Reaffirmation and Redemption in Chapter 7 Bankruptcy

Transcription

1 Reaffirmation and Redemption in Chapter 7 Bankruptcy Excerpted Bankruptcy Code Sections 11 U.S.C. 362 Automatic Stay U.S.C. 506 Determination of Secured Status U.S.C. 521 Debtor's Duties U.S.C. 524 Effect of Discharge U.S.C. 554 Abandonment of Property of the Estate U.S.C. 722 Redemption Excerpted Federal Rules of Evidence FRE 301 Presumptions in Civil Cases Generally FRE 602 Need for Personal Knowledge FRE 701 Opinion Testimony by Lay Witness FRE 702 Testimony by Expert Witness FRE 703 Bases of an Expert FRE 704 Opinion on an Ultimate Issue FRE 705 Disclosing the Facts or Data Underlying an Expert FRE 706 Court-Appointed Expert Witnesses FRE 803 Except. to Rule Against Hearsay, Regardless of Whether Decl. is Avail. as a Witness Excerpted Federal Rules of Bankruptcy Procedure FRBP 4008 Filing of Reaff. Agreement; Statement in Support of Reaff. Agreement FRBP 6008 Redemption of Property from Lien or Sale Cases & Checklists Notable Cases Regarding Reaffirmations Reaffirmation vs. Redemption Checklist Reaffirmation Counseling Questions Samples Sample & Blank Letter to Creditor re: No Reaffirmation Agreement Sent Rescinding a Reaffirmation Agreement Instructional Packet Motion to Redeem Instructional Packet Articles Reaffirmation of Mortgage Debt in California Bankruptcy Cases Reaffirmation to Refinance? Mortgage and Bankruptcy Policies Collide Are Lease Agreements Assumed by a Debtor in a Chapter 7 Enforceable Without a Validly Executed Reaffirmation Agreement? Reaffirmation Agreements in Chapter 7 Bankruptcy Proceedings Program materials available online at tinyurl.com/reaffmcle

2

3 Reaffirmations and Redemptions U.S. Code Sections 11 U.S.C Automatic Stay (h) (1) In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim, or subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2) (A) to file timely any statement of intention required under section 521(a)(2) with respect to such personal property or to indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant to section 722, enter into an agreement of the kind specified in section 524(c) applicable to the debt secured by such personal property, or assume such unexpired lease pursuant to section 365(p) if the trustee does not do so, as applicable; and (B) to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action, unless such statement specifies the debtor s intention to reaffirm such debt on the original contract terms and the creditor refuses to agree to the reaffirmation on such terms. 11 U.S.C Determination of secured status (a) (1) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor s interest in the estate s interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor s interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor s interest. (2) If the debtor is an individual in a case under chapter 7 or 13, such value with respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of the date of the filing of the petition without deduction for costs of sale or marketing. With respect to property acquired for personal, family, or household purposes, replacement value shall mean the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined. (b) To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such 1

4 claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose. (c) The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property. (d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless (1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or (2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title. 11 U.S.C Debtor's duties (a) The debtor shall- (2) if an individual debtor s schedule of assets and liabilities includes debts which are secured by property of the estate (A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property; and (B) within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day period fixes, perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; except that nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor s or the trustee s rights with regard to such property under this title, except as provided in section 362(h); *** (6) in a case under chapter 7 of this title in which the debtor is an individual, not retain possession of personal property as to which a creditor has an allowed claim for the purchase price secured in whole or in part by an interest in such personal property unless the debtor, not later than 45 days after the first meeting of creditors under section 341(a), either (A) enters into an agreement with the creditor pursuant to section 524(c) with respect to the claim secured by such property; or (B) redeems such property from the security interest pursuant to section 722; and 2

5 *** (d) If the debtor fails timely to take the action specified in subsection (a)(6) of this section, or in paragraphs (1) and (2) of section 362(h), with respect to property which a lessor or bailor owns and has leased, rented, or bailed to the debtor or as to which a creditor holds a security interest not otherwise voidable under section 522(f), 544, 545, 547, 548, or 549, nothing in this title shall prevent or limit the operation of a provision in the underlying lease or agreement that has the effect of placing the debtor in default under such lease or agreement by reason of the occurrence, pendency, or existence of a proceeding under this title or the insolvency of the debtor. Nothing in this subsection shall be deemed to justify limiting such a provision in any other circumstance. 11 U.S. Code Effect of discharge (c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law, whether or not discharge of such debt is waived, only if (1) such agreement was made before the granting of the discharge under section 727,1141,1228, or 1328 of this title; (2) the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the agreement; (3) such agreement has been filed with the court and, if applicable, accompanied by a declaration or an affidavit of the attorney that represented the debtor during the course of negotiating an agreement under this subsection, which states that (A) such agreement represents a fully informed and voluntary agreement by the debtor; (B) such agreement does not impose an undue hardship on the debtor or a dependent of the debtor; and (C) the attorney fully advised the debtor of the legal effect and consequences of (i) an agreement of the kind specified in this subsection; and (ii) any default under such an agreement; (4) the debtor has not rescinded such agreement at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later, by giving notice of rescission to the holder of such claim; (5) the provisions of subsection (d) of this section have been complied with; and (6) (A) in a case concerning an individual who was not represented by an attorney during the course of negotiating an agreement under this subsection, the court approves such agreement as (i) not imposing an undue hardship on the debtor or a dependent of the debtor; and (ii) in the best interest of the debtor. (B) Subparagraph (A) shall not apply to the extent that such debt is a consumer debt secured by real property. *** (k) 3

6 (1) The disclosures required under subsection (c)(2) shall consist of the disclosure statement described in paragraph (3), completed as required in that paragraph, together with the agreement specified in subsection (c), statement, declaration, motion and order described, respectively, in paragraphs (4) through (8), and shall be the only disclosures required in connection with entering into such agreement. (2) Disclosures made under paragraph (1) shall be made clearly and conspicuously and in writing. The terms Amount Reaffirmed and Annual Percentage Rate shall be disclosed more conspicuously than other terms, data or information provided in connection with this disclosure, except that the phrases Before agreeing to reaffirm a debt, review these important disclosures and Summary of Reaffirmation Agreement may be equally conspicuous. Disclosures may be made in a different order and may use terminology different from that set forth in paragraphs (2) through (8), except that the terms Amount Reaffirmed and Annual Percentage Rate must be used where indicated. (3) The disclosure statement required under this paragraph shall consist of the following: (A) The statement: Part A: Before agreeing to reaffirm a debt, review these important disclosures: ; (B) Under the heading Summary of Reaffirmation Agreement, the statement: This Summary is made pursuant to the requirements of the Bankruptcy Code ; (C) The Amount Reaffirmed, using that term, which shall be (i) the total amount of debt that the debtor agrees to reaffirm by entering into an agreement of the kind specified in subsection (c), and (ii) the total of any fees and costs accrued as of the date of the disclosure statement, related to such total amount. (D) In conjunction with the disclosure of the Amount Reaffirmed, the statements (i) The amount of debt you have agreed to reaffirm ; and (ii) Your credit agreement may obligate you to pay additional amounts which may come due after the date of this disclosure. Consult your credit agreement.. (E) The Annual Percentage Rate, using that term, which shall be disclosed as (i) if, at the time the petition is filed, the debt is an extension of credit under an open end credit plan, as the terms credit and open end credit plan are defined in section 103 of the Truth in Lending Act, then (I) the annual percentage rate determined under paragraphs (5) and (6) of section 127(b) of the Truth in Lending Act, as applicable, as disclosed to the debtor in the most recent periodic statement prior to entering into an agreement of the kind specified in subsection (c) or, if no such periodic statement has been given to the debtor during the prior 6 months, the annual percentage rate as it would have been so 4

7 disclosed at the time the disclosure statement is given to the debtor, or to the extent this annual percentage rate is not readily available or not applicable, then (II) the simple interest rate applicable to the amount reaffirmed as of the date the disclosure statement is given to the debtor, or if different simple interest rates apply to different balances, the simple interest rate applicable to each such balance, identifying the amount of each such balance included in the amount reaffirmed, or (III) if the entity making the disclosure elects, to disclose the annual percentage rate under subclause (I) and the simple interest rate under subclause (II); or (ii) if, at the time the petition is filed, the debt is an extension of credit other than under an open end credit plan, as the terms credit and open end credit plan are defined in section 103 of the Truth in Lending Act, then (I) the annual percentage rate under section 128(a)(4) of the Truth in Lending Act, as disclosed to the debtor in the most recent disclosure statement given to the debtor prior to the entering into an agreement of the kind specified in subsection (c) with respect to the debt, or, if no such disclosure statement was given to the debtor, the annual percentage rate as it would have been so disclosed at the time the disclosure statement is given to the debtor, or to the extent this annual percentage rate is not readily available or not applicable, then (II) the simple interest rate applicable to the amount reaffirmed as of the date the disclosure statement is given to the debtor, or if different simple interest rates apply to different balances, the simple interest rate applicable to each such balance, identifying the amount of such balance included in the amount reaffirmed, or (III) if the entity making the disclosure elects, to disclose the annual percentage rate under (I) and the simple interest rate under (II). (F) If the underlying debt transaction was disclosed as a variable rate transaction on the most recent disclosure given under the Truth in Lending Act, by stating The interest rate on your loan may be a variable interest rate which changes from time to time, so that the annual percentage rate disclosed here may be higher or lower.. (G) If the debt is secured by a security interest which has not been waived in whole or in part or determined to be void by a final order of the court at the time of the disclosure, by disclosing that a security interest or lien in goods or property is asserted over some or all of the debts the debtor is reaffirming and listing the items and their original purchase price that are subject to the asserted security interest, or if not a purchase-money 5

