Reaffirmation

[Dorsey]

What prevents a debtor from reentering into a loan agreement with a lender post-discharge? I see a lot of people here worried that they won't be permitted to reaffirm a car loan and that their lender won't do a ride-through. So what prevents a debtor and a lender from simply signing a new loan agreement identical to the one that the court refused to approve as a reaffirmation?

This would create a loan that would replace the one discharged and the debtor would be on the hook for the debt. Such a situation is precisely equivalent to a reaffirmation as far as I can tell.

Why don't we hear about people doing this? Am I missing something?

[despritfreya]

What prevents a debtor from reentering into a loan agreement with a lender post-discharge?. . .This would create a loan that would replace the one discharged and the debtor would be on the hook for the debt. Am I missing something?

You most certainly are missing something. When the “deal” goes wrong, the creditor better watch out.

See: In re Arnold, 206 B.R. 560 (Bankr. N.D. Ala., 1997)

“Debtor contends that the credit union is in willful and malicious violation of the discharge injunction contained in 11 U.S.C. § 524(a)(2) of the Bankruptcy Code in coercing him to pay his discharged debt. Debtor further contends 11 U.S.C. § 524(c), which requires the execution of court approved reaffirmation agreements, provides the only means by which an agreement based on a dischargeable debt is enforceable. Debtor requests a determination of contempt and sanctions, including the recovery of the entire amount paid on the note, attorney fees, and punitive damages. The credit union counters that the subject debt is a post-petition debt based upon new, valuable, and adequate consideration, i.e. its forbearance to execute on its judgment against Mrs. Arnold. The credit union further argues that the payments were made voluntarily under § 524(f) pursuant to which a debtor may voluntarily repay discharged debts. . . The consideration for the agreement between the parties in the present case consisted of the forbearance by the credit union to execute on the wife's judgment. . . in exchange for the debtor's promise to pay his wife's debt and his previously discharged debt to the credit union in monthly installments. Thus, even though the debtor may have received some post filing consideration, at least part of the consideration for the agreement was based upon the repayment of the dischargeable debt. . . In considering the totality of the circumstances surrounding the execution of the new note, it is evident that the credit union was keenly aware of debtor's desperation to help his wife. The credit union seized the opportunity to recoup the loss caused by debtor's Chapter 7 and to make itself a handsome profit. The Court finds the credit union to be in willful and malicious violation of the permanent discharge injunction by requiring debtor to include the discharged debt in the new note as a condition of saving his wife's nursing career. The conduct of the credit union shocks the conscious of the Court. . . Mr. Arnold requests sanctions for contempt to recover actual damages, attorney fees, costs, and punitive damages for the credit union's violation of the discharge injunction. . . Under the test set forth in Hardy and pursuant to § 105(a) the Court believes that Mr. Arnold is entitled to actual damages, attorney fees, and punitive damages based upon the clear and convincing evidence that the credit union acted willfully in clear disregard and disrespect of the bankruptcy laws with malicious intent. The credit union was familiar with the injunction afforded by § 524, yet intentionally engaged in conduct resulting in the repayment of the discharged debt. Debtor's repayment of the discharged debt is not of the type of voluntary payment permitted by § 524(f), but instead constitutes an unenforceable agreement which did not comply with the reaffirmation provisions of § 524(c) and was not supported by adequate consideration."

___________________

There are many reported cases on this subject.

Des.

[Dorsey]

Des, thanks for this posting. The only problem with the case you posted is that it doesn't share any similarities to what I am suggesting. The credit union is contending that its consideration is its willingness to NOT pursue a judgement based on the discharged debt. Additionally, the credit union required that the repayment of the discharged debt be part of the new contract.

I am proposing something entirely different. If AFTER discharge, I wish to repurchase the car I now possess (the car upon which I no longer owe any money) and my lender is willing to hold off on repossession and work out a NEW purchase contract, why am I and the lender not able to enter into a newly negotiated contract that is independent of the discharged debt.

If I am unable to get a reaffirmation approved and my lender is unwilling to consider a ride-through, and my car is ultimately surrendered, there is nothing that prevents me from approaching another seller and entering into a loan agreement with a new lender to purchase a different car. This being the case, why am I not at liberty to approach my current lender after discharge and buy my car back after the underlying loan has been discharged? I suppose this would be tantamount to a redemption financed entirely by my current lender.

[despritfreya]

You miss the point. The case I posted was the result of a less than 30 second search. There are tons of cases on this. Lenders, especially ones who were burned in the past, are not going to take the risk. If you want to "purchase" the vehicle you go to a different lender such as 727redemption.

Des.

