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“Reaffirmations Impose Impossible Demands On Bankruptcy Counsel”, by Cathy Moran

In re Anzaldo, 19-00882-MM7, (S.D. CA, 10/24/19) In Ms. Moran’s article she discloses that signing reaffirmations is not going to rebuild credit, but it does expose the borrower to potential liability.  “Wells Fargo’s credit expert testified that the impact of a reaffirmation agreement on a debtor’s credit score is none, or very low. And the risk of future missed payments clobbering the post petition credit score is significant.”

Moral to the story – with the information we currently have, DO NOT SIGN REAFFIRMATION AGREEMENTS FOR VEHICLES.

In re Moustafi, 371 B.R. 434 (Bankr. D. Ariz. 2007) (holding debtor could ride through where debtor and creditor entered into reaffirmation agreement but court refused to approve it as in the pro se debtor’s best interest). The court relied in particular on sections 521(a)(6) and 524(c)(6). And note that if the creditor refuses to agree to the reaffirmation on the original contract terms, the stay does not lift under section 362(h)(1)(B)(see final “unless” clause).

  • THIS ONE IS SCARY (post from Lexology): Jones v. CitiMortgage, Inc., 666 F. App’x 766 (11th Cir. 2016). In Jones, the debtor filed a statement of intention to reaffirm the secured debt on his home during bankruptcy, but a reaffirmation agreement was never actually filed. Years after the close of the bankruptcy case, the secured creditor began foreclosure proceedings, and the debtor subsequently sued the secured creditor to oppose the foreclosure process and to assert other related claims. The Eleventh Circuit affirmed, in part, the district court’s dismissal of the debtor’s claims by considering, among other factors, the debtor’s failure to actually reaffirm the mortgage debt in bankruptcy. The court reasoned that because the debtor did not reaffirm the secured debt or redeem the property in bankruptcy, “it does not appear he has any basis to challenge a foreclosure action.” Jones v. CitiMortgage, Inc., 666 Fed. Appx. 766, 776–77 (11th Cir. 2016) (citing Failla). “Without reaffirming the debt or redeeming the collateral, the debtor has no right to retain the collateral, id. at 1516 (referencing Failla), though the debtor can continue to maintain mortgage payments on a principal residence after discharge without reaffirming the debt, and a creditor can take such payments rather than pursue an in rem foreclosure, see 11 U.S.C. § 524(j).” Id. at 770. Although this statement is arguably dicta, the Eleventh Circuit telegraphs in Jones its belief that a debtor loses the right to retain collateral and defend foreclosure, absent reaffirmation or redemption in bankruptcy.In re Baker, 390 B.F. 524 (Bankr. D. Del 2008), holding that the Fourth Option of ride-through remains viable where the debtor states the intention to reaffirm, timely signs a reaffirmation agreement, but the agreement is unenforceable due only to refusal by counsel and court to approve it. The court held that the debtor had satisfied his obligations under 521(a)(6) and 362(h), so 521(d) was not triggered and the ipso facto clause could not be used to create a default.

    Note – pre-BAPCPA:

    In re Bassett, No. 01-35001, 01-31058 (9th Cir. April 09, 2002) Reaffirmation agreement was enforceable, the “right to rescind” statement therein being “clear and conspicuous” under the circumstances so that subsequent attempted collection of debt was valid.

    Rein v. Providian Fin. Corp. (06/11/01 – No. 99-16346) (9th Cir Ct Apps) Where no court has approved the reaffirmation of the debt agreement, the reaffirmation has no preclusive effect on whether the debts are nondischargeable in bankruptcy.

Republic Bank of Cal., N.A. v. Getzoff (In re Getzoff), 180 B.R. 572, 574 (9th Cir. BAP 1995)  Reaffirmation agreements entered into without compliance with the requirements of § 524(c) have generally been described as “void and unenforceable,” rather than merely voidable.

The following is intended for educational purposes only:

When Does a Reaffirmation Agreement Become Enforceable and Effective?

As published in the ABI consumer Bankruptcy post 2/24/21, by Dennis J. LeVine, Kelley Kronenberg, P.A.; Tampa, Fla.

