For example, one important, confusing, and often overlooked area in the bankruptcy process is that of re-affirmation agreements, which are typically used to keep vehicles. This mechanism, as opposed to discharging a creditor in a bankruptcy, is the concept of establishing a new payment plan termed a ‘re-affirmation agreement”. In essence, you are entering into a new contract that will be in effect upon completion of the bankruptcy.  Ironically, it has to be something that the borrower can readily handle without undue hardship.[1]

Although both parties may agree upon what they believe is a satisfactory arrangement, final approval of any re-affirmation agreement is at the discretion of the judge, and judges deny more re-affirmation agreements than they approve.  The drawback, if the re-affirmation is actually approved – is that the debt is not discharged in the Chapter 7 Bankruptcy, and the creditor will come after you, once again, and for money, if you fail to make any payments in the future.  Sort of defeats the point of bankruptcy – does it not?

What if I keep paying on my loan, will they take my car then?  The answer is MAYBE!

Contradictions?  Oh yes, and in summary,  In re Dumont, 383 BR 481 (9th Cir BAP 2008) clearly suggests that failing to ask for a re-affirmation on the initial petition creates a set of circumstances whereby vehicle owners, even with their payments current, can and may lose their vehicle to repossession after discharge of the bankruptcy.  In other words, a debtor who made payments, is current on payments, may still lose their car.  Key point here – At least to drivers who did not initially seek reaffirmation.

As noted above in my Key Point – At least to drivers who did not initially seek reaffirmation, – but what happens if you try to re-affirm and the judge denies the re-affirmation, or the re-affirmation fails in some other manner?  Well, that is where it gets VERY interesting.

A FOURTH OPTION MAY BE AVAILABLE – DRIVE THROUGH RIDES AGAIN?

As a result, a fourth option has begun to take shape.  This option is not listed on the Chapter 7 Bankruptcy Petition (I’ve looked, there is no check box), and it is often referred to by the courts as “the backdoor drive-through option”.  Obviously, this is a much grayer area of the law as it is not specifically addressed in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005.  If fact, many argue part of the BAPCPA’s intent was to do away with such a concept altogether.

Of interest, is the apparent position the judicial bench has taken regarding this matter.  It appears, that Judges are very reluctant to approve re-affirmation agreements, particularly for vehicles. See video of Judge Eileen W. Hollowell.

Likewise, try and find an bankruptcy attorney that will signoff on a reaffirmation agreement (good luck).  Here is my thought as to why – liability to the attorney and dereliction on behalf of the judge.  Simply put, “a number of judges have ruled that “pay and drive” survives bankruptcy reform if the debtor signs a reaffirmation agreement that is denied by the judge as not being in the debtor’s interest.  Lose in court and drive away in your car!”  Cathy Moran, Keep Your Car Through Bankruptcy Without Risk, Bankruptcy Law Network, (2009).

Another, related and very interesting memorandum In re Nelson, 9 ABR 20, Ch. 7, (2008), reveals some very interesting points concerning the concept of a “backdoor ride-through”, and why courts may be so reluctant to approve those re-affirmation agreements.  In other words, it just isn’t in the best interests of the debtor!  But…, don’t forget to ask for the re-affirmation anyway.  In fact, the Honorable Judge Herb Ross cautioned the two separate creditors in the memorandum regarding In re Nelson to be sure to obtain a ruling through the bankruptcy court prior to taking any actions against the borrowers, as the creditors may incur liability for violating the discharge injunction – why?  Because the debtors requested re-affirmation.

Often judges when rendering a decision will rely on previous case law to help them reach and support their decisions.  In particular, In re Moustafi, 371 B.R. 434, 438 (Bankr. D. Ariz. 2007) is often used in supporting “backdoor drive-through” policies when a debtor has requested re-affirmation.

For example, “With the reaffirmation agreement not approved, the debtor still complied with § 521(a)(6), § 521(a)(2), and § 362(h), and can maintain his collateral so long as he does not default. The denial of a reaffirmation agreement, along with debtor compliance with BAPCPA provisions, allowed the courts to continue the ride-through after BAPCPA.” Christopher M. Hogan, Will the Ride Through Ride Again?, 108 Colum. L. Rev. (2008).

IN SUMMARY,

It appears, the courts can sanction a “backdoor ride through” by denying the reaffirmation agreement. Huh? No wonder the attorney won’t sign off and the judges prefer to deny them.  And, your best course of action would be to request the re-affirmation on your bankruptcy petition, and pray it is denied by the court.  Keep paying on the loan, maintain insurance, and keep on driving, or “pay and drive” will then apply.

