Reaffirmation Required: No "Ride-Through" Allowed Says Bankruptcy Judge
Reaffirmation Required: What Is It?
Reaffirmation agreements and their role in Michigan Chapter 7 bankruptcies were described in our prior blog post on the subjection here. Long story short, however, a "reaffirmation agreement" is a separate agreement that may be provided to you in a Chapter 7 bankruptcy by a creditor holding a "secured" debt (a debt for which collateral has been pledged, such as a home mortgage or car loan) that, once signed by you and (in some cases) your bankruptcy lawyer and the creditor, is filed by the creditor and, if approved by the Bankruptcy Court, puts you back on the hook for the debt after the Chapter 7 ends as if you had never filed bankruptcy at all. Why would you ever sign such a thing? One of the only reasons is that the Bankruptcy Code, since 2005, has contained a provision which allows a secured creditor whose claim is secured by personal property (i.e., not "real" property or real estate) to repossess the collateral property if the loan was not reaffirmed within 45 days of the 341 Meeting of Creditors hearing which takes place approximately 30 days after the filing of a Chapter 7 case. Even if the loan payments are current. Regardless, few creditors actually actually want the used car (or furniture or other such collateral) back, particularly if the loan payments are still being timely made. (Ford Motor Credit and virtually all credit unions in southeastern Michigan will repo if payments are current.) That being the case, it has often been the practice to note in the Bankruptcy Petition that the secured loan in question is being retained but is not being reaffirmed, that it will be simply "retained and paid." This is called the "ride-through," and it has been controversial.
New Bankruptcy Court Decision Holds that Reaffirmation Is Required in the Eastern District of Michigan
"Ride-through" has been allowed and disallowed in patchwork fashion across the US, the option being more or less available depending on what the Federal Circuit Court of Appeals in a given area has ruled. The 6th Circuit Court of Appeals, which includes Michigan in its jurisdiction, is the only Circuit not to address the issue thus far. The question is thus left to the individual Bankruptcy Courts in the states under the 6th Circuit's jurisdiction to determine. This week, Judge Shefferly of the Eastern District of Michigan Bankruptcy Court issued a ruling in a Chapter 7 case clarifying that, here in the Detroit, Ann Arbor, Monroe, Flint, Bay City, and Saginaw areas, "ride-through" is not permitted. A debtor simply must reaffirm, he ruled.
Reaffirmation Required: What If You Don't?
So what if you don't? What if you don't check that box on your petition that says you intend to reaffirm? First, it is important to Know Your Creditor. This is one of the primary reasons you should always retain an experienced Michigan bankruptcy attorney to represent you in a Chapter 7 or Chapter 13 bankruptcy matter. I have mentioned the names of a couple of the creditors who will always repossess your vehicle and make good use of a ruling like Judge Shefferly's, but there are others---and creditors are within their rights to change their corporate policies on the subject at the drop of a hat. You need to work with an attorney such as Livonia, Michigan bankruptcy attorney John Hilla of The Hilla Law Firm who works with and against secured creditors on a regular, daily basis. Not everything can be Googled. Second, Judge Shefferly likewise makes it clear in his ruling that the remedy for a secured creditor whose reaffirmation agreement was not signed by the debtor is whatever remedy is available under the laws of the state in which the bankruptcy case was filed. (It is important to remember that, although bankruptcy is a Federal legal process, it leaves many questions subject to the laws of the states in which individual cases are filed.) In other words, if you are current on your payments, your car (or furniture, etc.) can only be repossessed if Michigan state law supports a provision of your loan agreement that might enable the creditor to do so under such circumstances. Failure to reaffirm the debt simply lifts the automatic stay injunction of the Bankruptcy Court (which stops any collections activity by any creditor while the bankruptcy case is pending) and removes the property from the "bankruptcy estate" that you created with the filing of the bankruptcy petition. In short, it's between you and the creditor at that point, as governed by your contract and Michigan state law.
Reaffirmation Required: The Bottom Line
The bottom line is that, yes, the "ride-through" or "retain-and-pay" do not have any underlying legal support here in the Eastern District of Michigan at this point---but that doesn't necessarily mean that you will be strong-armed into putting yourself back on the hook for a debt that you may want the freedom to step away from after your Chapter 7 bankruptcy is completed, should your circumstances worsen. It is a conversation that you will have with your Michigan bankruptcy attorney that will be swing on the property, the debt, and the creditor involved. If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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