When a debtor reaffirms a dischargeable debt, this means the obligation will survive discharge and continue to be enforceable. [1] To protect debtors from compromising their fresh start by making unwise agreements to reaffirm and repay otherwise dischargeable debts, the Bankruptcy Code sets out lengthy disclosure requirements for reaffirmation agreements. [2]

Once a reaffirmation agreement is signed and filed with the court, many creditors wonder how long they need to wait to transfer the account back to normal servicing status. Section 524 of the Bankruptcy Code contains references to when a reaffirmation agreement is “effective” and when it is “enforceable.” Since the case law shines scant light on the distinction between these two terms, the focus must be on the statutory language itself.

When Is a Reaffirmation Agreement Effective?

Section 524 makes several references to when a reaffirmation agreement becomes effective. When the debtor is represented by an attorney, a reaffirmation agreement becomes effective upon filing with the court, unless the agreement states it is an undue hardship (e.g., the debtor’s monthly expenses exceed monthly income). In the case of an undue hardship on the face of the reaffirmation agreement, if the debtor is represented by counsel, the debtor’s attorney must sign a certification of no undue hardship. [3] The court may schedule a hearing and question the debtor about their ability to repay the debt, and whether an undue hardship exists.

When the debtor is not represented by an attorney, the court must hold a hearing to consider the undue-hardship issue, and the reaffirmation agreement will not become effective until the court enters an order of approval. [4] There is an exception, however: When the reaffirmation agreement relates to a consumer debt secured by real property, no hearing or court approval is required to give effect to entry of the agreement. [5]

When Is a Reaffirmation Agreement Enforceable?

Under § 524(c)(4), a reaffirmation agreement is enforceable as long as all of the following occur:

  • The agreement is “made” prior to entry of discharge;
  • The agreement contains all of the required disclosures set out in § 524(k);
  • The agreement is filed with the court, together with an attorney certification that the agreement is fully informed and voluntary, does not impose an undue hardship on the debtor or his/her dependents, and the debtor has been advised of the legal effect and consequences of reaffirmation and subsequent default;
  • Where the debtor is not represented by an attorney, a hearing has been held where the court finds that the agreement is in the debtor’s best interest, and that it does not impose an undue hardship on the debtor.

A final requirement to enforce reaffirmation agreements is that the debtor has not moved to timely rescind any such agreement entered on the docket. In this light, a reaffirmation agreement is enforceable if it meets the above requirements and has not been rescinded the later of (1) any time prior to discharge, or (2) 60 days after being filed with the court. The Bankruptcy Code does not clearly require rescission be provided in writing. Creditor attorneys are therefore wise to wait 60 days after a reaffirmation agreement is filed before checking the docket and reinstating a reaffirmed loan into normal servicing.

The few published cases regarding reaffirmation agreement enforcement typically involve a post-discharge debtor who defends a post-discharge lawsuit on the argument that the reaffirmation agreement is invalid. For example, in Nkosi v. Atlanta Postal Credit Union, [6] the debtor argued that the reaffirmation agreement was invalid on account of being unconscionable. The court granted summary judgment to the credit union, finding that there was no evidence that the debtor did not voluntarily reaffirm his debt during the bankruptcy. In doing so, the court noted that there was no evidence that the reaffirmation agreement itself was unfair, deceptive or unconscionable; no evidence that the reaffirmed debt imposed an undue hardship on him; and no evidence that the debtor moved to timely rescind the reaffirmation agreement.

In Klein v. Duren Law Offices LLC, [7] the debtors sued their bankruptcy attorneys, alleging malpractice for advising them to enter into a reaffirmation agreement. In an ironic twist, it was not the debtor arguing that the reaffirmation was invalid; rather, the attorneys argued that the reaffirmation agreement was invalid in an attempt to evade a malpractice claim on the theory that the reaffirmation was invalid for counsel’s failure to sign Part D. The appellate court agreed with the attorneys, ruling that to be enforceable, a reaffirmation agreement must strictly comply with all applicable provisions of § 524. [8]

Whereas the creditor party typically seeks to enforce a reaffirmed loan upon default, the onus is generally on the creditor to ensure that any filed reaffirmation agreement strictly adheres to the requirements of § 524. At the same time, any attorney who represents a debtor must also be mindful of, and advise their clients of, the specific rescission dates in their case.