However, if at some point you cannot afford the payments, well – the loan was discharged anyway, so you wouldn’t have to worry about a lawsuit for monies owed.  Of course, if you stopped paying altogether – they would still take the car.

Once the bankruptcy has been discharged, however, folks really need to give some thought and develop a plan on how to rebuild their credit and credit score.

With a clean slate, concentration and maneuvering to rebuild ones credit is paramount, especially after a bankruptcy. People often believe that after a bankruptcy they will never qualify or become eligible for credit again. This is not true,

however it does take a lot of work and one has to re-build creditability with the lending institutions and with the major credit bureaus.

The first thing you really want to do is learn everything about what a credit score entails. With a better understanding of credit scoring, and how the three major bureaus, Trans Union, Equifax, and Experian operate, you will be able to track your credit worthiness and how monetary behavior effects their scoring.

When a credit score is being compiled there are many things that are taken into consideration. Most naturally of course is your payment history which shows if you have been making your payments as agreed upon, if they have been late, and of course your bankruptcy may be reported? Additionally, the credit bureaus will take into account any outstanding debts, revolving lines of credit, mortgages, judgments, liens, etc., and finally your history (years of credit history).

There are other areas that are considered as the major credit bureaus guard their scoring methods well (it’s a secret), particularly in determining the risk that someone has in respect to their credit rating.

In the end, educating yourself about credit scoring will allow you to remove negative items from your report, locate the best method(s) of increasing your score, place positive items on your report, and rebuild your credit, even after a bankruptcy.

Irrespective of the petitioner’s choice of chapter of the bankruptcy code, when an individual files for bankruptcy, he or she triggers an automatic stay that immediately puts a stop on the actions by creditors against himself / herself (debtor) and his / her (debtor’s) property (see 11 U.S.C. § 362).  An automatic stay has the potential to protect the debtors against any and all attempts from the creditors to collect debts, at least for the time being. Chapter 13 of the bankruptcy code, goes one step ahead, and protects the debtors as well as the co-debtors. Conversely, secured creditors may explore their option of petitioning the bankruptcy court for respite from the automatic stay by showing an applicable clause.
An automatic stay can protect you from new or existing law suits, collection calls from creditors, foreclosures, repossessions and levies. However, the automatic stay does not take care of everything for you. It is of very little help in the following cases:

Tax Proceedings

The IRS has the power to audit and issue a tax deficiency notice against you, insist for a tax return, issue and demand payment of a tax assessment. However, an automatic stay does have the authority to impede the IRS from initiating a tax alien or confiscating your income or property.

Support Actions

A bankruptcy petition does not protect you against a lawsuit that seeks to establish paternity, or collect child support or alimony.

Criminal Trials

If there is a criminal component to any trial or proceeding against you, then the criminal component does not get affected by the automatic stay.

Loans from Specific Types of Pensions

The debts that arise from loans on majority of the job-related pensions as well as IRAs, does not get impacted due to an automatic stay. In simpler terms, an automatic stay does not protect you from the money getting withheld from your earnings for the repayment of the loan.

Case of Repeat Filings

In the instance of multiple or repeat filings, debtors who have one case pending in the previous year only get an automatic stay of 30 days. Similarly, debtors who have two or more than two cases pending or dismissed in the preceding years do not get the stay at all. If you fall under one of these two categories, then you will have to seek a stay from the court to enjoy the protection bestowed by an automatic stay.

How Long Does the Automatic Stay Remain Effective

The automatic stay stays effective as long as the judge does not lift the stay; the debtor obtains a discharge or until the item of property is no longer belongs to the estate.  A bankruptcy attorney can help you with more information on how the automatic stay is applicable on your situation.

General legal wisdom suggests that you cannot keep such a card unless you have maintained this card at a zero balance for a very long period of time.  However, you may not have to report it along with your list of creditors during filing (really not a creditor unless you owe them money).

If you have recently paid off the balance to said credit card – you may be challenged by other creditors because you CANNOT PREFERENCE one creditor over another (I suspect this is what she did).  A successful challenge by other creditors in the case may result in a dismissal of the bankruptcy case, as this type of behavior is considered illegal and certainly unethical.

In the same way, I doubt she will end up with the card.  Credit Card issuers tend to penalize card holders for filing bankruptcy, even if the bankruptcy does not impact them.  So, more than likely, the credit card will be cancelled shortly after she files for bankruptcy.

They won’t know.., think again, you see, what she doesn’t know, and you NOW know, is that most major creditors subscribe to BANKO®, PACER, or some other service that monitors bankruptcy filings.  For example, this excerpt from Banko®‘s website states, “Banko® helps [creditors] automatically discover, monitor, and manage changes in bankruptcy case information. It searches comprehensive nationwide bankruptcy databases to quickly identify new filings and updates to filings”.  Yeah, they will know…

Those “quick bankruptcies” are seldom wise.  Preparation….. do it.

