When a debtor files bankruptcy, what happens to their creditors? There is an automatic stay put in place pending the outcome of the debtors’ case, right? Not necessarily.
Most debtors in bankruptcy have at least one car that they use to get to and from work, to transport their family, etc., and this family car usually has a loan on it.
Because this family car is important for the family, the debtor often wishes to keep it after the bankruptcy, in order to keep getting to and from work, get their kids to and from school, activities, go grocery shopping, go to church, etc.
This is easy to handle in the bankruptcy petition, by simply stating that the debtor wishes to reaffirm the debt, and continue paying for it after the bankruptcy.
But what if the debtor never signs a reaffirmation agreement to reaffirm the debt? Maybe nothing, but they could also lose their car to repossession, and still end up being liable for the debt, even if they were current on payments, and even though they thought there was an automatic stay in place.
This is because in some jurisdictions, the debtor may only have so many days from the time the statement of intention for the car was filed, to sign a reaffirmation agreement with the creditor to prevent the automatic stay on the creditor for the car, from being lifted.
We saw this happen just this week, 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 is getting their car back, so luckily, there is a positive outcome for the debtor, but not without some stress first.
To prevent this from happening:
1. Make certain that the attorneys you work with 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.
2. Consider offering reaffirmation agreement management as part of your VBA services, and set yourself apart from the competition
Have a terrific week!
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