Bankruptcy

Why Won?t My Attorney Sign My Reaffirmation Agreement?

By Karen Oakes, Southern Oregon Bankruptcy Attorney

Most clients get a displeased shocked look when I tell them that I won’t sign a reaffirmation agreement for their car during their Chapter 7 bankruptcy case.  A reaffirmation agreement is, in effect, a new contract where the debtor (my client) agrees with the creditor (not my c lient) that the debtor will be financially responsible for the debt after their bankruptcy case is over.   My colleague Wayne Novick of Ohio recent explained reaffirmations in a series of blogs – including one entitled, “Reaffirmations: Cars Trucks Things with Wheels”.   If there is no reaffirmation agreement, the personal liability is gone but the vehicle still secures the debt. Before 2005,  if the debtor continued to pay the debt, the creditor just took the money.   Post-2005 and the adoption of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, most of the time, car creditors have threatened to come and get the vehicle if there is no reaffirmation agreement, even if the debtor continues to make timely payments.   However, if the debtor signs the reaffirmation and it is approved by the bankruptcy judge, if the debtor stops paying the debt, months or years later, the creditor can then sue the debtor.   This is why most attorneys do not sign reaffirmations–it puts our clients back into personal liability for debt and creates a risk of being sued.

Judges across the country, faced with the dilemna of folks needing their cars–which generally have no equity–and these reaffirmation agreements–which are generally bad for the debtors, but very good for the creditors, have refused to approve the reaffirmation agreements.   In Missouri, one of the judges outlined what he felt were the requirements for him to sign a reaffirmation agreement, according to my colleague, Rachel Foley.   In Oregon, there is the case of  In re Bower, 07-60126-fra7 (Bankr.Or. 7/26/2007) (Bankr.Or., 2007), where the judge refused to approve the reaffirmation because it did not help the debtor’s fresh start.   Recently, another district court judge in Delaware ruled that when the bankruptcy judge rejected the reaffirmation agreement that if the creditor repossessed the car when there had been timely payments, that the repossession was unlawful (Ford Motor Credit v. Baker, 400 B.R. 136 (2009)).

The attorney does not want the judge to approve the reaffirmation–having it rejected is a good thing, as explained further by California consumer bankruptcy attorney, Cathy Moran.   The debtor gets to keep the car as long as they pay for it and the creditor gets paid.   When the creditor stops getting paid, the creditor has the right to repossess the car, but NOT sue the debtor.

Full post as published by Bankruptcy Law Network on January 24, 2010 (boomark / email).