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.

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…