When a debtor “reaffirms” the debt, they are removing that debt from the bankruptcy process. They are agreeing to pay the debt, even though it would be otherwise discharged. For the reaffirmation to be enforceable there must be an agreement which must comply with the bankruptcy code and it must be filed and in some cases approved by the bankruptcy court. The most common reaffirmation agreement consumer attorneys deal with concerns automobile loans. Debtors usually want to keep their cars, and a reaffirmation is necessary to ensure that debtors can keep it after the case is filed. In a recent case out of Connecticut, the Bankruptcy Court denied approval of two reaffirmation agreements for debts secured by mortgages the debtor’s residence.
The debtor sought to approve the two reaffirmation agreements. The court held a hearing and found that the reaffirmation agreement did not impose an undue hardship on the debtor and was in the debtor’s best interest. After the hearing, the court vacated its order and raised this issue: does the debtor have the “ride through” option available as it pertains to real estate. In other words, could the debtor just keep the house and pay the mortgage without having to enter into a reaffirmation agreement?
The BAPCPA Amendments
The keep and pay option was changed by BAPCPA. Bankruptcy Code § 521(a) now provides in relevant part as follows:
(a) The debtor shall-…
(6) in a case under chapter 7 of this title in which the debtor is an individual, 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 unless the debtor, not later than 45 days after the first meeting of creditors under section 341(a), either-
(A) enters into an agreement with the creditor pursuant to section 524(c) with respect to the claim secured by such property; or
(B) redeems such property from the security interest pursuant to section 722.
11 U.S.C. § 521(a)(6)
Also, Bankruptcy Code § 362(h) provides in relevant part:
(h)(1) In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim …, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2)-
(A) to file timely any statement of intention required under section 521(a)(2) with respect to such personal property or to indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such property, either redeem such personal property pursuant to section 722[or] enter into an agreement of the kind specified in section 524(c) applicable to the debt secured by such personal property….
11 U.S.C. § 362(h)(1)
In addition to the seemingly clear and unambiguous provisions of the code, other courts have found that the “ride through option” was it relates to real estate was not changed by BAPCPA. See In re Wilson, 372 B.R. 816, (Bankr.D.S.C. 2007) and In re Bennett, 06-80241, Bankr.M.D.N.C. (May 26, 2006).
In addition to the Second Circuit authority on the subject, the Connecticut Bankruptcy Court found that debtors are permitted to take advantage of the ride through option as it pertains to real property. The debtor can keep her property so long as she continues to make the mortgage payments and the proposed reaffirmation agreement were not in her best interests and were disapproved.
In re Caraballo, 07-32469, Bankr.D.Conn. (April 29, 2008).
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- To Reaffirm or not Reaffirm: That Really Is The Tough Question
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- 10th Circuit: Legal Interest Acquired Post-petition is Property of the Estate
- GMAC’s Coercive Reaffirmation
- Furnishing Tax Returns to Creditors
Tags: Automobiles, Bankruptcy, Bankruptcy Abuse Prevention & Consumer Protection Act of 2005, Chapter 7, Homes, homesteads and real estate, Reaffirmation of Debt