reaffirmation seminar outline 101129 _2

8/7/2019 Reaffirmation Seminar Outline 101129 _2

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The Orange County Bankruptcy Forum

Brown Bag Program

WHEN PAYMENT ALONE MAY NOT BE ENOUGH

Auto Loan Reaffirmations from Creditor and Debtor Counsels Perspectives

I. NEGOTIATION a. Why are automobile reaffirmation agreements, which are generally disfavored by the

courts, entered into by debtors?

1. To maintain collateral. 2. Settle nondischargeability complaints/claims. 3. Credit rehabilitation. 4. Reinstatement of privileges extended by the creditor. 5. Potential modification of terms.

b. Why do automobile lenders enter into reaffirmation agreements?

1. Incentive to pay. 2. Maintain integrity of the loan agreement. 3. Responsibility level for collateral. 4. Contacts with the debtor and the fear of violation the discharge injunction. 5. Ability to extend or modify payments.

c. Modification of terms 1. Original terms v. modified terms. 2. Non recourse reaffirmation agreements?

d. Is pay and drive officially dead? 1. In re Dumont, 581 F.3d 1104 (9 th Cir. 2009).

2. Waiver or estoppel by acceptance of payment? 3. Public Policy? 4. What happens when the court rejects the reaffirmation agreement? 5. What about the dissent in the BAP decision?

II. COMPLETION AND FILING a. Form 240 includes the good faith safe harbor statutory language mandated in 524(c).

If the disclosures are provided verbatim on Form 240, the requirements of 524(c)(2)

and (k) are satisfied. See 524(l).

b. Creditor 1. What happens if the form is not completed correctly by the creditor and the

creditor attempts to enforce the pre bankruptcy agreement? A reaffirmation

agreement is only enforceable if all of the conditions provided in 524(d) are met.

In re Bennett, 298 F3d 1059, 1067 (9 th Cir. 2002); In re Getzoff, 180 B.R. 572, 574 (9 th

Cir. BAP 1995); and In re Kamps, 217 B.R. 836, 840 841 (Bankr. C.D. Cal. 1998).

2. Negotiation A creditor may discuss and negotiate the terms for a reaffirmation agreement without violating the automatic stay so long as the creditor refrains from

coercion and harassment. In re Jamo, 283 F3d 392, 398 (1st Cir. 2002).


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c. Debtor 1. Reaffirmation coversheet financial disclosure requirements. 2. Differences between Schedules I and J and the Reaffirmation Agreement. 3. Attorney obligations

a. Does the debtors counsel have a duty to conduct an independent investigation of the debtors ability to pay under the reaffirmation agreement?

b. Under penalty of perjury? See form 240A/B Alt compared to 524(c)(3). c. Rule 9011 requirements?

d. Filing deadline 1. The reaffirmation agreement must have been made before the entry of the

debtors discharge. 524(c)(1).

2. The reaffirmation agreement must be filed with the Court. 524(c)(3). 3. The reaffirmation agreement must be filed with the Court within 60 days of the

initial 341(a) meeting of creditors. FRBP 4008.

4. Authority to seek approval of the reaffirmation agreement. In re Boliaux, 422 B.R. 125 (Bankr. N.D. Ill. 2010) a creditor also has standing to seek approval.

2. Deferment of discharge. FRBP 4004(c)(2).

e. When is the reaffirmation agreement enforceable? 1. A reaffirmation agreement that complies with the 524(c) and is approved by the

court is binding upon the debtor and creditor.

2. Where the debtor is represented by an attorney in the negotiation and completion of a reaffirmation agreement, the agreement is effective upon filing with the court

unless it is presumed to be an undue hardship. 524(k)(3)(J)(i).

3. If a reaffirmation agreement is signed by the debtors attorney, the presumption of undue hardship does not arise with a credit union pursuant to 524(m)(2). Hence,

once fully executed and filed with the court, a reaffirmation agreement with a credit

union is enforceable immediately.

4. Court review of reaffirmation agreements. Even if the debtors counsel certifies that the reaffirmation agreement does not pose an undue hardship, a court finding of

undue hardship may still be required.

5. What about the rescission period is that a safe harbor for the debtor? 6. Can the creditor attempt to enforce the reaffirmation agreement during the

bankruptcy case without running afoul of the automatic stay?

III. RESCISSION a. Timing. A reaffirmation agreement may be rescinded by the debtor at any point prior to

discharge or within 60 days after filing of the agreement with the court, whichever

occurs later. 524(c)(4).

b. When is notice of the rescission considered effective? c. Does notice of rescission need to be filed with the Court? d. Can a reaffirmation agreement be rescinded after the court has approved it? e. Can a creditor rescind the agreement? 524(c)(4) only authorizes debtors rescission.


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f. Is relief available under Rule 60(b) to the creditor or debtor after the rescission period expires?

1. Where the rescission period provided under 524(c) has expired, relief from a reaffirmation agreement can only be secured under Rule 60(b) (not 105 of the

Bankruptcy Code). In re Bailey, 2010 WL 1227752 (Bankr. E.D. Kentucky 2010); In re

Reinertson, 241 B.R. 451 (9th Cir. BAP 1999).

2. Rule 60(b)(1) allows for relief from a judgment or order for mistake. 3. Mutual mistake. Where a secured creditor and debtor entered into a reaffirmation

agreement for an auto loan, a bankruptcy court allowed the debtor to rescind the

agreement under Rule 60(b) and applicable state law based upon the creditor and

debtors mutual mistake regarding the validity of the secured creditors lien. In re

Mandrell, 50 B.R. 593, 594 596 (Bankr. M.D. Tenn. 1985). The court further ordered

the creditor to return payment to the debtor.

4. Bad faith. The failure of a creditor or a debtor to act in good faith in connection with a reaffirmation agreement may render the reaffirmation agreement

unenforceable or preclude approval by the court. In re Wallace, 102 B.R. 54, 56

(Bankr. E.D. N.C. 1989); Arnhold v. Kyrus, 851 F.2d 738 (4 th Cir. 1988).

5. Rescission through the state court action? IV. MICELLANEOUS

a. Lease Agreements 1. Section 365(p)(2) debtor notifies creditor of lease assumption. 2. If a lease is assumed, who is bound by the lease assumption? 3. Section 524 disclosures? 4. Waiver of discharge by a debtor may only be accomplished under 524(c)? In re

Cole, 226 B.R. 647 (9 th Cir. BAP 1998).

5. Rescission? b. Does a settlement agreement on a nondischargeability complaint require the

disclosures under 524(c)? Any agreement between a creditor and debtor based upon a

dischargeable debt must comply with 524(c). In re Gardner, 57 B.R. 609, 610 611

(Bankr. ME 1986).

c. Modification of reaffirmation agreement after rescission period expires. 1. Section 524 Disclosures? 2. Re approval by the bankruptcy court?

reaffirmation seminar outline 101129 _2

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