"Ride Through" Option Did Not Survive BAPCA

In Dumont v. Ford Motor Credit Company (In re Dumont), C.D.O.S. 11793, 08-60002 (9th Cir. September 15, 2009), the Ninth Circuit held that the "Ride Through" option, which allowed debtors to retain collateral and continue to make payments, did not survive the Bankruptcy Abuse and Prevention Act of 2005 ("BAPCPA").

In 2003, Antoinette Dumont purchased a car from Ford Motor Credit Company. The loan documents contained an "ipso facto" clause, which provided that the loan would be in default if Dumont filed bankruptcy. In 2006, Dumont filed a voluntary chapter 7 petition, and she listed the car as an asset with a value of $5,800. At the time, Dumont owed $8,288 for the car, and she was making payments of $335.78 per month. Dumont filed a Statement of Intention with the bankruptcy court, stating that she would retain the car and continue making payments (Bankruptcy Section 521(a)(2)(A) requires a debtor to file a Statement of Intention with respect to collateral). A discharge was entered in Dumont's case, and three months later Ford repossessed the car even though the payments were current.

Under Ninth Circuit law, a debtor was entitled to retain collateral and continue making payments. See McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668, 673 (9th Cir. 1998). A creditor holding a lien against the collateral was barred from taking possession of the collateral. Dumont successfully moved to reopen her bankruptcy case and alleged that Ford violated the discharge injunction. The bankruptcy court disagreed, and the Bankruptcy Appellate Panel ("BAP") affirmed.

The Ninth Circuit ruled that BAPCPA added a requirement to Bankruptcy Code Section 362(a)(1)(A), requiring debtors to elect one of three options with respect to collateral: redeem (essentially, to "buy back" the property); reaffirmation (to reaffirm the debt with approval from the bankruptcy court); or assumption (to assume the debt). Because Dumont did not elect one of these options in her Statement of Intention, Ford's rights under the loan agreement were revived, including the "ipso facto" clause, and Dumont was in default of the loan.

Judge Graber entered a strong dissent. Noting that BAPCPA has been criticized for its lack of clarity, Judge Graber explained that the text of Bakruptcy Code Section 521(2), which BAPCPA redesignated as 521(a)(2), was left unchanged. Furthermore, Congress made no comment to suggest that it intended to impose a new requirement under Bankruptcy Code Section 362(h)(1)(A) despite the vigorous public debate surrounding the "ride through" issue. In other words, Judge Graber argued that BAPCPA perpetuated the status quo, and he concluded that he would not have overrulled Parker.