When debtors file bankruptcy, there is an ‘automatic stay’ put in place that prevents collection efforts by creditors, pending the outcome of the case, right?
Well…
A majority of bankruptcy debtors own at least one family vehicle that they use for transportation, including to and from work, the grocery store, and other places. This vehicle is typically financed.
Because this vehicle is very important for the family, debtors often wish to keep it after the bankruptcy, in order to keep getting to and from work, get their kids to and from school and activities, go to church, and so on.
Simply saying that the debtor wants to ‘reaffirm’ the obligation via a ‘reaffirmation agreement’ and continue making payments after the bankruptcy, is a straightforward way to manage this in the bankruptcy petition.
What happens, though, if the debtor never signs a reaffirmation agreement? Perhaps nothing, but even if they were up to date on their payments and believed there was an automatic stay in place, they could still lose the vehicle to repossession, and be held accountable for the debt. Ouch!
Although some people believe that the creditor should provide a reaffirmation agreement, in certain bankruptcy jurisdictions, the debtor may have a limited number of days from the date the vehicle’s statement of intention was filed to sign a reaffirmation agreement with the creditor in order to stop the automatic stay on the creditor for the vehicle from being lifted.
We saw this happen when a debtor had not signed a reaffirmation agreement in a timely fashion, and the creditor immediately had the car towed. The attorney worked with the creditor to manage getting the reaffirmation agreement signed, and the debtor got their car back, so luckily, there was a positive outcome for the debtor in this situation, but not without some stress first.
To avoid such stress, attorneys may consider being more proactive in getting reaffirmation agreements signed, rather than waiting around for the creditor to provide one, who may never intend to.
To prevent the situation described above from happening the attorney we worked with suggest the following:
Make certain that you are familiar with 11 U.S.C. § 521(a)(6) of the revised bankruptcy code, which provides that an individual chapter 7 debtor cannot retain possession of personal property in which a creditor has a purchase money security interest, unless the debtor, not later than 45 days after the first meeting of creditors, either enters into a reaffirmation agreement under § 524(c) or redeems the property under § 722. In addition, pursuant to sections 521(a)(2) and 326(h) the automatic stay will terminate within thirty days of the petition date as to any encumbered collateral if the debtor fails to timely file that statement; and within thirty days after the first date set for the meeting of creditors if the debtor fails to take timely action as specified in the statement of intention.
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