8 security interest then listing by items or types and the original amount of the loan. (H) At the election of the creditor, a statement of the repayment schedule using 1 or a combination of the following (i) by making the statement: Your first payment in the amount of $XXX is due on XXX but the future payment amount may be different. Consult your reaffirmation agreement or credit agreement, as applicable., and stating the amount of the first payment and the due date of that payment in the places provided; (ii) by making the statement: Your payment schedule will be:, and describing the repayment schedule with the number, amount, and due dates or period of payments scheduled to repay the debts reaffirmed to the extent then known by the disclosing party; or (iii) by describing the debtor s repayment obligations with reasonable specificity to the extent then known by the disclosing party. (I) The following statement: Note: When this disclosure refers to what a creditor may do, it does not use the word may to give the creditor specific permission. The word may is used to tell you what might occur if the law permits the creditor to take the action. If you have questions about your reaffirming a debt or what the law requires, consult with the attorney who helped you negotiate this agreement reaffirming a debt. If you don t have an attorney helping you, the judge will explain the effect of your reaffirming a debt when the hearing on the reaffirmation agreement is held.. (J) (i) The following additional statements: Reaffirming a debt is a serious financial decision. The law requires you to take certain steps to make sure the decision is in your best interest. If these steps are not completed, the reaffirmation agreement is not effective, even though you have signed it. 1. Read the disclosures in this Part A carefully. Consider the decision to reaffirm carefully. Then, if you want to reaffirm, sign the reaffirmation agreement in Part B (or you may use a separate agreement you and your creditor agree on). 2. Complete and sign Part D and be sure you can afford to make the payments you are agreeing to make and have received a copy of the disclosure statement and a completed and signed reaffirmation agreement. 3. If you were represented by an attorney during the negotiation of your reaffirmation agreement, the attorney must have signed the certification in Part C. 6

9 4. If you were not represented by an attorney during the negotiation of your reaffirmation agreement, you must have completed and signed Part E. 5. The original of this disclosure must be filed with the court by you or your creditor. If a separate reaffirmation agreement (other than the one in Part B) has been signed, it must be attached. 6. If you were represented by an attorney during the negotiation of your reaffirmation agreement, your reaffirmation agreement becomes effective upon filing with the court unless the reaffirmation is presumed to be an undue hardship as explained in Part D. 7. If you were not represented by an attorney during the negotiation of your reaffirmation agreement, it will not be effective unless the court approves it. The court will notify you of the hearing on your reaffirmation agreement. You must attend this hearing in bankruptcy court where the judge will review your reaffirmation agreement. The bankruptcy court must approve your reaffirmation agreement as consistent with your best interests, except that no court approval is required if your reaffirmation agreement is for a consumer debt secured by a mortgage, deed of trust, security deed, or other lien on your real property, like your home. Your right to rescind (cancel) your reaffirmation agreement. You may rescind (cancel) your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before the expiration of the 60-day period that begins on the date your reaffirmation agreement is filed with the court, whichever occurs later. To rescind (cancel) your reaffirmation agreement, you must notify the creditor that your reaffirmation agreement is rescinded (or canceled). What are your obligations if you reaffirm the debt? A reaffirmed debt remains your personal legal obligation. It is not discharged in your bankruptcy case. That means that if you default on your reaffirmed debt after your bankruptcy case is over, your creditor may be able to take your property or your wages. Otherwise, your obligations will be determined by the reaffirmation agreement which may have changed the terms of the original agreement. For example, if you are reaffirming an open end credit agreement, the creditor may be permitted by that agreement or applicable law to change the terms of that agreement in the future under certain conditions. Are you required to enter into a reaffirmation agreement by any law? No, you are not required to reaffirm a debt by any law. Only agree to reaffirm a debt if it is in your best interest. Be sure you can afford the payments you agree to make. 7

10 What if your creditor has a security interest or lien? Your bankruptcy discharge does not eliminate any lien on your property. A lien is often referred to as a security interest, deed of trust, mortgage or security deed. Even if you do not reaffirm and your personal liability on the debt is discharged, because of the lien your creditor may still have the right to take the property securing the lien if you do not pay the debt or default on it. If the lien is on an item of personal property that is exempt under your State s law or that the trustee has abandoned, you may be able to redeem the item rather than reaffirm the debt. To redeem, you must make a single payment to the creditor equal to the amount of the allowed secured claim, as agreed by the parties or determined by the court.. (ii)in the case of a reaffirmation under subsection (m)(2), numbered paragraph 6 in the disclosures required by clause (i) of this subparagraph shall read as follows: 6. If you were represented by an attorney during the negotiation of your reaffirmation agreement, your reaffirmation agreement becomes effective upon filing with the court.. (4) The form of such agreement required under this paragraph shall consist of the following: Part B: Reaffirmation Agreement. I (we) agree to reaffirm the debts arising under the credit agreement described below. Brief description of credit agreement: Description of any changes to the credit agreement made as part of this reaffirmation agreement: Signature: Date: Borrower: Co-borrower, if also reaffirming these debts: Accepted by creditor: Date of creditor acceptance:. (5) The declaration shall consist of the following: (A) The following certification: Part C: Certification by Debtor s Attorney (If Any). I hereby certify that (1) this agreement represents a fully informed and voluntary agreement by the debtor; (2) this agreement does not impose an undue hardship on the debtor or any dependent of the debtor; and (3) I have fully advised the debtor of the legal effect and consequences of this agreement and any default under this agreement. Signature of Debtor s Attorney: Date:. (B) If a presumption of undue hardship has been established with respect to such agreement, such certification shall state that, in the opinion of the attorney, the debtor is able to make the payment. 8

11 (6) (C) In the case of a reaffirmation agreement under subsection (m)(2), subparagraph (B) is not applicable. (A) The statement in support of such agreement, which the debtor shall sign and date prior to filing with the court, shall consist of the following: Part D: Debtor s Statement in Support of Reaffirmation Agreement. 1. I believe this reaffirmation agreement will not impose an undue hardship on my dependents or me. I can afford to make the payments on the reaffirmed debt because my monthly income (take home pay plus any other income received) is $XXX, and my actual current monthly expenses including monthly payments on post-bankruptcy debt and other reaffirmation agreements total $XXX, leaving $XXX to make the required payments on this reaffirmed debt. I understand that if my income less my monthly expenses does not leave enough to make the payments, this reaffirmation agreement is presumed to be an undue hardship on me and must be reviewed by the court. However, this presumption may be overcome if I explain to the satisfaction of the court how I can afford to make the payments here: XXX. 2. I received a copy of the Reaffirmation Disclosure Statement in Part A and a completed and signed reaffirmation agreement.. (B) Where the debtor is represented by an attorney and is reaffirming a debt owed to a creditor defined in section 19(b)(1)(A)(iv) of the Federal Reserve Act, the statement of support of the reaffirmation agreement, which the debtor shall sign and date prior to filing with the court, shall consist of the following: I believe this reaffirmation agreement is in my financial interest. I can afford to make the payments on the reaffirmed debt. I received a copy of the Reaffirmation Disclosure Statement in Part A and a completed and signed reaffirmation agreement.. (7) The motion that may be used if approval of such agreement by the court is required in order for it to be effective, shall be signed and dated by the movant and shall consist of the following: Part E: Motion for Court Approval (To be completed only if the debtor is not represented by an attorney.). I (we), the debtor(s), affirm the following to be true and correct: I am not represented by an attorney in connection with this reaffirmation agreement. I believe this reaffirmation agreement is in my best interest based on the income and expenses I have disclosed in my Statement in Support of this reaffirmation agreement, and because (provide any additional relevant reasons the court should consider): Therefore, I ask the court for an order approving this reaffirmation agreement.. (8) The court order, which may be used to approve such agreement, shall consist of the following: Court Order: The court grants the debtor s motion and approves the reaffirmation agreement described above.. 9

12 (l) Notwithstanding any other provision of this title the following shall apply: (1) A creditor may accept payments from a debtor before and after the filing of an agreement of the kind specified in subsection (c) with the court. (2) A creditor may accept payments from a debtor under such agreement that the creditor believes in good faith to be effective. (3) The requirements of subsections (c)(2) and (k) shall be satisfied if disclosures required under those subsections are given in good faith. (m) (1) Until 60 days after an agreement of the kind specified in subsection (c) is filed with the court (or such additional period as the court, after notice and a hearing and for cause, orders before the expiration of such period), it shall be presumed that such agreement is an undue hardship on the debtor if the debtor s monthly income less the debtor s monthly expenses as shown on the debtor s completed and signed statement in support of such agreement required under subsection (k)(6)(a) is less than the scheduled payments on the reaffirmed debt. This presumption shall be reviewed by the court. The presumption may be rebutted in writing by the debtor if the statement includes an explanation that identifies additional sources of funds to make the payments as agreed upon under the terms of such agreement. If the presumption is not rebutted to the satisfaction of the court, the court may disapprove such agreement. No agreement shall be disapproved without notice and a hearing to the debtor and creditor, and such hearing shall be concluded before the entry of the debtor s discharge. (2) This subsection does not apply to reaffirmation agreements where the creditor is a credit union, as defined in section 19(b)(1)(A)(iv) of the Federal Reserve Act. 11 U.S. Code Abandonment of property of the estate (a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate. (b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate. (c) Unless the court orders otherwise, any property scheduled under section 521(a)(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title. (d) Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate. 11 U.S.C Redemption An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien in full at the time of redemption. 10

