Why Won't My Attorney Represent Me in a Reaffirmation Agreement?

Posted on December 6, 2010 by Christine Wilton

Chances are that if you have a car loan and filed bankruptcy under Chapter 7 of the bankruptcy code, you're going to get what is called a reaffirmation agreement.  If you're a pro se debtor representing yourself, you have no one to ask questions of.  If you're represented by an attorney, your questions may still remain unanswered and you may receive little to no help.  This is the range I've seen when I volunteer as reaffirmation counsel for Public Counsel at our Central District's reaffirmation clinics.

Gregory M. Duhl, Associate Professor of Law at William Mitchell College of Law in Minnesota wrote in depth on the attorney's role in reaffirmation agreements and I encourage those of you that desire a more in depth look at this topic to read his law journal article, "Divided Loyalties: The Attorney’s Role in Bankruptcy Reaffirmations. "  Here's the point: If the attorney signs off on your reaffirmation agreement, the attorney is basically agreeing that the contract is in your best interest and that debt should survive your bankruptcy.  What this essentially means is that you remain liable for that debt after your bankruptcy discharge.  So, if at some later point in time, you can't keep up with your car payments and you surrender the vehicle, you'll be responsible for any deficit you may owe.  This makes the reaffirmation a bad idea for those who are upside down on any debt obligation where a reaffirmation agreement is being offered.

On the other hand, if you've done everything you're obligated to do under the law and have signed your agreement and mailed it back to the Creditor, without an attorney signing off on the agreement, the Court will set the matter for a hearing.  The reason for this is that the Judge takes the place of your attorney and must decide whether this agreement is in your best interest.  Here in the Central District Los Angeles Division, all debtors are required to meet with a volunteer attorney prior to their hearing and we look at your individual situation and explain your options to you and the consequences of either outcome.  Usually when you ask the Judge to deny your reaffirmation agreement, they will.

When the Judge denies a reaffirmation agreement, the debt remains under the protection of your bankruptcy case and the debt is discharged.  However, under either outcome, the lien will always survive bankruptcy.  What this all means is that if you want to keep that house, car, or boat that has a lien against it, you must continue to make the payments.  The only difference here is that if that debt remains under the protection of the court and you later need to surrender it because you cannot afford the payments, you won't be liable for any deficiencies after the surrender.

Tags: , , , , , ,

How to Keep Your Car and Still File For Bankruptcy

Posted on December 14, 2009 by Christine Wilton

When you file for bankruptcy, you will be listing all of your assets, including any vehicle you own.  If you still owe money on your car, you will need to tell the court whether you intend to keep the car and reaffim the debt or whether you will give up the car.  Most people here in Los Angeles, need a car to get back and forth to work and so would want to keep the car and reaffirm the debt.  But what is a reaffirmation agreement and what does it do?

A reaffirmation agreement is made between you and the lender of your vehicle.  Essentially, a reaffirmation agreement tells the lender that you promise to be liable for the debt outside of the bankruptcy.  Iif anything happens to you later; i.e., job loss, illness, etc., you will remain liable for that debt.  The agreement takes that debt out of the protection of the bankruptcy and keeps you on the hook after your bankruptcy is discharged, even if you can't afford that debt later.  The reaffirmation agreement gives the creditor the same legal right as if you did not file a bankruptcy on that debt.

It used to be that if you just kept making the payments and stayed current on the car loan, insurance and registration, you could simply keep it in the bankruptcy and keep the car.  Unfortunately, the Ninth Circuit recently eliminated what was known as the "Ride Thru," which eliminated one of the most fundamental benefits to bankruptcy debtors.

Here's the good news.  Even after you sign the reaffirmation agreement with the lender, the lender must file it with the bankruptcy court and a hearing will be set on the matter.  The reaffirmation agreement does not become legally binding against you until it is approved by the judge. 

If the judge approves the reaffirmation agreement and you miss a loan payment in the future, the lender can:

  1. Repossess the car;
  2. Sell the car at auction; and
  3. Sue you for the money you still owe ("a deficiency balance")

At the hearing, the judge will use the "In the best interest of the debtor" test to determine if you can afford the debt.  Don't despair if the judge denies your reaffirmation agreement.  In fact, a denial may be beneficial to you because then the loan remains under the protection of your bankruptcy case and you'll likely get to keep the car.

If your case was filed in Los Angeles, the Public Counsel Law Center provides volunteer attorneys, like myself, who will answer any questions you may have before your hearing.  Public Counsel provides this service through their Debtor Assistance Project & Consumer Law Project.  If you have a reaffirmation hearing date, please read Public Counsel's information packet before your hearing.

Tags: , , ,