In re Jamo

Stephen and Lynn Jamo (debtors) filed for Chapter 7 bankruptcy. The Jamos owed $61,010 to Katahdin Federal Credit Union (the credit union) (creditor): (1) $37,079 on a promissory note secured by a mortgage on the Jamos’ residence, (2) $12,731 in unsecured personal loans, and (3) $11,200 in credit-card debt. The Jamos wanted to reaffirm their mortgage obligation, but the credit union refused to allow reaffirmation unless the Jamos also agreed to reaffirm their other, unsecured debts. Under 11 U.S.C. § 524(c)(3), a condition for reaffirmation of debt was certification by the debtor’s counsel that the debtor’s reaffirmation agreement was fully informed and voluntary and that reaffirmation did not impose an undue hardship on the debtor. The Jamos’ lawyer refused to sign such a certification because he believed that the credit union’s all-or-nothing approach to reaffirmation was a form of extortion. Accordingly, the bankruptcy court rejected the reaffirmation. The Jamos continued negotiating with the credit union and agreed to reaffirm the unsecured debt without interest so they could reaffirm the secured debt. The Jamos’ lawyer still did not approve, but the Jamos filed the reaffirmation agreement with the court. The Jamos then brought an adversary proceeding against the credit union, claiming that the credit union had violated the Bankruptcy Code’s automatic stay by conditioning reaffirmation of the secured mortgage debt on reaffirmation of the unsecured debt. The bankruptcy court agreed and further found that the credit union had also violated the automatic stay by sending three letters to the Jamos that contained passing references to foreclosing on the Jamos’ home. The court enjoined the credit union from conditioning reaffirmation of the mortgage debt on reaffirmation of the unsecured debt and ordered reaffirmation of the secured debt on its original terms. The bankruptcy appellate panel affirmed, and the credit union appealed to the First Circuit.