13 Federal Rules of Evidence FRE 301. Presumptions in Civil Cases Generally In a civil case, unless a federal statute or these rules provide otherwise, the party against whom a presumption is directed has the burden of producing evidence to rebut the presumption. But this rule does not shift the burden of persuasion, which remains on the party who had it originally. FRE 602. Need for Personal Knowledge A witness may testify to a matter only if evidence is introduced sufficient to support a finding that the witness has personal knowledge of the matter. Evidence to prove personal knowledge may consist of the witness s own testimony. This rule does not apply to a witness s expert testimony under Rule 703. FRE 701. Opinion Testimony by Lay Witness If a witness is not testifying as an expert, testimony in the form of an opinion is limited to one that is: (a) rationally based on the witness s perception; (b) helpful to clearly understanding the witness s testimony or to determining a fact in issue; and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702. FRE 702. Testimony by Expert Witness A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialization knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or date: (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case. FRE 703. Bases of an Expert An expert may base an opinion on facts or data in the case that the expert has been made aware of or personally observed. If experts in the particular field would reasonably rely on those kinds of facts or data in forming an opinion on the subject, they need not be admissible for the opinion to be admitted. But if the facts or data would otherwise be inadmissible, the proponent of the opinion may disclose them to the jury only if their probative value in helping the jury evaluate the opinion substantially outweighs their prejudicial effect. FRE 704. Opinion on an Ultimate Issue (a) In General-Not Automatically Objectionable. An opinion i snot objectionable just because it embraces an ultimate issues. 11

14 FRE 705. Disclosing the Facts or Data Underlying an Expert Unless the court orders otherwise, an expert may state an opinion - and give the reason for it - without first testifying to the underlying facts or data. But the expert may be required to disclose those facts or data on cross-examination. FRE 706. Court-Appointed Expert Witnesses (a) Appointment Process. On a party s motion or on its own, the court may order the parties to show cause why expert witnesses should not be appointed and may ask the parties to submit nominations. The court may appoint any expert that the parties agree on and any of its own choosing. But the court may only appoint someone who consents to act. (b) Expert s Role. The court must inform the expert of the expert s duties. The court may do so in writing and have a copy filed with the clerk or may do so orally at a conference in which the parties have an opportunity to participate. The expert: (1) must advise the parties of any findings the expert makes; (2) may be deposed by any party; (3) may be called to testify by the court or any party; and (4) may be cross-examined by any party, including the party that called the expert. (c) Compensation. The expert is entitled to a reasonable compensation, as set by the court. The compensation is payable as follows: (1) in a criminal case or in a civil case involving just compensation under the Fifth Amendment, from any funds that are provided by law; and (2) in any other civil case, by the parties in the proportion and at the time that the court directs and the compensation is then charged like other costs. (d) Disclosing the Appointment to the Jury. The court may authorize disclosure to the jury that the court appointed the expert. (e) Parties Choice of Their Own Experts. This rule does not limit a party in calling its own experts. FRE 803. Exception to the Rule Against Hearsay-Regardless of Whether the Declarant is Available as a Witness The following are not excluded by the rule against hearsay, regardless of whether the declarant is available as a witness: (1) Present Sense Impression. A statement describing or explaining an event or condition, made while or immediately after the declarant perceived it. (2) Excited Utterance. A statement relating to a startling event or condition, made while the declarant was under the stress of excitement that it caused. (3) Then-Existing Mental, Emotional, or Physical Condition. A statement of the declarant s then-existing state of mind (such as motive, intent, or plan) or emotional, 12

15 sensory, or physical condition (such as mental feeling, pain, or bodily health), but not including a statement of memory or belief to prove the fact remembered or believed unless it relates to the validity or terms of the declarant s will. (4) Statement Made for Medical Diagnosis or Treatment. A statement that: (A) is made for and is reasonably pertinent to medical diagnosis or treatment; and (B) describes medical history; past or present symptoms or sensations; their inception; or their general cause. (5) Recorded Recollection A record that: (A) is on a matter the witness once knew about but now cannot recall well enough to testify fully and accurately; (B) was made or adopted by the witness when the matter was fresh in the witness s memory; and (C) accurately reflects the witness s knowledge. If admitted, the record may be read into evidence but may be received as an exhibit only if offered by an adverse party. (6) Records of a Regularly Conducted Activity. A record of an act, event, condition, opinion, or diagnosis if: (A) the record was made at or near the time by or from information transmitted by someone with knowledge; (B) the record was kept in the course of a regularly conducted activity of a business, organization, occupation, or calling, whether or not for profit; (C) making the record was a regular practice of that activity; (D) all these conditions are shown by the testimony of the custodian or another qualified witness, or by a certification that complies with Rule 902(11) or (12) or with a statute permitting certification; and (E) the opponent does not show that the source of information or the method or circumstances of preparation indicate a lack of trustworthiness. (7) Absence of a Record of a Regularly Conducted Activity. Evidence that a matter is not included in a record described in paragraph (6) if: (A) the evidence is admitted to prove that the matter did not occur or exist; (B) a record was regularly kept for a matter of that kind; and (C) the opponent does not show that the possible source of the information or other circumstances indicate a lack of trustworthiness. (8) Public Records. A record or statement of a public office if: (A) it sets out: (i) the office s activities; (ii) a matter observed while under a legal duty to report, but not including, in a criminal case, a matter observed by law-enforcement personnel; or (iii) in a civil case or against the government in a criminal case, factual findings from a legally authorized investigation; and 13

16 (B) the opponent does not show that the source of information or other circumstances indicate a lack of trustworthiness. (9) Public Records of Vital Statistics. A record of a birth, death, or marriage, if reported to a public office in accordance with a legal duty. (10) Absence of a Public Record. Testimony or a certification under Rule 902 that a diligent search failed to disclose a public record or statement if: (A) the testimony or certification is admitted to prove that (i) the record or statement does not exist; or (ii) a matter did not occur or exist, if a public office regularly kept a record or statement for a matter of that kind; and (B) in a criminal case, a prosecutor who intends to offer a certification provides written notice of that intent at least 14 days before trial, and the defendant does not object in writing within 7 days of receiving the notice unless the court sets a different time for the notice or the objection. (11) Records of Religious Organizations Concerning Personal or Family History. A statement of birth, legitimacy, ancestry, marriage, divorce, death, relationship by blood or marriage, or similar facts of personal or family history, contained in a regularly kept record of a religious organization. (12) Certificates of Marriage, Baptism, and Similar Ceremonies. A statement of fact contained in a certificate: (A) made by a person who is authorized by a religious organization or by law to perform the act certified; (B) attesting that the person performed a marriage or similar ceremony or administered a sacrament; and (C) purporting to have been issued at the time of the act or within a reasonable time after it. (13) Family Records. A statement of fact about personal or family history contained in a family record, such as a Bible, genealogy, chart, engraving on a ring, inscription on a portrait, or engraving on an urn or burial marker. (14) Records of Documents That Affect an Interest in Property. The record of a document that purports to establish or affect an interest in property if: (A) the record is admitted to prove the content of the original recorded document, along with its signing and its delivery by each person who purports to have signed it; (B) the record is kept in a public office; and (C) a statute authorizes recording documents of that kind in that office. (15) Statements in Documents That Affect an Interest in Property. A statement contained in a document that purports to establish or affect an interest in property if the matter stated was relevant to the document s purpose unless later dealings with the property are inconsistent with the truth of the statement or the purport of the document. 14

17 (16) Statements in Ancient Documents. A statement in a document that is at least 20 years old and whose authenticity is established. (17) Market Reports and Similar Commercial Publications. Market quotations, lists, directories, or other compilations that are generally relied on by the public or by persons in particular occupations. (18) Statements in Learned Treatises, Periodicals, or Pamphlets. A statement contained in a treatise, periodical, or pamphlet if: (A) the statement is called to the attention of an expert witness on cross-examination or relied on by the expert on direct examination; and (B) the publication is established as a reliable authority by the expert s admission or testimony, by another expert s testimony, or by judicial notice. If admitted, the statement may be read into evidence but not received as an exhibit. (19) Reputation Concerning Personal or Family History. A reputation among a person s family by blood, adoption, or marriage or among a person s associates or in the community concerning the person s birth, adoption, legitimacy, ancestry, marriage, divorce, death, relationship by blood, adoption, or marriage, or similar facts of personal or family history. (20) Reputation Concerning Boundaries or General History. A reputation in a community arising before the controversy concerning boundaries of land in the community or customs that affect the land, or concerning general historical events important to that community, state, or nation. (21) Reputation Concerning Character. A reputation among a person s associates or in the community concerning the person s character. (22) Judgment of a Previous Conviction. Evidence of a final judgment of conviction if: (A) the judgment was entered after a trial or guilty plea, but not a nolo contendere plea; (B) the conviction was for a crime punishable by death or by imprisonment for more than a year; (C) the evidence is admitted to prove any fact essential to the judgment; and (D) when offered by the prosecutor in a criminal case for a purpose other than impeachment, the judgment was against the defendant. The pendency of an appeal may be shown but does not affect admissibility. (23) Judgments Involving Personal, Family, or General History, or a Boundary. A judgment that is admitted to prove a matter of personal, family, or general history, or boundaries, if the matter: (A) was essential to the judgment; and (B) could be proved by evidence of reputation. (24) [Other Exceptions.] [Transferred to Rule 807.] 15

