A creditor and a consumer cannot use a stipulation excepting a debt from discharge to circumvent the requirements of Section 524(c) governing reaffirmation agreements, according to Chief Bankruptcy Judge Mary P. Gorman of Springfield, Ill.
Before the deadline for objecting to the dischargeability of a debt, a creditor and the debtor’s counsel signed and submitted a stipulation excepting an auto loan debt from discharge. They also gave the bankruptcy judge a proposed order approving the stipulation. Judge Gorman directed the parties to submit briefs justifying the proposed procedure for excepting the debt from discharge.
In her Oct. 31 opinion, Judge Gorman rejected every proffered theory attempting to explain why she should approve the stipulation.
To begin with, Judge Gorman said that an order excepting discharge of a debt can only be entered if there was a timely filed adversary proceeding. “Absent filing of a timely complaint,” she said, “the court lacks authority to make a determination of dischargeability.”
Even if the debtor had not filed an answer in an adversary proceeding, Judge Gorman said that the court must examine the complaint to determine whether it establishes grounds for excepting the debt from discharge under Section 523(a). The court, she said, cannot “rubberstamp their agreements without regard to the requirements of substantive and procedural law.”
Furthermore, the parties cannot use a stipulation to avoid the requirements of Section 524(c) regarding approval of reaffirmation agreements. Among other things, that section demands that the reaffirmation agreements be made before discharge is granted and must contain specified disclosures. The stipulation was not the equivalent of a proper reaffirmation agreement because it did not contain required disclosures and was not signed by the debtor, only the debtor’s attorney.
The lender also argued that the stipulation was proper under Section 727(a)(10), which allows a debtor to waive discharge.
On that score, Judge Gorman said that a minority of courts allow use of Section 727 to waive discharge of a specific debt.
Judge Gorman decided to follow the majority by holding that Section 727(a)(10) only allows waiver of a general discharge, not the discharge of a specific debt.
Where Section 524(c) contains extensive requirements for waiving discharge of a specific debt, Section 727 has only limited criteria. “If Section 727(a)(10) could be used to waive the discharge of a specific debt, then the requirements for reaffirmation agreements under Section 524(c) would be meaningless,” Judge Gorman said.
Consequently, Judge Gorman refused to approve the stipulation that amounted to reaffirming an auto loan.