Reaffirmation Of Debts, Redemption of Collateral (Part 3 of 3)


Reaffirmation Of Debts, Redemption of Collateral (Part 3 of 3)

The process of agreeing to a reaffirmation is often prone to creating conflicts between the lawyer and client. The client is demanding that the lawyer sign the client’s proposed motor vehicle reaffirmation agreement, and the lawyer does not want to do so.

  • Reaffirmation from the lawyer’s perspective. The lawyer may know that the client has previously had difficulty staying current on the vehicle, and that the client is prone to recurring financial hardships and irregular income.
    • The lawyer may be convinced that the client is going to default at some future date, losing the vehicle anyway.
    • If the vehicle is repossessed, the client will also suffer a significant deficiency liability that could have been discharged.
    • The lawyer does not want to take any professional risk for letting the client sign a reaffirmation that may be prone to failure.
    • The car is worth a lot less money than the amount of the debt, and is really a bad deal all things considered.
    • The reaffirmation agreement requires the lawyer to sign a declaration under penalty of perjury that the agreement will not create an undue hardship. How can the lawyer really say that under oath?
    • The reaffirmation requirements impose duties on the lawyer that go far beyond what most lawyers feel is the appropriate role for an advocate. Most lawyers will resist becoming what in effect makes them a character witness for their client when the lawyer is called upon to sign the “no undue hardship” declaration!

  • Reaffirmation from the client’s perspective . The client becomes frustrated by the lawyer’s reluctance or actual refusal to sign the proposed agreement.
    • Unless the lawyer signs the agreement, it won’t be effective unless the court holds a hearing and approves it.
    • A court reaffirmation hearing means the client may have to take a day off from work, face the anxiety of having to go to court, pay for parking at court, possibly pay their lawyer to go with them and advocate for an agreement that the lawyer actually disfavors, and still possible face denial of the agreement by a judge who will be looking for an excuse to withhold approval.
    • All of this unpleasantness would be avoided if the lawyer would just sign the agreement.
    • Clients are worried sick over the thought of losing their car, and don’t think they have any viable alternatives.
    • Client’s feel that there is no risk that they would ever default (again).
    • Client’s believe that they have no choice and must reaffirm because they won’t be able to get another car if they lose this one.

  • Alternatives for avoiding a bad reaffirmation agreement. Assume the debtoris faced with having to reaffirm a $10,000 loan balance for a vehicle worth only $5000, or else give have to give up the wheels. In some cases there may be ways you can get around the Debtor’s perceived need to accept a bad bargain that clearly is not in the debtor’s best interests. First ask, “Would you really like to buy this exact same vehicle all over again, in the present condition ‘as is’ for the same amount of money that you will already owe under this agreement? (Under this perspective, most clients will say “No way,” and at least open their minds up to the possibility of other alternatives). Here are some strategies that you can suggest. We are not judging the morality of these maneuvers. These are offered simply as emergency stop gaps to solve a temporary transportation issue so that the debtor does not get trapped in a bad reaffirmation.

    • First idea: Stop making car paymentsand buy something cheap for cash. As soon as the case is filed, the debtor ordinarily has a “free ride” under the automatic stay. This will ordinarily protect the vehicle from repossession for about two and one-half months, (that is, until 45 days after the first meeting of creditors). The debtor should use that time to save up money towards buying a cheap “transportation car” until able to get into something else. Very cheap cars really are available. With careful shopping, they can be had from private parties, and from organizations. For example, both the Salvation Army and Goodwill sell cheap running cars that have been donated. They have several locations. (A debtor that can’t save enough money to buy themselves a “runner” would never have been able to make the payments on a reaffirmation.)

    • Second idea: Upon discharge, most debtors are aggressively solicited by new car dealers, offering “easy terms” to finance or lease a new car. They specifically target people emerging from bankruptcy as sales leads. The debtor can usually get into a new car, even with bad credit, provided they have a sufficient and steady income. This may be a far better alternative than making a bad reaffirmation. The new car loan won’t start out with more money owing than the vehicle is worth, it will represent a better investment than keeping the debtors old car with upside down financing on it, and the new car will probably be more reliable transportation with a new car warranty. Of course, the catch is that the debtor needs to play for time to get their discharge. Here is how to do that: Reaffirm if necessary to keep temporary possession of the vehicle until the debtor receives a discharge, but rescind the reaffirmation within 60 days after discharge. Use that time to get into another vehicle, and be sure to rescind the reaffirmation before it becomes binding.

    • Third idea: Maybe a friend, lover or family member will buy or lease something for the debtor to drive. The debtor can be insured and registered as a driver of the vehicle, and the debtor can be the one who makes the payments.

    • Fourth idea: There are companies that will rent used cars on a monthly basis. The payment for these monthly rentals is usually much less than the payments on the debtor’s car loan. After the debtor receives a discharge the debtor can probably purchase and finance a new car.

    • Fifth idea: Maybe there is public transportation that the debtor can use on a temporary basis, until discharge, and then buy a new car?

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By | 2012-10-09T06:09:23+00:00 October 9th, 2012|bankruptcy-faq, Financial|0 Comments

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