18 Federal Rules of Bankruptcy Procedure FRBP Filing of Reaffirmation Agreement; Statement in Support of Reaffirmation Agreement (a) FILING OF REAFFIRMATION AGREEMENT. A reaffirmation agreement shall be filed no later than 60 days after the first date set for the meeting of creditors under 341(a) of the Code. The reaffirmation agreement shall be accompanied by a cover sheet, prepared as prescribed by the appropriate Official Form. The court may, at any time and in its discretion, enlarge the time to file a reaffirmation agreement. (b) STATEMENT IN SUPPORT OF REAFFIRMATION AGREEMENT. The debtor's statement required under 524(k)(6)(A) of the Code shall be accompanied by a statement of the total income and expenses stated on schedules I and J. If there is a difference between the total income and expenses stated on those schedules and the statement required under 524(k)(6)(A), the statement required by this subdivision shall include an explanation of the difference. FRBP Redemption of Property from Lien or Sale On motion by the debtor, trustee, or debtor in possession and after hearing on notice as the court may direct, the court may authorize the redemption of property from a lien or from a sale to enforce a lien in accordance with applicable law. 16

19 NOTABLE CASES REGARDING REAFFIRMATIONS In re Dumont, 581 F.3d 1104 (9th Cir. 2009) (under BAPCPA debtors must chose to surrender, redeem or reaffirm debts in the Statement of Intentions. No ride through on personal property). Coastal Federal Credit Union v. Hardiman, 398 B.R. 161 (E.D.N.C. 2008)(District Court agreed with the Bankruptcy Court's ruling that an unrespresented debtor who seeks to reaffirm and signs a reaffirmation but whose reaffirmation agreement is denied by the Judge is allowed a ride through in the case despite the fact that the contract contained an ipso facto clause). In re Chim, 381 B.R. 191 (Bankr.Md. 2008) (Debtor filed a timely statement of intention stating her intention to reaffirm the claim. Debtor also timely filed the reaffirmation agreement. However, the court scheduled a hearing due to the fact that her expenses exceeded her income, raising the presumption of undue hardship. Debtor's attorney stated that even though he was concerned about the undue hardship, he was afraid that the creditor would repossess the vehicle under the ipso facto clause of the contract. The Court found that Debtor could not overcome the presumption of undue hardship by stating that unless the court approves the reaffirmation agreement, the creditor can exercise the ipso facto clause. "However, the Court finds and concludes that the Debtor has complied with the applicable requirements of Sections 521 and 362(h). Accordingly, the creditor relief provisions of Sections 362(h), 521(a)(6) and 521(d) do not apply."). In re Husain, 364 B.R. 211 (Bankr.E.D.Va., 2007)(" In this case, the Debtors can rebut the presumption (i) by providing an explanation that identifies additional sources of funds to make the payments as agreed upon under the terms of the reaffirmation Agreements (ii) by demonstrating that the value of the asset exceeds the amount of the debt to be assumed, or (iii) by proving to the satisfaction of the Court that the Debtors' need for the vehicles outweighs the Court's consideration of the sources for those additional funds or the undersecured nature of the obligation the Debtors desire to assume. ") ("Once the discharge is granted, the creditors may not repossess the vehicles without violating the discharge injunction unless there is a subsequent payment or insurance default.") ("The Debtors' timely act of entering into mutually satisfactory reaffirmation Agreements with their creditors must be viewed as sufficient to satisfy the performance standards of 521(a). Those performance requirements should not be read as a mandate for debtors to entirely consummate their stated intentions.... Section 521(a) of the Bankruptcy Code merely requires the debtor to "take steps to act on an intention to either retain or surrender"... The Debtors in the case at bar did everything in their capacity to perform.") In re Moustafi, 371 B.R. 434 (Bankr. Ariz., 2007)(Pro se debtor timely filed statement of intentions stating the intent to reaffirm. After the 521(a)(6) hearing, the court denied reaffirmation as not being in the debtor's best interest because the debtor's expenses including the vehicle payment exceeded her income and the value of the vehicle was lower than the amount of the claim. The court also ordered that the creditor could not exercise its ipso facto clause since debtor had complied with the provisions of the bankruptcy code). 17

20 18

21 REAFFIRMATION Allows debtor to enter into a new contract with debtor s existing lender that survives the bankruptcy. PROS Debtor may be able to receive more favorable loan terms from lender (though this is rare). Postpetition loan payments are reflected on debtor s credit score to help rebuild credit sooner. Lender cannot repossess car as long as debtor abides by terms of contract (payments are current, vehicle is insured, etc.). REDEMPTION Allows debtor to wipe out an existing loan by paying the value of the collateral in a lump sum, notwithstanding the amount actually owed. PROS If car is worth much less than the balance on the loan, debtor potentially saves thousands of dollars by paying only what the car is worth. Redemption financing may be available if debtor cannot pay replacement value in one lump sum. If debtor obtains redemption financing, payments will be reflected on debtor s credit score. CONS Most lenders will not alter the loan terms under a reaffirmation agreement. Debtor risks owing a deficiency if lender repossesses vehicle due to nonpayment, since lender will sell the vehicle at an auction for much less than its private party value. Lender may allow debtor to keep vehicle even without a reaffirmation agreement, as long as debtor remains current on payments. REAFFIRMATION may be a better option if Loan balance and vehicle value are similar, or there is equity in the car. Lender is willing to modify the terms of the loan (interest rate, principal balance, monthly payments, and/or loan term). Current loan terms are favorable to debtor (low interest rate, low payment, etc.). Debtor is more concerned about rebuilding credit through reaffirmation than the possibility of owing a deficiency if vehicle is repossessed. Lender is a credit union and has crosscollateralized vehicle loan and another debt, and lender agrees to remove the cross-collateralization clause in the reaffirmation agreement. CONS Only available for personal property; cannot be used for real property. Unless debtor can obtain a redemption loan, he or she will have to pay the replacement value in one lump sum. Interest rates for redemption loans are often very high (20-24%); however, o Some redemption lenders will refinance the car at a lower interest rate after a time. o Lender may reduce interest rate after a certain number of on-time payments. o If vehicle is substantially underwater, debtor may still end up paying less overall than through reaffirmation. REDEMPTION may be a better option if Vehicle is substantially underwater. Debtor can afford to pay the market value of vehicle in one lump sum within 30 days after first schedule 341 (a) hearing. Debtor is able to obtain a redemption loan that lowers the monthly payment. Depending on debtor s age and amount in 401(k), debtor is able to borrow from a 401(k). 19

22 20

23 REAFFIRMATION COUNSELING REAL PROPERTY: Is the reaffirmation agreement for a home or any other kind of real property? If NO, move to Personal Property questions. If YES, tell debtor: Bankruptcy judges do not have the right to reaffirm this kind of agreement. Reaffirmation of real property mortgages may result in personal liability even if the judge does not approve the agreement. There is time to rescind the agreement o Refer debtors who want to rescind agreement to the Bankruptcy Self- Help Desk (flyers at check-in table) PERSONAL PROPERTY: What kind of personal property is the reaffirmation agreement for (i.e., auto, furniture, computer equipment, timeshare)? If AUTO: Ask if debtor wants to keep the car: o If no, judge will deny reaffirmation. Ask who drives the car: o If debtor does not drive the car, the judge will likely deny the reaffirmation agreement as not in the debtor s best interest. Compare value of car to loan balance: o If car is severely underwater, redemption may be a better alternative o Redemption allows the debtor to pay a lump-sum for the value of the car and discharge the car loan through the bankruptcy o Some companies offer redemption loan financing o Refer debtors interested in redemption to the Bankruptcy Self-Help Desk (flyers at check-in table) What are the monthly payments on the car? Are you current with insurance on the vehicle? o Are you current on your payments? If NO, why? o Are you having difficulty making payments? 21 Updated 11/3/17

24 o Are they refusing to take payments? Please advise client to inform the bankruptcy judge that this is happening. o How much time to do you need to get current? o You can request that the judge postpone this hearing until you become current because the bankruptcy judge could deny your agreement if he/she believes you don t have the ability to stay current on your payments. If YES, is it easy or difficult to make the payments? o If your income is not enough to cover your expenses, the judge is likely to deny the reaffirmation agreement. o Did the lender reduce your interest in the reaffirmation agreement, or lower your payments or the amount you owe? o Have you asked your lender about reducing the interest rate, lowering your payments or reducing the amount you owe on the vehicle? o If not, did you know you can request a continuance so that you can speak with the lender about this? (Explain that bankruptcy judge cannot force the lender to change terms of the contract with lender.) OTHER PROPERTY: Is reaffirmation agreement for something other than a car? What is the property that you are reaffirming under this agreement? o What is the value of the property now? o Why do you want to reaffirm? o Explain that judge may deny the agreement, in order to protect your right to a fresh start in the bankruptcy process. Explain what a reaffirmation agreement is and that the court will examine several factors to determine whether this agreement is an undue hardship. Please advise debtors that if the bankruptcy judge asks them if they want to withdraw or dismiss the reaffirmation agreement that a creditor could exercise its option to repossess the car if the judge withdraws or dismisses the reaffirmation agreement. FINANCIAL MANAGEMENT COURSE: Did you know there is a second online course, called the financial management course, which you must do after filing for bankruptcy relief? Did you already complete the financial management course? If NO: 22 Updated 11/3/17