[Dorsey]

Des, I don't think I'm missing the point. The case you posted isn't applicable to what I am suggesting even if it took less than 30 seconds to discover.

I would love to see more case law on this because I can't believe that two willing parties can't enter into a lending agreement post discharge. That makes no sense. Essentially what you're saying is that there is case law out there that discourages my current lender from doing business with me for some indeterminate period of time ... even though he is willing to enter into such a lending agreement.

It makes perfect sense to me that lenders similar that in Arnold would be catching hell. However case law like it is not applicable to two willing parties entering into a new lending agreement based on entirely new negotiated price and consideration.

If that's true the obvious question is how much time must elapse before I can do business with my current lender again? If there is case law on point I'd love to see it, but I've not found any...and I think the reason is because no prominent suit has ever been filed related to it. Which makes sense, right? If the two parties enter willingly into a NEW agreement there is not likely to be any case law published on a dispute related to the discharged debt. Any case would be dealt with through summary judgement or, if an opinion was issued, never address bankruptcy related issues since the agreement is not based on the old debt.

So, let's move away from case law for the moment. Is there anyone out there who's entered into such an agreement?

[sh9730]

Dorsey,

Regardless as to whether it can be done or not, why would anyone WANT to? I mean if you want to keep the car - then negotiate WHILE IN BK - and then reaffirm (if you can get it signed) the loan under the new terms. I may try this with my leased car I have now. In my SOI I said I intend to reaffirm, but in the end, unless my lender is willing to really renogiate the terms, I likely will not in the end.

But I definetely will make all these decisions BEFORE discharge! That way I always have the option of walking away without penalty. I SUPPOSE your way is similar in that if you are saying the debt has already been discharged then you still have no risk (other than the car getting repo'd) if you cant come to agreement. But what is the advantage of waiting until AFTER discharge then?

[Dorsey]

Des, I think the advantage is this: if the court is unwilling to approve a reaffirmation agreement (which is unlikely since I own a $41,000 BMW) and if BMW is unwilling to do a ride-though (i've not been able to confirm this yet), then there are only three options -- I surrender the car to them, I go find another lender who's willing to lend at an interest rate below 15%, or I enter into another agreement with BMW that is similar to the previously disapproved reaffirmation agreement, but do it after discharge and closing.

Certainly I would like to get a verbal understanding in place before discharge, but if not, as you point out, I have nothing to lose.

This saves me the interruption of losing a vehicle and finding another lender willing to work with a customer who's newly emerged from bankruptcy, it provides me with my current interest rate of 0.9% and a $475 monthly payment (which is less than the IRS budget for a vehicle in Washington, DC), and it gives me a young car that is still fully warrantied.

This saves BMW the cost of repossession and resale and gives them all of the other value associated with a ride-through, but with a new loan along with the lien. In fact, if they were willing to enter into such an agreement I might even waive my interest in cramming-down the value of the car to its market value of $37,000 and give them the $4,000 difference between the market value and the value of the old loan as an incentive to enter into the agreement with me, i.e. sign a new loan at $41,000 rather than the current market value (which is all they'd get for the car in a resale). They save thousands of dollars and are no worse off than the day before I filed my petition. In fact, they are better off because they now know that I can not file for Chapter 7 again for 8 years and I would face limits on any Chapter 13 filing.

This is was my earlier point, why does this not happen more often between two willing parties and is there anyone who's done it. For all I know, this happens all the time. I just want to hear someone's first hand experience.

Darren

[keepmine]

There is also a lot of caselaw that says, all the bk code reuires is, you offer to reaffirm. If a judge does not approve it, you've met your urden under the law and the lender can't repo.
Have you discussed this option with your lawyer?

[Pandora]

I am proposing something entirely different. If AFTER discharge, I wish to repurchase the car I now possess (the car upon which I no longer owe any money)

....In fact, if they were willing to enter into such an agreement I might even waive my interest in cramming-down the value of the car to its market value of $37,000 and give them the $4,000 difference between the market value and the value of the old loan as an incentive...

Question for you:

How on earth do you plan on cramming down a vehicle that is brand new? 910 rule doesnt apply in your case..

[Dorsey]

How on earth do you plan on cramming down a vehicle that is brand new? 910 rule doesnt apply in your case.

Pandora, as you will note from above, I am discussing a Chapter 7 case. Cram-downs, as a term of art, only apply to Chapter 13 cases. I use the term here, however, to mean the same thing ... to reduce the secured interest on my new loan to conform with replacement value.

Any car that's been driven off the lot has a replacement value less than the loan value at that moment.