STOP USING YOUR CREDIT CARDS. Hey, if you have to eat and have no money, that’s one thing – starvation will do that.  However, purchasing a new TV or hitting the Casino in an attempt to “win” your way out of bankruptcy will normally be considered “fraudulent”.  Oh yeah, so will transferring your RV to your mother for payment on that “mysterious loan” – gotta love those 341 meeting confessions.

In other words, creditors cannot take any collection actions against you, such as repossessing a car, starting or continuing a law suit, foreclosing a home, garnishments or even collection phone calls.  The stay remains in effect until the judge lifts the stay,  the property is no longer part of the bankruptcy estate, or the debt is discharged.

An automatic stay WILL NOT STOP Criminal matters or restitution, child support, alimony, litigation for child support, alimony, and tax audits, however collection of taxes are stayed, at least temporarily.

Talking with an attorney, paying an attorney, or thinking about bankruptcy and telling the creditor your ‘bankruptcy thoughts’ DOES NOT create an automatic stay.  YOU HAVE TO FILE THE PETITION WITH THE BANKRUPTCY COURT.

For some reason, and it may be the internet, friend misinformation, or dare I say – attorney advertising, I keep seeing clients that believe once they meet with an attorney that they are protected by the ‘stay’.   Or, I get requests to send out a ‘stay’.  Geez – I wish I had that kind of power.

However, if you are experiencing harassing creditor phone calls and letters, I can normally put a stop to those calls and letters using the Fair Debt Collection Practices Act (FDCPA), its not near as powerful as a bankruptcy stay, but its better than hearing “can you make a payment today” for the millionth time.

Adding to the stress is the battle of warding off creditor phone calls, threats, lawsuits, and insults that making sound intelligent financial decisions suddenly becomes fraught with overwhelming emotion, and a gloomy or angry frustration quickly sets in, after all, enough is enough. Wouldn’t you agree?

Fortunately, there is a provision within the Bankruptcy law, that helps immensely, termed the “Automatic Stay”. In U.S. bankruptcy law, an automatic stay is an automatic injunction that halts the actions of your creditors, with certain exceptions, to collect debts from you. Under section § 362 of the United States Bankruptcy Code, 11 U.S.C. § 362, the automatic stay begins the moment your bankruptcy petition is filed with the Federal Bankruptcy Court.

Upon filing, creditor notices are immediately sent out from the court ordering them to cease any further collection activity, at least until the bankruptcy case has been resolved, or until further order(s) of the court.

In the past, the courts have recognized just how devastating it can be when there are non-stop phone calls, letters and even creditors banging on the doors. Thereby, creating an impossible environment for any debtor to properly and intelligently deal with his or her financial woes.

With few exceptions, an automatic stay will normally stop the following types of actions:

1. Foreclosures
2. Utility disconnections
3. Garnishments
4. Third party collections – collection companies
5. Credit Card collections
6. Divorce proceedings
7. Repossessions
8. Evictions
9. Lawsuits

And / or, any other type of action against the you that could affect your  financial estate adversely.

This protection goes so far as to put a stop to ongoing judgments that are already in effect. For example, if a debtor has been undergoing a wage garnishment then the creditor responsible for this action must stop the garnishment. In short, every financial action against the debtor, no matter what stage it may be at, must come to a halt.

Another great benefit about the “Automatic Stay” is just that…its automatic. This means that an individual who is already under financial stress does not have to specifically petition the courts, creditor by creditor, for any type of ruling to initiate an “Automatic Stay”.   And, there is no need for a judge to authorize the stay or even hold any type of initial hearing.

Notably, a creditor may motion the court for relief from an automatic stay.  In particular, mortgage companies do this quite often during a Chapter 7 proceeding, and when foreclosure proceedings are imminent, and the debtor has indicated that he/she has not intention of trying to keep the real property.

If you are new to Arizona, you must have lived in Arizona for at least two years before Arizona’s exemption statutes apply.  While you can file bankruptcy in Arizona after you have lived here for a little over three months, until you have lived here for two years, you will be required to use the exemptions from your last state of residence, or federal, whichever applies.

Normally this isn’t a big problem, but there are states that have less favorable exemption statutes that protect much less property than Arizona’s laws do.  Before filing a bankruptcy it is important to review applicable exemption statutes in order to evaluate what property you own that may be at risk.

You can review Arizona’s exemptions by downloading or opening this adobe pdf file provided by the District of Arizona Bankruptcy Court.

Arizona Bankruptcy Exemptions pdf