Assume the following facts:
- At the time the chapter 7 petition was filed, the debtor owned an automobile secured by a PMSI with an outstanding balance of $5,000.
- The car had a “low book value“ of $10,000.
- Concurrently with filing the petition, the debtor filed a statement of intentions indicating an intent to redeem the car.
- The §341 meeting of creditors is initially set for 20 days after the petition is filed but is continued for 30 days.
- 30 days after the conclusion of the creditors’ meeting the debtor, changing his mind, files an amended statement of intentions and notifies the creditor he intends to reaffirm the debt on the terms and conditions of the original contract.
- The creditor declines to enter into a reaffirmation agreement.
- 40 days after the conclusion of the creditors’ meeting, the trustee files a motion under §521(a)(6), which motion comes on for hearing 10 days later.
What are the rights of the trustee, creditor, and debtor at the time of the hearing? The arguments of the parties might go something along these lines.
Trustee Argues:
“I made a timely motion, am able to provide adequate protection to the creditor so the debtor must turn the car over to me.” To support this position, trustee cites §521(a)(6).
Section 521(a)(6) provides that in the case of a PMSI, if the debtor has not performed the stated intentions (reaffirmed or redeemed) within 45 days after the first meeting of creditors, the stay under §362(a) is terminated, the collateral is no longer property of the estate, and the debtor may not retain the property (there is no similar penalty for failure to timely perform a non-PMSI obligation). If the trustee moves within the 45-day period, shows that the collateral is of consequential value and benefit to the estate, provides the creditor adequate protection, and the collateral is turned over to the trustee, the collateral remains property of the estate and the stay remains in effect.
Section 521(a)(6) presents two potential timeliness issues: (1) when the 45-day period starts to run; and (2) when the court must rule on the trustee’s motion.
With respect to the triggering date, the language in ¶(6) differs from that in ¶(2)(B) in that ¶(2)(B) explicitly provides for the date first set for the meeting of creditors while ¶(6) merely refers to the first meeting without mentioning a particular “date.” Using “normal” rules of statutory construction, one must assume that Congress intended a different triggering date because it used different phraseology in different paragraphs within the same subsection. In this case, the triggering date in ¶(6) should be construed as the date the meeting of creditors is concluded. Although the date of the meeting of creditors is a specific date, set by the U.S. Trustee within 20 to 40 days after the petition is filed [FED.R. BANK. P. 2003(a)], it may be adjourned from time to time [FED.R. BANK. P. 2003(e)]. Thus, even if adjourned to a later date, it is still the first meeting of creditors and something cannot occur “after a meeting” until the meeting is concluded. This construction is also supported by practical considerations. The trustee must file a motion before the expiration of the 45-day period if the property is of consequential value or benefit to the estate. If the 45 days starts to run before the 341 meeting is concluded, the trustee may not have sufficient information to file the required motion. Given the draconian result if the trustee does not timely file that motion, to have the 45 days start to run with the date first set places the trustee at a significant disadvantage to the potential detriment of the unsecured creditors.
The language in ¶(6) with respect to the timing of the entry of the order also differs from the language in both ¶¶(2)(A) and (B). Both ¶¶(2)(A) and (B) require the order to be entered before the expiration of the applicable period (“or within such additional time as the court, for cause, within such period fixes”). Paragraph (6) on the other hand only requires that the motion be filed before the expiration of the applicable period (“unless the court determines on motion of the trustee filed before the expiration of such 45-day period, and after notice and a hearing”). It is silent as to when the court must hold the hearing and enter an order. Neither ¶(2)(A) nor ¶2(B) require either notice or a hearing; consequently, unlike the motion under ¶(6), it is assumed that the court may extend the time on an ex parte basis.
Having met the requirements of §521(a)(6), the automobile remains property of the estate and the trustee is entitled to possession.
Creditor Argues:
“Just a minute trustee, the car was no longer property of the estate and the automatic stay terminated before you made your motion. I get the car.” To support this position, creditor cites §§521(a)(2) and 362(h).
Section 521(a)(2), which applies to all secured debts of individual debtors in chapter 7 cases, establishes very strict and short deadlines with respect to both signifying their intentions with respect to secured debts and in performing those intentions. Section 521(a)(2)(A) requires the statement of intentions be filed not later than the earlier of 30 days after the petition is filed or the date of the meeting of creditors. The debtor met this requirement. Section 521(a)(2)(B) requires the debtor perform the stated intentions within 30 days of the first date set for the meeting of creditors. Although the meeting of creditors was not held on the first date set for the meeting, nothing in §521(a)(2)(B) indicates that the meeting must be held or concluded on that day for the 30 days to start to run: it starts to run on the date set. While §521(a)(2)(B) permits the court to extend the time, it must do so before the time expires. No extension was sought or granted within the 30-day period prescribed by §521(a)(2)(B). Therefore, the debtor failed to timely perform.
Section 521(a)(2)(C) provides that the rights of the debtor and the trustee are not affected by the failure to timely perform except as provided in §362(h). Section 362(h)(1) provides that if the debtor fails to file the Statement of Intentions and perform the stated intentions within the time specified in §521(a)(2), the stay is terminated as to the collateral and it is no longer property of the estate.
It is undisputed that debtor failed to perform within the time specified in §521(a)(2), therefore under §361(h) on the 31st day after the first date set for the meeting of creditors the stay was terminated and the property ceased to be property of the estate. The creditor is, therefore, entitled to repossess the car.