25 o Please advise debtor to complete the course and file the certificate and cover sheet (Form 423) with the court (NOT the trustee) immediately. Refer debtor to Bankruptcy Self Help Desk if debtor needs further assistance. If YES: o Did you already file the certificate and Form 423 with the bankruptcy filing window (NOT with the trustee)? If NO, refer to Bankruptcy Self Help Desk for assistance. If UNSURE, refer to bankruptcy filing window to ask the bankruptcy court clerk to check, or refer to Bankruptcy Self-Help Desk. 23 Updated 11/3/17

26 24

27 [Your name] [Your address] [Your city, state, ZIP] [Today s Date] [Creditor s name] [Creditor s address] [Creditor s city, state, ZIP] VIA CERTIFIED, RETURN RECEIPT MAIL & FACSIMILE To Whom It May Concern: On [insert date you filed your case], I filed for Chapter 7 bankruptcy, case number [insert your case number]. In my Statement of Intention, which I filed on [insert date you filed your Statement of Intention], I indicated my intention to reaffirm my vehicle loan with you (attached hereto is a copy of the Statement of Intention I filed in my Chapter 7 case). To date, I have not received any of the required reaffirmation disclosures or forms from your office. I hereby request a copy of a reaffirmation agreement for [describe the property that you are seeking to reaffirm that is listed in the attached Statement of Intention]. As you know, 11 U.S.C. 524 (c)(2) & (k) lists various disclosures that must be provided to the debtor when a debtor is seeking to reaffirm a discharged debt. All of these items are to be provided to the debtor by the secured creditor at or before the reaffirmation agreement is signed by the debtor. In re Quintero, 2006 Bankr. LEXIS 906 at *6 (2006), cited by In re Donald, 343 B.R. 524, 540 (Bankr. E.D.N.C. 2006) (emphasis added). When a secured creditor fails to provide the required disclosures and forms specified in 11 U.S.C. 524(k), it has in effect refused to enter into an enforceable reaffirmation agreement with the Debtor. Id. at *8. Since I am not represented by an attorney for this matter, please forward a copy of the reaffirmation agreement to my address at: [Your name] [Your address] [Your city, state, ZIP] Your immediate attention and cooperation are greatly appreciated. Sincerely, [Your Signature] 25

28 , 20 VIA CERTIFIED, RETURN RECEIPT MAIL & FACSIMILE To Whom It May Concern: On, I filed for Chapter 7 bankruptcy, case number : -bk- -. In my Statement of Intention, which I filed on, I indicated my intention to reaffirm my vehicle loan with you (attached hereto is a copy of the Statement of Intention I filed in my Chapter 7 case). To date, I have not received any of the required reaffirmation disclosures or forms from your office. I hereby request a copy of a reaffirmation agreement for. As you know, 11 U.S.C. 524 (c)(2) & (k) lists various disclosures that must be provided to the debtor when a debtor is seeking to reaffirm a discharged debt. All of these items are to be provided to the debtor by the secured creditor at or before the reaffirmation agreement is signed by the debtor. In re Quintero, 2006 Bankr. LEXIS 906 at *6 (2006), cited by In re Donald, 343 B.R. 524, 540 (Bankr. E.D.N.C. 2006) (emphasis added). When a secured creditor fails to provide the required disclosures and forms specified in 11 U.S.C. 524(k), it has in effect refused to enter into an enforceable reaffirmation agreement with the Debtor. Id. at *8. Since I am not represented by an attorney for this matter, please forward a copy of the reaffirmation agreement to my address at: Your immediate attention and cooperation are greatly appreciated. Sincerely, 26

29 How Do I Cancel a Reaffirmation Agreement? Note: This instructional packet is not legal advice. You should not use this packet as-is. Instead, you should modify this packet after you carefully consider the facts in your case. If you need specific legal advice, you should consult an attorney. Updated March 11,

30 What Is a Reaffirmation Agreement? When you declare bankruptcy, some or all of your debts are discharged and you are no longer legally responsible for paying them back. A reaffirmation agreement is a new contract between you and the creditor where you agree to pay a debt voluntarily that would have been discharged in your bankruptcy case. When you reaffirm a debt, you agree to be personally liable for paying it back. * A reaffirmation agreement is completely voluntary * Examples of obligations that creditors may ask you to reaffirm include a: car loan; or home loan. If you want to reaffirm your car, a judge may need to approve the reaffirmation agreement before it goes into effect. However, if you reaffirm a home loan, it may be effective without a court hearing or a judge s approval. Can I Change My Mind and Cancel the Agreement? Yes. You can cancel (or rescind ) your reaffirmation agreement, even if a judge has already approved it. NOTE: WE STRONGLY RECOMMEND THAT YOU SPEAK WITH AN ATTORNEY TO ADVISE YOU ABOUT THE CONSEQUENCES OF CANCELLING A REAFFIRMATION AGREEMENT IN YOUR CASE. But you have a very limited time to cancel the reaffirmation agreement. The deadline to cancel a reaffirmation agreement is the later of these two dates: 60 days after the date the agreement is filed with the Court; or the date the Bankruptcy Court issues a discharge in your case. 28

31 If the judge approved a reaffirmation agreement on your car loan, and you are considering rescinding the agreement, you should talk to an attorney. The creditor may repossess your car if you rescind the agreement for the car loan. If you have filed a reaffirmation agreement on your home loan, you can rescind your reaffirmation agreement, even if the judge states that he or she does not have the authority to approve or deny the agreement. Please note that the reaffirmation agreement on a home loan may be still binding simply by you signing the agreement, even if the judge states that he or she does not have the authority to approve the agreement. It is important that you consult an attorney as soon as possible about whether to rescind this agreement, and to find out what effect it may have on a pending loan modification. What Information Do I Need to Cancel My Reaffirmation Agreement? * 1. If you want to cancel your reaffirmation agreement, it is a good idea to gather the following information: What date was the reaffirmation agreement filed with the Court? What is the name and mailing address for the creditor (or creditor s attorney) listed on the reaffirmation agreement filed with the Court? Has the Court issued a discharge in the case? If so, when? If you don t have this information, you can obtain it by contacting the Bankruptcy Court at (855) , or via online chat at 2. Remember that the deadline to cancel the agreement is either the date of discharge, or 60 days after the reaffirmation agreement was filed with the Court, whichever date is later. If both dates have passed, you should contact an attorney for further assistance. * These instructions are only for California bankruptcy cases filed in Los Angeles, Riverside, Santa Ana, Santa Barbara, or Woodland Hills. Consult your local Bankruptcy Court for cases filed elsewhere. 29

32 3. To cancel a reaffirmation agreement, you must notify the creditor. It is a good idea to notify the creditor in writing via certified mail with a return receipt postcard so you have proof that you have rescinded the agreement. 4. Also, it is a good idea for you to file a notification of this cancellation with the Bankruptcy Court, so there is a record on your case docket. NOTE: Sample versions and fill-in-the-blank versions of both the rescission letter and notice of rescission are included in this packet. What Steps Do I Take to Cancel My Reaffirmation Agreement? After you have gathered the information indicated above, you can take the following steps to cancel your reaffirmation agreement: 1. Complete and sign the blank version of the REAFFIRMATION RESCISSION LETTER, based on the sample version in this packet, and make one (1) copy for your records. 2. Send the original REAFFIRMATION RESCISSION LETTER to the creditor (or creditor s attorney) via certified mail with a green return receipt postcard. Make one (1) copy of the certified mail receipt for your records. 3. When you receive the green return receipt postcard in the mail (which confirms the creditor received the Reaffirmation Rescission Letter) make one (1) copy of each side of the postcard. 4. Complete and sign the blank version of the Notice of Rescission of Reaffirmation Agreement, based on the sample in this packet. Make one (1) copy for your records. 5. Assemble a NOTICE OF RESCISSION OF REAFFIRMATION PACKET containing the following information: Completed and signed Notice of Rescission of Reaffirmation Agreement; Completed and signed copy of the Reaffirmation Rescission Letter that you send to the creditor; 30

33 Copy of both sides of the green return receipt postcard you received after the creditor received the Reaffirmation Rescission Letter; and Copy of the stamped certified mail receipt you received when you mailed the Reaffirmation Rescission letter. 6. Make one (1) copy of the entire NOTICE OF RESCISSION OF REAFFIRMATION PACKET. This will be YOUR COPY. 7. Paper-clip (don t staple) the NOTICE OF RESCISSION OF REAFFIRMATION PACKET, and staple YOUR COPY. 8. Take both packets to the same Bankruptcy Court filing window where you originally filed your bankruptcy case. 9. Give both packets to the clerk. The clerk will: Stamp both packets Keep the NOTICE OF RESCISSION OF REAFFIRMATION PACKET Give you back YOUR COPY. 10. Keep YOUR COPY for your records. Your stamped copy is the best proof that you cancelled the reaffirmation agreement. 11. If you need assistance with this process, you can visit a Bankruptcy Self-Help Center. To find the location of the Self-Help Center closest to you, contact the Bankruptcy Court at (855) , or via online chat at 31