[1] 11 U.S.C. § 524.

[2] 11 U.S.C. § 524(k).

[3] 11 U.S.C. § 524(k)(3)(J)(i)6.

[4] 11 U.S.C. § 524(k)(3)(J)(i)7.

[5] Id.

[6] 494 S.E.2d 566 (Ga. 1997).

[7] 2014 WI App 45, 353 Wis. 2d 554, 846 N.W.2d 34.

[8] See In re Grisham, 436 B.R. 896, 907 (Bankr. N.D. Tex. 2010) (“[T]here are lengthy disclosures and other requirements in Section 524 that must be adhered to for a reaffirmation agreement to be enforceable.”); Golladay, 391 B.R. at 421 (“In order for a reaffirmation agreement to be valid and enforceable, it must strictly comply with all of the requirements set forth in § 524(c).”); see also Lumby v. Lumby, 116 Wis. 2d 347, 351, 341 N.W.2d 725 (Ct. App. 1983) (concluding that “reaffirmation … not performed in accordance with 11 U.S.C.S. secs. 524 and 727(a)(10) … is invalid”).

What is sufficient evidence of a PMSI in consumer goods (1) a reasonable description of the item, (2) the signature of the Debtor and (3) a statement that Debtor gives a security interest in the item purchased. Occasionally, Bass & Associates comes up with a receipt with all three although most of the Best Buy receipts do not have the last item but instead makes only a reference to the credit agreement. Most likely, that reference is not sufficient even if it incorporates a provision claiming to give a security interest.

  • In re Visnicky (401 B.R. 61, *; 2009 Bankr. LEXIS 388)- The court disapproved the reaffirmation agreement and confirmed the termination of the stay. The court denied Ford’s request to repossess and dispose of the vehicle. The court granted the debtor a stay pending appeal. In re Rowe, 342 B.R. at 350-351 (Creditor concedes that Congress’s stating that ipso facto clauses are not rendered unenforceable by bankruptcy law probably would not be sufficient to make the filing of bankruptcy a ‘significant impairment’ for purposes of the definition of default in the UCCC.); In re Schmidt, 397 B.R. 481, 2008 WL 4969167 (Bankr. W.D. Mo. 2008); Dumont v. Ford Motor Credit Company, 383 B.R. 481 (9th Cir. BAP 2008) and In re Steinhaus, 349 B.R. 694 (Bankr. D. Idaho 2006). … So, based on the failure of the Debtor to file the reaffirmation agreement within the 45 day period required by § 521(a)(6), Ford’s motion to confirm the termination of the automatic stay is GRANTED. The balance of the relief sought by Ford, i.e., requesting authority to repossess and dispose of the vehicle, is DENIED, and Ford is free to seek appropriate relief in the Rhode Island state courts. See R.I. Gen. Laws § 6-51-3.

In re Rowe, 342 B.R. 341 (Bankr. Kan., 2006) Dale L. Somers, Bankruptcy Judge: where debtor does not state allowed intentions the stay is terminated as to the collateral. Debtor may “ride through” if possession is provided by state law. 521(a)(2)

The BAPCPA revisions to the Code sections relating to the “fourth option” provide unambiguous consequences if a chapter 7 debtor fails to enumerate in a statement of intention whether he or she plans to redeem, reaffirm or surrender: The automatic stay is terminated and the collateral at issue is no longer estate property.

In this case, the Debtors’ Statement of Intention did not conform to the requirement of § 362(h), and the Debtor maintains possession of the Stratus even though he has not redeemed the collateral or reaffirmed the debt. The stay is therefore no longer in place.

Creditor argues that § 521(a)(6), a new subsection enacted as part of BAPCPA, also applies and it precludes the Debtor’s continued possession of the Vehicle and authorizes the Court to issue an order directing the Debtor to surrender the collateral to the Creditor. Debtor contends this section does not apply in this case because the Bank is not the holder of an allowed claim, as required by § 521(a)(6).

