My client wants to keep paying on his car after bankruptcy.
The lender wants my client to keep paying on his car after bankruptcy.
Yet it took an afternoon in court for a hearing set by the judge on approval of my client’s reaffirmation agreement with the car lender to get everyone what they wanted.
What an utter waste of time.
Bankruptcy law run amok
BAPCPA succeeded in taking two employed people, my clients, away from their jobs and mandating that their attorney sit beside them for an hour, waiting for their turn before the judge (and we were next to last on the calendar, wouldn’t you know?)
The judge took the problem seriously; bankruptcy “deform” in 2005 made it necessary.
Here’s the problem. BAPCPA eliminated the provision of the bankruptcy code that said that filing bankruptcy was not, alone, a breach of the car loan contract.
So now, under the “reformed” bankruptcy law, the car lender could repo the car after bankruptcy, even if the borrower continued to make the car payments on time.
To avoid that possibility of repossession, the debtor has to waive the bankruptcy discharge as to the car loan. By reaffirming the debt, the bankruptcy breach is cured. But more importantly, the car lender can repo the car and sue the borrower for the shortage.
Let me assure you that car lenders spent handsomely on lobbyists in 2005 to get this change, eliminating what bankruptcy lawyers called “pay and drive” or “keep and pay”.
Wheels for work
My clients were willing to reaffirm the car loan, rather than worry if the lender would take the car simply because they’d filed bankruptcy. But their budget showed that their income was $100 short of the amount necessary to pay for everything they needed.
A conscientious judge can’t, it seems, assume that like every other real world money issue, the debtors would eat less well or postpone something else to make the car payment so they could get to work.
So we spent Wednesday afternoon in court waiting for our five minutes before the judge. Despite my report that one of their budgeted expenses had gone down $200 a month, creating a surplus, and despite my assurance that I had explained the legal consequences of reaffirmation, the judge carefully questioned my clients to assure himself, on the record, that they understood.
The agreement was approved, my clients keep their car and their sanity.
And I’m left grousing about the expenditure of time and talent that was absorbed so a car lender can threaten my client with suit if he can’t pay for the car in the future.
More about cars in bankruptcy
The Underwater Trade-In and Car Loans in Bankruptcy
Reaffirmation and Your Credit Score
Image courtesy of Karen Apricot New Orleans.
Collectively how do we go about chipping away at this? And why do I have to sign that I assisted the client in the negotiations when the creditor refuses to engage in any negotiations? Who pays for this waste of time? This is a sore subject. Thanks for the article Cathy.
Pursuant to to the Ninth Circuit’s ruling in In re Dumont in 2009, it is not clear to me whether an attempted reaff would shield a debtor from a repo where the court denies the reaff.
What do you think?
At Amelia Island, Mr. Melchionne described a rather elegant workaround that he helped implement in his state – one that I’m working on in mine. Specifically, CT changed state law so that the mere filing of a bankruptcy does not give rise to a right of repossession without another form of default on the loan.