34 SAMPLE LETTER to FILL OUT AND mail TO creditor 32

35 VIA CERTIFIED MAIL WITH RETURN RECEIPT (Today s month, day, year) (Name of creditor or creditor s attorney) (Creditor street address) (Creditor city, state, zip code) Re: Case Number: (Your name) (Name of joint debtor, if any) (Your bankruptcy case number) To whom it may concern: A reaffirmation agreement was filed between (your name and name of joint debtor, if any), the debtor(s) in the above referenced bankruptcy case, and (name of creditor whose debt was reaffirmed). The agreement was for (describe the property in the original reaffirmation agreement that you want to cancel, such as a home or car) in the amount of (amount that was reaffirmed). Debtor(s) (your name and name of joint debtor, if any) hereby rescind the above-referenced reaffirmation agreement. (Your signature) (Your name) (Signature of joint debtor, if any) (Name of joint debtor, if any) 33

36 BLANK LETTER to FILL OUT AND mail TO creditor 34

37 VIA CERTIFIED MAIL WITH RETURN RECEIPT Re: Case Number: To whom it may concern: A reaffirmation agreement was filed between, the Debtor(s) in the above-referenced bankruptcy case, and. The agreement was for, in the amount of. Debtor(s) hereby rescind the above-referenced reaffirmation agreement. 35

38 SAMPLe FORM TO FILL OUT AND TURN IN TO FILING WINDOW AT BANKRUPTCY COURT * * These forms are only for California bankruptcy cases filed in Los Angeles, Riverside, Santa Ana, Santa Barbara, or Woodland Hills. Consult your local Bankruptcy Court for cases filed elsewhere. 36

39 (Your name) (Name of joint debtor, if any) (Your address) (Your city, state, zip) (Your phone number) Self-Represented Debtor(s) The Division is the court location where you filed your case: LOS ANGELES (if you filed in Downtown L.A.) NORTHERN (if you filed in Santa Barbara) RIVERSIDE SAN FERNANDO VALLEY (if you filed in Woodland Hills) SANTA ANA UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA (NAME OF DIVISION) DIVISION In re: Case No.: (Your bankruptcy case #) (YOUR NAME) (NAME OF JOINT DEBTOR, IF ANY), Chapter: 7 NOTICE OF RESCISSION OF Debtor(s). REAFFIRMATION AGREEMENT Debtor(s) (your name and name of joint debtor, if any) hereby give(s) notice that on (date you mailed the rescission letter), the debtor(s) mailed a letter rescinding the reaffirmation agreement between (your name and name of joint debtor, if any) and (name of creditor). Copies of the rescission letter, certified mail receipt, and return receipt postcard are attached (Today s month, day, year) (Today s month, day, year) (Your signature) (Your name) (Signature of joint debtor, if any) (Name of joint debtor, if any) Notice of Rescission of Reaffirmation Agreement 37

40 BLANK FORM TO FILL OUT AND TURN IN TO FILING WINDOW AT BANKRUPTCY COURT * * These forms are only for California bankruptcy cases filed in Los Angeles, Riverside, Santa Ana, Santa Barbara, or Woodland Hills. Consult your local Bankruptcy Court for cases filed elsewhere. 38

41 Self-Represented Debtor(s) UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA DIVISION In re: Case No: Chapter: , Debtor(s). NOTICE OF RESCISSION OF REAFFIRMATION AGREEMENT Debtor(s) hereby give(s) notice that on, the Debtor(s) mailed a letter rescinding the reaffirmation agreement between and. Copies of the rescission letter, certified mail receipt, and return receipt postcard are attached herewith Notice of Rescission of Reaffirmation Agreement 39

42 (INSERT COPIES OF RESCISSION LETTER, CERTIFIED MAIL RECEIPT, AND RETURN RECEIPT POSTCARD) 40

43 HOW DO I FILE A MOTION TO REDEEM PERSONAL PROPERTY? 41

44 42

45 o o 43

46 o o o o o 44

47 o 45

48 Sample MOTION TO REDEEM 7 46

49 (Your Name) (Your Address) (Your City, State, Zip) (Your Phone Number) Self-Represented Debtor UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA (NAME OF DIVISION) DIVISION In re: Case No.: (Your Case Number) Chapter: 7 (YOUR NAME), Debtor. MOTION TO REDEEM PROPERTY OF THE ESTATE UNDER 11 U.S.C Movant (Your Name) hereby moves this Court for an Order allowing to redeem personal property pursuant to 11 U.S.C. 722 and Bankruptcy Rule I. PROCEDURAL REQUIREMENTS UNDER 11 U.S.C Pursuant to 11 U.S.C. 722, a debtor may redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of the title or has been abandoned under section 554 of the title. 11 U.S.C The personal property that Movant seeks to redeem is a vehicle that is more particularly described as follows: a. Year: (Vehicle Year) 47

50 b. Make: (Vehicle Make) c. Model: (Vehicle Model) d. VIN: (Vehicle VIN) 3. Movant s (Year, Make & Model of Vehicle) ( Vehicle ) may be redeemed under 11 U.S.C. 722 because it is tangible personal property intended primarily for personal, family or household use. 4. As of (Date of Bankruptcy Case Filing), the Vehicle is subject to a single lien from (Name of Original Lender) ( Respondent ) for (Balance of Original Loan). 5. Movant s interest in the Vehicle is exempt or has been abandoned by the estate. 6. Movant scheduled the Vehicle as an asset and exempted the Vehicle pursuant to 11 U.S.C II. VALUATION STANDARD Pursuant to 11 U.S.C. 722, a debtor may redeem personal property secured by a lien by paying such lienholder the amount of the allowed secured claim 1 in a lump sum U.S.C. 506(a)(2) defines the secured claim as the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined. IV. DETERMINING RETAIL VALUE Courts have relied upon industry guides such as Kelley Blue Book and Edmunds as the appropriate starting point in determining retail value. In re Morales, 387 B.R. 36, 46 (Bankr. C.D. Cal. 2008); see also In re Araujo, An allowed secured claim is a secured claim to the extent of the value of such creditor s interest in the estate s interest in such property. 11 U.S.C. 506(a)(1). 48

51 B.R. 15 (Bankr. N.D. Cal. 2011). 2. The Edmunds.com website provides retail valuations for used vehicles based on year, make, model, mileage, options and condition. Such valuations are admissible as market quotations, tabulations, lists, directories, or other published compilations, generally used and relied upon by the public or by persons in particular occupations." Fed. R. Evid. 803(17). 3. As detailed in the attached declaration, Movant determined the retail value for the Vehicle from Edmunds.com ( Edmunds Valuation ) based on its year, make, model, mileage, options and condition. The Edmunds Valuation is (Edmunds Retail Value). 4. Based on the foregoing, Movant asserts that the retail value of the Vehicle for redemption purposes ( Redemption Value ) is (Edmunds Retail Value) V. PROPOSED FINANCING Movant intends to finance this proposed redemption through (Name of Redemption Lender) ( Redemption Lender ), which provides financing for Chapter 7 debtors seeking to redeem their vehicles. Redemption Lender has approved Movant for financing up to (Redemption Loan Amount). 2. The proposed financing agreement has been approved by the Redemption Lender and the terms are set forth below: a. A loan amount of (Redemption Loan Amount); b. An interest rate of (Redemption Interest Rate); c. A finance charge of (Redemption Finance Charge); d. Monthly payments of (Redemption Monthly Payment); for (Redemption Number of Payments) months VI. CONCLUSION 49

52 WHEREFORE, Movant requests that the Court enter an Order: 1. Granting this Motion; and 2. Setting the Redemption Value at (Edmunds Retail Value) 3. Allowing Movant to cause the Redemption Value of (Edmunds Retail Value) to be paid to Respondent within 30 days of entry of the Order; and 4. Requiring Respondent to release its lien of record and surrender title according to Movant s instructions within 14 days of receiving the Redemption Value. (Date) (Your Signature) Date (Your Name)

53 1 DECLARATION OF (YOUR NAME) I, (Your Name), declare as follows: 1. I am the debtor in the instant bankruptcy case. 2. I make this declaration of my own personal knowledge, and if called as a witness, could and would testify thereto. 3. I am the owner of the (Year/Make/Model of Vehicle) ( Vehicle ) that is the subject of this Motion. 4. I scheduled the Vehicle as an asset and exempted the Vehicle pursuant to 11 U.S.C (True and correct copies of schedules A/B and C are attached as Exhibit 1. ) 5. As of (Date of Bankruptcy Case Filing), the Vehicle is subject to a single lien from (Name of Original Lender) ( Respondent ) for (Balance of Original Loan). 6. On (Date You Obtained Edmunds.com Valuation), I obtained the retail value of the Vehicle from the Edmunds.com website ( Edmunds Valuation ), taking into account the Vehicle s year, make, model, mileage, options and condition. 7. As part of the valuation, Edmunds.com website instructs users to select from among the following vehicle conditions: 2 a. Outstanding: Exceptional mechanical, exterior and interior condition; requires no reconditioning. Vehicle is in exceptional mechanical, exterior and interior condition with no visible wear; it requires no reconditioning. Paint will have a glossy appearance. Vehicle has no mechanical and/or cosmetic problems and has a clean engine compartment. Exterior and interior are free of any damage. Tires are in nearly new condition. Vehicle has a clean title and has the ability to pass an emissions inspection. 2 See True-Market-Value-Pricing- 51