The court disagreed stating the language that the debtor shall no longer retain possession is limited by the language stating “the creditor may take whatever action” as is “permitted by applicable nonbankruptcy law,” which means the question whether the debtor is entitled to “ride-through” is governed by state law. “The creditor’s right to foreclose on the collateral is controlled by the security agreement and state law.”

In re Record, 347 B.R. 450 (Bkrtcy.M.D.Fla. 2006) Jerry A. Funk, Bankruptcy Judge Creditor was entitled to a comfort order that stay was terminated as to motor vehicle where debtor’s statement of intentions purposed to elect an invalid option of “ride-through” § 362(a), (h)(1)(A), 521(a)(2)(A, B)

Debtor filed a timely statement of intentions, but the statement provided for the debtor to retain possession of the property and continue paying, without either reaffirming, redeeming, or surrendering.

Literally read, under the BAPCPA amendments the Code now permits only three options in connection with personal property subject to PMSI. These are, reaffirm, redeem, or surrender. Retaining and paying (“ride-through”) is not a valid option under the Code.

Automatic stay terminated 30 days after debtor failed to file proper notice of intentions. In absence of finding that the property had “consequential value or benefit” to the estate the secured creditor is entitled to an order confirming that the stay has terminated as to the collateral.


Other circuits follow the Ninth’s approach, holding that debtors are not limited to these three options from § 521(2)(A), but may also retain the collateral so long as they keep the payments current under the original contract. See Parker, 139 F.3d at 673; Capital Communications Fed. Credit. Union v. Boodrow (In re Boodrow), 126 F.3d 43, 53 (2d Cir. 1997); Home Owners Funding Corp. of Amer. v. Belanger (In re Belanger), 962 F.2d 345, 347-48 (4th Cir. 1992); Lowery Fed. Credit Union v. West, 882 F.2d 1543, 1546-47 (10th Cir. 1989). The leading bankruptcy treatise has also endorsed the reasoning of Parker. 4 Collier on Bankruptcy, ¶ 521.10 (15th ed. rev. 2003). 14416 IN re : Lopez

Post-petition Reaffirmation In re: Lopez, No. 02-15774 (9th Cir. September 26, 2003) A creditor may not enforce a post-bankruptcy discharge agreement entered into with a debtor retaining the collateral pursuant to its rights under McClellan Fed. Credit Union v. Parker, 139 F.3d 668 (9th Cir. 1998) because the consideration was based in part on the Lopezes’ discharged debt.

Can a debtor keep their personal property without reaffirming? In re Parker, 139 F.3d 668, 672-73 (9th Cir.), cert. denied, 525 U.S. 1041 (1998) (holding that debtor can retain collateral without reaffirmation as long as required payments are continued). But see In re Burr, 160 F.3d 843, 848-49 (1st Cir. 1998) (recognizing that creditor may seize collateral absent reaffirmation). In re Chad Turner, et al., 7th Circuit – 1998) which provides an overview of the cases on this issue, but ultimately the 7th Cir. has decided you can only reaffirm, redeem or surrender.

“As justification for their failure to obtain the creditors’ consent, the debtors argue that a creditor has no choice but to allow the reaffirmation so long as the debtor is current on the debt and is willing to continue paying according to the original terms and conditions of the agreement. To hold that the creditor may refuse reaffirmation under these conditions, the debtors suggest, would be inconsistent with a series of cases declining to enforce the “default upon filing” or “ipso facto” clauses found in many installment contracts. See, e.g., Lowry Fed. Credit Union v. West, 882 F.2d 1543, 1546-47 (10th Cir. 1989); Riggs Nat’l Bank of Washington, D.C. v. Perry, 729 F.2d 982, 984-88 (4th Cir. 1984; In re Peacock, 87 B.R. 657, 659 (Bankr. D. Colo. 1988) (collecting cases).

