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Brown Bag Program
WHEN PAYMENT ALONE MAY NOT BE ENOUGH
Auto Loan Reaffirmations from Creditor and Debtor Counsel’s 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 (9th 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 (9th Cir. 2002); In re Getzoff, 180 B.R. 572, 574 (9th
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).
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 debtor’s counsel have a duty to conduct an independent investigation
of the debtor’s 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
debtor’s 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 debtor’s 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 debtor’s 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 debtor’s rescission.
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
debtor’s mutual mistake regarding the validity of the secured creditor’s 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 (4th 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 (9th 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?