Debtor Argues:
“Hold your horses fellas, I am still in this game because I amended my Statement of Intentions offering to reaffirm on the original contract terms and the creditor refused. I get to keep the car.” To support his position, the debtor cites the provision in §362(h)(1)(B) that renders 362(h)(1) inapplicable if the statement specifies the debtor’s intent to reaffirm on the original contract terms and the creditor refuses to agree to reaffirmation on those terms.
Creditor and Trustee Argue (in unison):
“Go away twerp. You were too late.” The creditor and trustee cite the first part of §362(h)(1)(B), which the debtor omitted to mention: “to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action….” That provision restricts the time within which the Statement of Intentions may be amended and does not extend the time within which the debtor must perform. As noted above, the time to perform expired 30 days after the first date set for the creditors’ meeting under §341. When the debtor did not move to extend this time, any rights the debtor had expired.
So who gets the car? This situation illustrates one of several instances of drafting in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that, in the most graceful terms, can be described as something less than careful. In order to get the car, the trustee must establish that §521(a)(6) trumps §521(a)(2), otherwise the creditor is correct that the car had ceased to be property of the estate and the automatic stay had terminated before the trustee made his motion. The trustee’s argument might follow something along this line.
Trustee Counter Argument:
“Hold on creditor. Section 521(a)(2) is applicable to all secured debts while §521(a)(6), applicable only to PMSIs, is a narrower, more specific statute. Under the canons of statutory construction, where two statutory provisions otherwise apply, the specific statute controls, meaning §526(a)(6) trumps §521(a)(2).”
As a rule, when there is an inescapable conflict between general and specific provisions of a statute, the specific will prevail. That is, when there is in the same section a specific provision and also a general one, which in its most comprehensive sense would include matters embraced in the more specific provision, the general provisions must be understood to affect only those cases within its general language, with the result that the specific controls. [2A NORMAN J. SINGER, SUTHERLAND ON STATUTES AND STATUTORY CONSTRUCTION §46.05 (6th ed. 2000)] As the Supreme Court stated in Fourco Glass Co. v. Tranmirra Products Corp., 353 U.S. 222, 228–29 (1957):
However inclusive may be the general language of a statute, it will not be held to apply to a matter specifically dealt with in another part of the same enactment. * * * Specific terms prevail over the general in the same or another statute which otherwise might be controlling. (Internal quotation marks and citations omitted.)
In this case, §521(a)(2) clearly has a broader application than §521(a)(6). That is, all PMSIs fall within the definition of secured debts but not all secured debts are PMSIs. It is also clear that if ¶(a)(2) were applied, because it terminated the rights of the trustee at a point earlier in time, ¶(a)(6) would be rendered inoperative in this situation. In fact, it would be rendered inoperative in any situation in which the debtor failed to perform within 30 days of the first date set for the creditors’ meeting under §341 unless the time is extended by the court under ¶(a)(2)(B). This interpretation violates an elementary canon of statutory construction: “a statute should be interpreted so as not to render one part inoperative.” Department of Revenue of Oregon v. ACF Industries Inc., 510 U.S. 332, 340 (1994). Creditor may argue that a trustee may avoid this result by the simple expedient of moving to extend the time as permitted by ¶(a)(2)(B) or have made a motion under §362(h)(2), which provides for a motion similar to this ¶(a)(6) motion differing only in that the motion under §362(h)(2) must be brought before the time for performance under §521(a)(2) has elapsed. The response to this argument is that nothing in §521(a)(6) or the legislative history indicates that Congress intended to require the trustee to follow such a procedure to preserve the trustee’s rights under ¶(a)(6). Nor is there a canon of statutory construction that would permit a general statute to control simply because optional provisions in the general statute, if exercised, allow both to be operative.
In addition, to give ¶(a)(2) operative effect here would result in a general statutory provision, ¶(a)(2), limiting the effect of a more specific statutory provision, ¶(a)(6). While it is widely recognized that in construing statutes a specific provision may limit the operative effect of a general provision, no canon of statutory construction supports the reverse, i.e., that a general statute may limit the operative effect of more specific statute. See, e.g., Varity Corp. v. Howe, 516 U.S. 489, 511 (1996). A specific statute may make an exception to a general statute, see, e.g., Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 254–55 (1975), but in the absence of clear legislative intent, a general statute may not create exceptions to a more specific statute, Morton v. Mancari, 417 U.S. 535, 550–51 (1974). That is, a specific statute may permit that which a general statute prohibits or prohibit that which the general permits; however, a general statute may not permit that which a more specific statute prohibits or prohibit that which the more specific permits.
Since application of ¶(a)(2), the general statute, in this case would effectively eliminate the rights of the trustee under ¶(a)(6), the more specific statute, it may not be applied.
The Court Rules:
“The court agrees with trustee. To harmonize §521(a)(2) and (a)(6), they must be construed so that ¶(a)(6) applies to PMSIs and ¶(a)(2) applies to all other secured obligations. Debtor shall immediately turn the car over to trustee. The equity cushion in the car provides creditor with adequate protection for its interest; provided, however, that trustee must maintain adequate casualty insurance protection against loss.”
Debtor
[Tossing the keys to trustee and walking away into the sunset] “Aw, shucks.”
Note: if this were not a PMSI, e.g., the debtor refinanced the car to take advantage of better terms, the creditor would win.