54 b. Clean: Some normal wear but no major mechanical or cosmetic problems; may require limited reconditioning. Vehicle shows some normal wear but has no major mechanical and/or cosmetic problems. Paint still has a glossy finish and may have slight scratches or dings. Some reconditioning may be needed. Interior will have minimal fading and wear. Tires have substantial tread remaining. Vehicle has a clean title and has the ability to pass an emissions inspection. c. Average: May have a few mechanical and/or cosmetic problems and may require a considerable amount of reconditioning. Vehicle may have a few mechanical and/or cosmetic problems and may require a considerable amount of reconditioning. Exterior paint has some dullness. Vehicle may have a considerable amount of scratches or dings. Interior material is slightly worn and faded. Tires have some usable tread remaining. Vehicle has a clean title and has the ability to pass an emissions inspection. d. Rough: Several mechanical and/or cosmetic problems requiring significant repairs. Vehicle has several mechanical and/or cosmetic problems. Exterior and interior need significant repairs. Tires may need to be replaced. Vehicle may need minor repairs to pass an emissions inspection, but has a clean title. 8. Based on the descriptions above, I selected (Select One: Outstanding, Clean, Average, Rough Retail Value) as the Vehicle s condition for the following reasons: a. (List Specifics of Your Vehicle s Condition) 9. Factoring in all of the above, the Edmunds Valuation is (Edmunds Retail Value). (A true and correct copy of the Edmunds Valuation is attached as Exhibit 2. ) 10. I believe the Edmunds Valuation of (Edmunds Retail Value) is also the 52

55 appropriate value of the car for redemption purposes ( Redemption Value ). 11. I have obtained financing for this proposed redemption from (Name of Redemption Lender) for up to (Redemption Loan Amount). (A true and correct copy of the proposed financing agreement is attached as Exhibit 3. ) I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct. (Date) (Your Signature) Date (Your Name)

56 PROOF OF SERVICE OF DOCUMENT I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: If you are the debtor or joint debtor, you CANNOT complete this section. SOMEONE ELSE must fill out this Proof of Service. It can be anyone over 18 who is not part of this case. That person must list his or her address here. A true and correct copy of the foregoing document entitled: Motion to Redeem Property of the Estate Under 11 U.S.C. 722 will be served or was served (a) on the judge in chambers in the form and manner required by LBR (d); and (b) in the manner stated below: 1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On (date) (leave blank), I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the addresses stated below: (If the debtor is not represented by an attorney for this motion, have the person who fills out this Proof of Service write the following sentence: See NEF for confirmation of electronic transmission to the U.S. Trustee and any trustee in this case, and to any attorneys who receive service by NEF. ) Service information continued on attached page 2. SERVED BY UNITED STATES MAIL: On (date) (date that a copy of this document was mailed to Original Lender), I served the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed. RESPONDENT: (Name of Original Lender) (Address of Original Lender) (City, state, zip of Original Lender) Service information continued on attached page 3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR (state method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on (date), I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method), by facsimile transmission and/or as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than 24 hours after the document is filed. Service information continued on attached page I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct. (Date filled out) (Name of person who filled out form) (Signature of person who filled out form) Date Printed Name Signature June 2012 This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. 54 F PROOF.SERVICE

57 REAFFIRMATION OF MORTGAGE DEBT IN CALIFORNIA BANKRUPTCY CASES: STILL NOT REQUIRED AND STILL A BAD IDEA You successfully represent a Chapter 7 Debtor and obtain a discharge of all of the client s dischargeable debts. The client is happy and all is well. Two years later, your former client calls you in a panic You didn t tell me I needed to reaffirm my mortgage and now my bank won t modify my loan! I m four months behind on my mortgage and I need to modify the loan! You patiently explain to the client that reaffirming a mortgage debt is not required and is almost always a bad idea. You look over the Debtor s petition and schedules and discover that the Statement of Intentions that the Debtor signed states that the Debtor s intention with respect to their home is other: retain collateral or other: attempt loan modification. You explained the Statement of Intentions to the client, but of course the client does not recall your explanation. Moreover, the lender never sent a reaffirmation agreement to you or your client. So should you call your malpractice carrier? Or just take a deep breath and educate your former client? Fortunately, the law is on your side even after BAPCPA and Dumont. There are at least three things you need to explain to your former client to persuade them that you handled their case properly: (1) they did not need to reaffirm; (2) if they chose to reaffirm, you would not have helped them to reaffirm; and (3) yes, they are still eligible for a loan modification. I. WHY THEY DIDN T NEED TO REAFFIRM--THE RETAIN AND PAY OPTION IS STILL AVAILABLE FOR REAL PROPERTY LOANS A. Pre-BAPCPA A Circuit Split on the Availability of the Retain and Pay Option for Personal Property and Real Property Secured Loans Before the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ( BAPCPA ), there was a split of authority as to whether debtors who were current on purchase loan payments on secured property could retain the property and continue making the payments specified in the contracts with their secured creditors (the so-called retain and pay option). The Ninth 1, Second 2, Fourth 3 and Tenth 4 circuits held that the retain and pay option was available to such debtors, while the Fifth, 5 Eleventh 6 and Seventh 7 circuits held that such debtors were restricted to the options of claiming an exemption, redeeming the property or reaffirming the debt. 1 McClellan Federal Credit Union v. Parker (In re Parker), 139 F.3d 668, 673 (9 th Cir. 1998). 2 Capital Communications Fed. Credit Union v. Boodrow (In re Boodrow ), 126 F.3d 43, 47 (2d Cir.1997) (quotations omitted), cert. denied, --- U.S. ----, 118 S.Ct. 1055, 140 L.Ed.2d 118 (1998). 3 Home Owners Funding Corp. v. Belanger (In re Belanger ), 962 F.2d 345, 347 (4th Cir.1992). 4 Lowry Fed. Credit Union v. West, 882 F.2d 1543, 1547 (10th Cir.1989). 5 Johnson v. Sun Fin. Co. (In re Johnson ), 89 F.3d 249, 252 (5th Cir.1996) (per curiam). 6 Taylor v. AGE Fed. Credit Union (In re Taylor ), 3 F.3d 1512, 1516 (11th Cir.1993). 7 In re Edwards, 901 F.2d 1383, 1387 (7th Cir.1990). 55

58 B. Post-BAPCPA Reaffirmations Eliminated on Personal Property Loans Circuit Split Remains on Real Property Secured Loans BAPCPA changed several key provisions of the bankruptcy code to address perceived deficiencies in the reaffirmation process. Specifically, BAPCPA made substantive changes to 521(a)(6), 8 521(a)(2)(C), 9 and 362(h) 10 with respect to reaffirmation agreements. A new section of the bankruptcy code, 521(a)(6), provides that the debtor must carry out their stated intention within forty-five days after the meeting of creditors (a)(2)(C) of the Bankruptcy Code, as modified by BAPCPA, provides that the debtor s rights and the trustee s rights in property of the bankruptcy estate are not modified by the statement of intentions, except as specified in 362(h) of the bankruptcy code. 12 Finally, 362(h) of the bankruptcy code specifies that the automatic stay terminates as to personal property of the estate or the debtor if the debtor fails to file a timely Statement of Intentions, or fails to timely perform the intention stated in the Statement of Intentions. 13 However, 362(h) is silent as to loans secured by real property of the estate. 14 In interpreting BAPCPA, the Ninth Circuit has held that for loans secured by personal property, the debtor s right to state an intention to retain and pay was eliminated in the Ninth Circuit. 15 In the Dumont case, the Court was not faced with a real property loan and the court went out of its way to note in dicta that the result might be different for real property loans In relevant part, 11 U.S.C. 521(a)(6) states that: in a case under chapter 7 of this title in which the debtor is an individual, [the debtor may] not retain possession of personal property unless the debtor, not later than 45 days after the first meeting of creditors under section 341 (a), either (A) enters into an agreement with the creditor pursuant to section 524 (c) with respect to the claim secured by such property; or (B) redeems such property 9 11 U.S.C. 521(a)(2), as abbreviated, states: (2) if an individual debtor's schedule of assets and liabilities includes consumer debts which are secured by property of the estate (A)... the debtor shall file a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property; (B) within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day period fixes, the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; and (C) nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h) 10 Section 362(h) now provides as follows: (h)(1) In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim, or subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2) (A) to file timely any statement of intention; and (B) to take timely the action specified in such statement [Emphasis Added]. 11 U.S.C. 362(h). 11 See Supra, at FN See Supra, at FN See Supra, at FN Id. 15 Dumont v. Ford (In Re Dumont) 581 F.3d 1104, 1119 (9 th Cir. 2009). 16 See Dumont v. Ford (In Re Dumont) 581 F.3d 1104 (9 th Cir. 2009). As the court stated in Dumont: We also note that the property in dispute here was personal property, not real property. We accordingly have no need to determine whether debtors may retain their real property via ride-through. See id. 362(h)(1) (referring to "personal property 56

