall no longer be property of the estate]"); §521(a)(2)(A) ([W]ithin 30 days after the date of the filing of a petition under chapter 7 of the title or within such additional time as the court, for cause, within such period fixes, the debtor shall file with the clerk a statement of his intention...").

6 §362(h)(1)(A) ("[If the debtor fails to] indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant to §722, [or] enter into an agreement to the find specified in §524(c) applicable to the debt...[then the automatic stay shall terminate and such personal property shall no longer be property of the estate]"); In re Steinhaus, 2006 Bankr. LEXIS 2116 at *17 ("It appears, therefore, the stay in this case was terminated as to creditor and the PT Cruiser under §362(h)(1)(A) 30 days after the filing of the petition...").

7 In re Donald, 343 B.R. at 540 ("The court is convinced that termination of the 'ride-through' option is what Congress intended"). In re Rowe, 342 B.R. at 346-47 (holding that the debtor's statement of intent, which provided for a ride-through, was insufficient to keep the automatic stay from terminating under §362(h)); In re Boring, No. 05-6768, 2006 Bankr. LEXIS 1262 at *4 (Bankr. N.D. W.Va. May 30, 2006) ("§362(h) states in explicit terms the three options that a debtor can invoke in connection with filing a statement of intention if a debtor wishes to preserve the automatic stay. A debtor's failure to indicate on a timely filed statement of intention whether the intention is to surrender, reaffirm or redeem with respect to the property terminates the automatic stay"). In re Root, No. 06-90, 2006 Bankr. LEXIS 660, at *6 (Bankr. N.D. Iowa April 11, 2006) (same).

8 11 U.S.C. §§362(h)(1)(B) ("[If the debtor fails] to take timely the action specified in such statement, as it may be amended before the expiration of the period for taking action [then the automatic stay shall terminate and such personal property shall no longer be property of the estate]"). §521(a)(2)(B) ("[The debtor shall] within 30 days after the first date set for the meeting of creditors under §341(a) or within such additional time as the court, for cause, within such 30-day period fixes...perform his intention with respect to such property..."). At least one court has noted that §362(h)(1)(A) and (B) are linked by an "and" instead of an "or," leading the court to comment that "it would appear that the collateral does not cease to be property of the estate simply because a proper statement of intention was not filed within 30 days of the bankruptcy filing; rather it terminates only if the 'action specified' in the statement is not taken within 30 days of the first date set for the meeting of creditors." In re Kissal, No. 06-10264, 2006 Bankr. LEXIS 1271 at *8 (Bankr. E.D. Va. June 30, 2006). On the other hand, if the debtor fails to timely file a statement of intention, or fails to specify whether the debtor intends to redeem, reaffirm or surrender personal property collateral, then there can be no action that the debtor may undertake to trigger the additional time period provided in §§362(h)(1)(B) and 521(A)(2)(B). For the stay to remain in effect, and for the personal property collateral to remain property of the estate, a debtor must satisfy the conditions stated in both §362(h)(1)(A) and (B). While this interpretation does not conform precisely with the syntax of subsection (h), this is not the only instance of poor drafting in the BAPCPA. See §1112(b)(4)(A-P) (stating 16 factors that—in the conjunctive and not the disjunctive—establish cause to dismiss or convert a chapter 11 case); In re TCR of Denver LLC, 338 B.R. 494, 500 (Bankr. D. Colo. 2006) ("Congress seem to be quite lax in interchanging 'and' and 'or' such that 'and' can connote disjunctive and 'or' can be used in the conjunctive. It appears that the courts have long recognized errors in legislative drafting with respect to the use of conjunctive and disjunctive language, and the courts have construed terms in a manner that makes sense").

9 §521(a)(6).

10 §521(a)(6).

11 §521(a)(6).

12 §521(d).

13 In re Anderson, No. 06-10297, 2006 Bankr. LEXIS 2015 at *15 (Bankr. D. Del. Aug. 31, 2006) ("After [the stay terminated pursuant to §362(h)(1)(B)], the creditor was free to exercise any rights against the vehicle that were otherwise available to it under Delaware state law"); In re Rowe, 342 B.R. at 350 ("The result of removal of property from the estate is revesting of the property with the debtor. The creditor's right to foreclose on the collateral is controlled by the security agreement and state law"); In re Boring, 2006 Bankr. LEXIS 1262 at *7 ("The automatic stay has lifted pursuant to §362(h); thus, the court need not determine whether or not the debtor is in default under the parties' loan documents. Terminating the automatic stay gives DaimlerChrysler the right to take whatever action is permissible under nonbankruptcy law"); In re Cracker, 337 B.R. 549, 551 n.2 (Bankr. M.D.N.C. 2006) ("The court is making no finding as to whether the debtor is in default under the terms of her contract and security agreement with CitiFinancial. CitiFinancial is simply permitted to take whatever action is permitted under state law"). See also Braucher, Jean, "Rash and Ride-Through Redux: The Terms for Holding on to Cars, Homes and Other Collateral Under the 2005 Act," 13 Am. Bankr. Inst. L. Rev. 457, 476-77 (2005) ("By explicitly providing that the stay is lifted and the creditor may take whatever action is permitted by nonbankruptcy law, the statutory language strongly implies that there is no bankruptcy remedy other than termination of the automatic stay. This implication negates the idea that the debtor could be ordered by a bankruptcy court to surrender, redeem or reaffirm and then be denied a discharge or have her case dismissed for a failure to do so... Another piece of the puzzle is new §521(d)... [U]nder state law principles, if the creditor does not act promptly after the termination of the stay and continues to accept payments on the full debt, the creditor would probably be deemed to have waived the bankruptcy default or be estopped to assert it").

14 In re Donald, 343 B.R. at 538. See also 11 U.S.C. §365(e) (providing the Code's prohibition on ipso facto clauses).

15 In re Donald, 343 B.R. at 538; In re Rowe, 342 B.R. at 351; Braucher, supra, note 15 (requiring that an ipso facto clause first exist in the parties' contract before it may become applicable under §521(d)).

16 W. Va. Code §46A-2-106.

17 W. Va. Code §46A-2-106.

18 See, e.g., In re Steinhaus, 2006 Bankr. LEXIS 2116 at *33-44 (holding that nothing in §§362(h), 521(a)(2), 521(a)(6) or 521(d) altered state law and that the Idaho Code prohibited repossession when the debtor was not in default); In re Anderson, 2006 Bankr. LEXIS 2015 at *17-20 (concluding that the Delaware Code did not prohibit the operation of an ipso facto clause with respect to a debt secured by a motor vehicle); In re Rowe, 342 B.R. at 350 (noting that the Kansas Consumer Credit Code required that there be failure to make payment, or the prospect of payment, performance or realization of collateral be significantly impaired).

19 The issue may not come up often in cases of surrender, where the debtor must merely make the personal property available to the creditor to collect.