Typically the issue in these cases is whether such a clause entitles the creditor to circumvent the automatic stay and move to seize the property securing the debt unless the debtor acts immediately to redeem the collateral or to reaffirm the debt. That, of course, is not the situation here; so far as the record reveals, all of the debtors elected reaffirmation without the threat of immediate seizure hanging over their heads. However, in assessing the debtor’s options, these and other cases suggest that the debtor who is current on his installment payments may not be compelled to choose among the three options identified in section 521(2)(A), but may instead opt simply to keep making payments on the debt without reaffirming it. See In re Parker, 139 F.3d 668, 671-73 (9th Cir. 1998); In re Boodrow, 126 F.3d 43 (2d Cir. 1997) (2-1 op.), cert. denied, 118 S. Ct. 1055 (1998); In re Belanger, 962 F.2d 345 (4th Cir. 1992); see also In re Gerling, 175 B.R. 295, 297 n.1 (Bankr. W.D. Mo. 1994) (collecting cases). Contra, In re Johnson, 89 F.3d 249 (5th Cir. 1996); In re Taylor, 3 F.3d 1512 (11th Cir. 1993); Edwards, 901 F.2d at 1386-87; Bell, 700 F.2d at 1055-58; Boodrow, 126 F.3d at 57-61 (Shadur, J., dissenting); see also Gerling, 175 B.R. at 297 n.2 (collecting cases). We need not decide whether these cases, which are in evident tension with our opinion in Edwards, were correctly decided, for the debtors in the cases before us have never sought to keep making payments without reaffirming their debt.

Renwick v. Bennett, No. 01-55547/55762 (9th Cir. August 05, 2002) Bankruptcy court correctly rejected parol evidence under California law where a settlement agreement provision was not reasonably susceptible to the meaning proferred. A promise to repay a discharged debt is unenforceable absent a valid reaffirmation agreement.

Tying approval of a debtor’s reaffirmation of mortgage debt to the reaffirmation of other unsecured debt violates the automatic stay, according to a recent decision in the First Circuit, In re Jamo, 262 B.R. 159 (1st Cir. BAP 2001). “[a creditor’s] Refusing to execute a reaffirmation agreement unless the dischargeable unsecured debt {is} paid is … an act which violates the statutory rights of the debtor.” In re Green, 15 B.R. 75, 78 (Bankr. S.D. Ohio 1981).

Note: pre-BAPCPA

In re Espey 347 B.R. 785 (Bkrtcy.M.D.Fla. 2006) Jerry A. Funk, Bankruptcy Judge. To get a comfort order creditor must satisfy certain requirements. § 362(h)(1)(A), 362(j), 521(a)(2)(A)

Where debtor fails to file a statement of intentions regarding secured personal property within 30 days of filing the petition pursuant to § 521(a)(2)(A), or fails to perform his/her intention within 30 days of the meeting of creditors, the automatic stay as to such property is terminated (and the property is no longer property of the estate) on the 30th day, pursuant to § 362(h)(1)(A) or (B) unless upon motion by the trustee the court determines that the property is of consequential value to the estate pursuant to § 362(h)(2).

In such event a creditor may move for an order confirming that the stay has been lifted as to such property.

In order to obtain such an order the creditor (or other interested party) must establish 1) the specific date when time ran on the debtor’s statement of intentions; 2) that the debtor did not in fact amend his statement of intentions to more accurately reflect what he intended to do with the secured property; 3) that the trustee did not, in fact, file a motion to determine that the property is of consequential value or benefit to the estate. “The aforementioned information need not be certified.”

In re Green, 348 B.R. 601 (Bkrtcy.M.D.Ga. 2006) JAMES D. WALKER, JR., Bankruptcy Judge THE LANGUAGE OF § 1325(a)(9) (hanging paragraph) Makes § 506 inapplicable to a “910” debt and thus such claim is not entitled to interest § 506(a), §1325(a)(5), 1325(a)(9) (hanging paragraph)

Debtor proposed to pay a PMSI debt on her motor vehicle in full through the plan without interest. Creditor objected, asserting that as a secured claim it was entitled to interest.

The court, adopting what it acknowledged was the minority view, held that as a “910” debt, section 506, which determines secured status, did not apply, and therefore debt was not entitled to interest through the plan.