(So people don't get confused, a Chapter 13 "cram down" is special provision found in the US Bankruptcy code §1325(a)(5)(B)(ii).)

[Pandora]

Pandora, as you will note from above, I am discussing a Chapter 7 case. Cram-downs, as a term of art, only apply to Chapter 13 cases. I use the term here, however, to mean the same thing ... to reduce the secured interest on my new loan to conform with replacement value.

Any car that's been driven off the lot has a replacement value less than the loan value at that moment.

(So people don't get confused, a Chapter 13 "cram down" is special provision found in the US Bankruptcy code §1325(a)(5)(B)(ii).)

Okay, so then state the actual term of Redemption vs. cramming it down Given you are new to the site, assumption was based on what you wrote (i.e., cramming down). With that being said in order for you to do what you're referring to, you'd have to 1. get lender to agree and a court order saying creditor must accept... 2. have all the $ on hand in order to pay market value of the vehicle.

Otherwise you're back to what Des stated above.. 727 Redemption loan. Your options are limited to redeem, reaffirm, surrender or take the chance of continuing to make payment with the knowledge that it can be taken.

[despritfreya]

@Dorsey,

Redemption is a viable way to pay the lender the value but, unless the lender agrees otherwise (very, very unlikely) redemption requires a cash out. This is where companies like 727redemption come into play - but, I would assume, at a high interest rate.

Des.

[Dorsey]

Pandora, I don't think you're reading this thread correctly. I am not speaking of a redemption, I am speaking of a post-discharge reaffirmation-like lending agreement. Redemption takes the original lender completely out, that's not what I am speaking about.

Listen, I think were getting too far afield here. As an attorney, albeit a non-bankruptcy attorney, I feel I have a pretty good grasp of the terms I'm using and the context in which I am using them. Please read the entire thread and it will become clear this is in the context of a 7.

But again...I want to hear from people who've done this sort of thing (if there are any). It's not helpful for me to hear about all the reasons why this sounds like a redemption...because I'm clear that it's not.

[rjmwx81]

I see what you're suggesting, Dorsey. A debtor would essentially do a ride-through, and then sign a new loan immediately after discharge. The reason people don't do it is it would basically be exactly the same as a reaffirmation, it just wouldn't require the court's approval. If it's not a good idea to reaffirm the loan in days 1 through 60 of the BK case, it certainly isn't a better idea to "essentially" reaffirm it on day 61. That's why people don't do it.

[Dorsey]

Rj, thanks!

There certainly are reasons a person would want to sign such agreement after discharge.

If your car is repossessed and you need one, the debtor is certainly going to have to search for a car and financing post discharge anyway. So it's not as if the debtor is going to be ale to avoid working with some lender and some seller. If the debtor purchased the car once, the chances are he likes the car, the warranty, the payments, and the interest rate. So instead of entering into the headache of being treated as a bankruptcy flunky while approaching new lenders, there seems to be many benefits to working out a new lending agreement with your lender when that lender has a policy of not doing ride-throughs, especially in the instance where your monthly payment is BELOW the federal limit of $496.00.

I am learning that many many courts simply will not approve a reaffirmation agreement on certain brands of vehicles (i.e. a BMW), even is the debtor is making a monthly payment below the limit or below what another person might be paying on a Ford Taurus ... and even if the value of the vehicle is lower than the Taurus. In other words, the brand name itself prevents reaffirmation. There are many cases where, if the judge looked into the numbers, would see that reaffirmation on such a car should be approved because it locks the debtor in with a very low interest rate and manageable payments (something that is very much likely NOT to be the case if the debtor is forced into the auto-buying marketplace on his own post-discharge).

The premise that it's not good to reaffirm the loan is, unfortunately, left to the judge to decide. My point here is that just because the judge feels it's a bad idea doesn't mean that a reaffirmation IS a bad idea. There must be people out here who, while searching for a car post-bankruptcy, have thought to themselves "I'm going to approach my old lender and purchase my old car back." Having that conversation prior to discharge and prior to repossession seems to be the perfect time to discuss it.

There must be someone out here who's repurchased their car from their lender after the old debt was discharged. As Des. pointed out way at the top of this thread, the debtor in In Re Arnold certainly sought this remedy and despite the fact that his lender tried to take advantage of him (and this led to a lawsuit), the court in that case didn't say it was against the law to enter into a loan agreement with your old lender, just that it has to be related to NEW debt. In other words, the court simply said, among other things, that the lender can't seek, nor can the debtor oblige, the repayment of non-reaffirmed debt by fraud.

So again, we know people have done it, but I was hoping to get a first hand account so I know how to approach my lender.