Chapter 7 debtors who have debt that is secured by property have a number of options, and among them is reaffirmation. A simple way of describing it: when a debtor reaffirms a debt, they are removing the debt from the bankruptcy and are agreeing to pay it. Such agreements – to be enforceable – must be reduced to writing and approved by the Bankruptcy Court. But since 2005, when Congress amended the Bankruptcy Code, attorneys who represent chapter 7 debtors have been struggling with a dual rule: that of attorney and counselor, and that of judge.
Posts Tagged ‘Automobiles’
Mercedes Rule
Tuesday, August 31st, 2010
A rather interesting decision has come out of the Bankruptcy Court for the Northern District of Texas at Dallas. The decision is only 4 pages, but in addition to quoting Janis Joplin, it speaks to something that debtors need to hear, that people thinking about bankruptcy need to hear, and that attorneys practicing in bankruptcy court sometimes need to be reminded of.
While the decision follows this blog, I’ve filled in the lines a bit by looking at the public records and bringing in some additional facts.
Reaffirming Mortgages
Friday, June 6th, 2008
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?