In re Bufford, 343 B.R. 827 (Bkrtcy.N.D.Tex. 2006) Status of creditor holding a PMSI in debtor’s motor vehicle and subjection to anti-cramdown provision remains that of secured creditor under § 506 entitled to interest at “Till” rate. § 1325(a)(5), 101(37), 502, 506

Debtor’s proposed chapter 13 plan assumed that since car loan was a PMSI acquired for personal use within 910 days of filing petition, the debt could not be deemed a “secured claim” under § 506 and hence was entitled to interest of only 6.5%, while creditor argued that anti-cramdown provision also prevented modifying their secured status and prevented modification of the contractual interest rate of 17.9%.

The court ruled that although the anti-cramdown language of § 1325(a) does not remove the claim from its secured status because secured status is determined by § 502, not § 506, and the anti-cramdown language protects the PMSI from cramdown, it does not prevent modification of the interest rate. Court ruled with the weight of authority that the interest rate is the “formula rate” provided by Supreme Court in Till v. SCS Credit Corp., 124 S.Ct. 1951 (2004); “The formula rate begins with the national prime rate and adjusts upward based on several factors, including the ‘circumstances of the estate, the nature of the security, and the duration and feasibility of the plan.’”

The court cited cases holding that the Till rate applies to “910” claims, including: In re Pryor 341 B.R. 648 (Bkrtcy.C.D.Il. 2006); In re DeSardi, 340 B.R. 790 (Bkrtcy.D.D.Tex. 2006); In re Brown, 339 B.R. 822 (Bkrtcy.S.D.Ga. 2006); In re Fleming, 339 B.R. 716 (Bkrtcy.E.D.Mo. 2006); In re Wright, 338 B.R. 917 (Bkrtcy.M.D.Ala. 2006); In re Robinson, 338 B.R. 70 (Bkrtcy.W.D.Mo. 2006); In re Johnson, 337 B.R. 269 (Bkrtcy.M.D.N.C. 2006).

In re Payne, 347 B.R. 278 (Bkrtcy.S.D.Ohio 2006) C. Kathryn Preston, Bankruptcy Judge Anti-cramdown provisions of “hanging paragraph” prevent undersecured PMSI creditor falling within “910” parameter from claiming an unsecured claim for balance where debtor surrenders the vehicle in full satisfaction of claim. § 506, 1325(a)(5)(B), 1325(a)(9) hanging paragraph

By enacting BAPCPA Congress was attempting to remedy a perceived abuse by those who buy vehicles on credit on the eve of bankruptcy and then utilize the cramdown provisions to pay secured creditors a lesser amount than their full claims. The salient language of the amendments prohibits the bifurcation of a claim into secured and unsecured components for treatment in a chapter 13 plan.

“What little legislative history exists fails to reflect any intention to limit the scope of the “hanging paragraph” to only certain provisions of § 1325(a)(5).”

The court held that the language applies to claims described in § 1325(a)(5)(C) (provision permitting the plan to provide for surrender of the collateral in full satisfaction of the claim). Thus the court held that the creditor could not bifurcate the claim by accepting the collateral in satisfaction of the secured portion and then submitting a claim for the unsecured balance.

In re Quevedo, 345 B.R. 238 (Bkrtcy.S.D.Cal. 2006) Held the anti-cramdown provisions of code § 1325(9)(+) as to personal property only applies to purchase money security interests.

The “hanging paragraph” of text following section 1325(a)(9) prohibits cram-down in chapter 13 for a purchase-money security interest lien on a motor vehicle purchased within 910 days preceding the filing of the bankruptcy. The second part of that paragraph prohibits cram-down of a security interest on any other personal property if incurred within 1 year preceding the filing. The issue is, does the text bearing on cram-down for security interests on personal property apply to any security interest on such property, or only to purchase-money security interests (i.e., money used to purchase the particular item of personal property)?

The court held that the provision must relate back to the qualifying phrase in the previous text regarding cram-down on motor vehicles, and accordingly applies only to “purchase-money security interests” on motor vehicles or other personal property.