59 Significantly, bankruptcy courts in the Fourth Circuit 17 and Second Circuit 18 have held that the BAPCPA changes did not alter the retain and pay option as to real property. Since BAPCPA is silent as to whether a debtor is required to either reaffirm or redeem real property, each of these courts ultimately rested their opinions regarding real estate reaffirmations upon the established law that existed in their particular jurisdiction prior to BAPCPA. In each case, the Court held that debtors owning real estate encumbered by mortgage loans can retain their homes by making regular payments and need not redeem or reaffirm, finding that BAPCPA, first, made no significant change to 521(a)(2)(A), and, second, that the three new or altered provisions in BAPCPA ( 521(a)(6), 521(a)(2)(C), and 362(h)) only removed the debtor s ability to state an intention to retain and pay option as to personal property. 19 Since BAPCPA is silent as to whether a debtor is required to either reaffirm or redeem real property, the debtor still has the option to retain and pay as to real property. II. WHY YOU WOULD NOT HAVE HELPED YOU REAFFIRM--ATTORNEYS SHOULD DECLINE TO REPRESENT DEBTORS WHO WISH TO REAFFIRM MORTGAGE DEBT OR DECLINE TO SIGN A CERTIFICATION PURSUANT TO 11 U.S.C. 524(c) IN VIRTUALLY ALL CASES For consumer debts secured by personal property, attorneys can decline to represent clients with respect to negotiation of reaffirmation agreements, thereby triggering a judicial review of whether: (a) the reaffirmation agreement constitutes an undue hardship to the debtor, and (b) the reaffirmation agreement is in the best interests of the debtor. 20 Unlike the rule with respect to reaffirmations of personal property loans, reaffirmation agreements for consumer debts secured by real property are not subject to judicial review whether or not the debtor has received legal assistance in negotiating a reaffirmation agreement. 21 Instead, so long as the other requirements of 524(c) are met, the reaffirmation agreement will be binding on the debtor. 22 These requirements, briefly stated, are that: (1) agreement must be made before entry of a discharge; (2) debtor must have received the disclosures described in 524(k); (3) the agreement must be filed with the court and if applicable, be accompanied by a declaration or affidavit of the attorney for the debtor, which states that (A) such agreement is a fully informed and voluntary agreement of the debtor, (B) such agreement does not impose an undue hardship on the debtor or the debtor s dependents and (C) that the attorney fully advised the debtor of the legal effect and consequences of the agreement and of a default under the agreement; (4) the debtor must not have rescinded the agreement; and (5) the requirements of 524(d) are met. 23 [Emphasis added]. of the estate") Our analysis may not necessarily hold where the debtor is not an individual or where real property is involved. Id., at 1119, fn See In re Waller, 394 B.R. 111 (Bankr. S.C. 2008), In re Wilson, 372 B.R. 816 (Bankr. S. C. 2007) and In re Bennet, No , 2006 WL (Bankr. M.D. N.C. May 26, 2006). 18 See In re Caraballo, 386 B.R. 398 (Bankr. Conn. 2008). 19 Id U.S.C. 524(c)(6)(A) U.S.C. 524(c)(6)(B). 22 See 11 U.S.C. 524(c)(1)-(5) U.S.C. 524(c)(1)-(5) 57

60 By requiring an attorney certification, 524(c)(3) of the Bankruptcy Code creates a conflict between the attorney s duty to his or her client who might want to reaffirm a prepetition debt and the attorney s duty to the court to certify that the reaffirmation does not impose an undue hardship and, if a presumption of undue hardship arises, that the debtor can make the required payments under the reaffirmation agreement. 24 However, the if applicable language appears to give attorneys a way out of making the certification required by 524(c)(3). After all, if the debtor was not represented during the process of negotiating the reaffirmation agreement, then an attorney certification could not be provided. Therefore, it may make sense for debtors counsel to simply decline to represent debtors in negotiating a reaffirmation agreement for real property in order to sidestep this conflict. In many jurisdictions, it is possible for the attorney for the debtor to limit the scope of his or her appearance in the case 25 in such jurisdictions, it may well make sense to decline to represent the debtor with respect to negotiation of a reaffirmation agreement. 26 When an attorney does represent a debtor in negotiating a reaffirmation agreement, he or she should be very careful in deciding whether to sign the attorney certification. Since there will be no judicial review of the reaffirmation agreement, the agreement may become binding on the debtor as soon as it is filed with the court. With hindsight, after failing to get a loan modification, the client may blame his or her former attorney for signing the certification and validating the reaffirmation agreement. Indeed, courts have ruled that an attorney s certification is a representation by the attorney that subjects the attorney to penalties if the debtor is subsequently unable to perform the agreement. 27 Such penalties could include those listed in 526, malpractice claims, grievance actions by state bars and class actions by aggrieved former clients. 28 III. WHY REAFFIRMING A MORTGAGE IS NOT REQUIRED FOR A LOAN MODIFICATION Perhaps most importantly to your former client, it should be noted that reaffirming a mortgage loan is not required to establish eligibility for a loan modification. Borrowers who have received a Chapter 7 bankruptcy discharge in a case involving the first lien mortgage who did not reaffirm the mortgage debt under applicable law are eligible for the Home Affordable Modification Program ( HAMP ). 29 But what about a non-hamp modification? Could a lender require that the debtor enter into a loan modification as a precondition to obtaining a non-hamp loan modification? Theoretically, yes the lender could erect all kinds of unreasonable obstacles to prevent the debtor from obtaining a non-hamp loan modification. But debtors and their counsel should be especially skeptical regarding the imposition 24 Gregory M. Duhl, Divided Loyalties: The Attorneys' Role in Bankruptcy Reaffirmations, 84 Am. Bankr. L. J. (2010). 25 See, e.g., Central District of California L.B.R Although the attorney may decline to formally represent the client with respect to the reaffirmation process, it would still be prudent to explain to the client, in writing, why reaffirmation of mortgage debts is not required. 27 Daniel A. Austin & Donald R. Lassman, REAFFIRMATION AGREEMENTS IN CONSUMER BANKRUPTCY CASES 4 (2d ed. 2010). 28 Id. 29 U.S. Treasury, Making Home Affordable Program Handbook for Servicers of Non-GSE Loans, at p. 77. (v. 4.3, September 2013). Available at: 58

61 of a requirement to reaffirm a mortgage which the debtor is apparently having difficulty repaying (hence the need for a loan modification) in the hopes of later obtaining a different and better mortgage. First, without something in writing, there is simply no way to know whether the debtor will be offered any modified loan terms much less any guarantee that they will be offered a reasonable and affordable modified loan yet the debtor as asked to reaffirm their existing, unaffordable loan in exchange for a veiled promise of the possibility of modifying that same loan. Second, if the lender really wanted to offer a modification, they would be free to do so at any time before or after entry of a discharge in the debtor s case there is simply no legal impediment to prevent them from doing so. And finally, given the substantial risk of redefault and the attendant risks of foreclosure and post-bankruptcy damage to the debtor s credit score, the debtor should avoid entering into a modification unless the debtor is highly confident that he or she will not simply redefault. 30 Without seeing the terms of the proposed modification, the debtor is unable to assess his or her ability to make the required payments under the modified loan. IV. CONCLUSION The valuable retain and pay option is still available to debtors in California bankruptcy cases. Accordingly, reaffirmation of mortgage debt in California bankruptcy cases is not necessary and is a potential minefield for debtors and their attorneys. Debtors should not be lured into reaffirming a mortgage based solely upon an unenforceable promise to consider the borrower for an unspecified modification of their existing loan. 30 As of April 30, 2013, of the approximately 1.2 million homeowners (TARP and GSE HAMP combined) who received a HAMP permanent modification, 306,538 homeowners (26%) fell three months behind in payments and, thus, redefaulted. Redefaults of the oldest HAMP modifications are at a 46% redefault rate, a rate that continues to increase as the modifications age. Report of the Special Inspector General of the TARP Program, Rising Redefaults of HAMP Mortgage Modifications Hurt Homeowners, Communities and Taxpayers, at p

62 60

63 Reaffirm to Refinance? Mortgage and Bankruptcy Policies Collide Written by: Natalie Bush-Lents General Counsel, California Monitor Program, Irvine, CA Disclaimer: This article may not reflect the views of the California Monitor or the Office of the California Attorney General Sandy filed Chapter 7 bankruptcy in She filed because of medical bills and credit card debt and has never missed a payment on her mortgage. Today, eight years after receiving her bankruptcy discharge, Sandy desperately wants to refinance her 6.25% fixed rate mortgage to a lower rate. Sandy has reestablished credit and appears to be a good candidate for a refinance. However, her mortgage company declined to refinance her loan because she did not reaffirm it in her 2006 bankruptcy. Sandy, confused and upset that her long ago bankruptcy had come back to haunt her, called her former bankruptcy attorney. The attorney explained to Sandy that it was too late to reaffirm the mortgage and that he advised her not to reaffirm the debt during her bankruptcy because doing so would have made Sandy personally liable for the mortgage debt. In the event that Sandy lost her home to foreclosure, the bank could have sued Sandy for any amount owed on the mortgage that was not recouped in the foreclosure sale. Sandy concluded that her mortgage company was being unreasonable. Her bank was asking for something impossible as a prerequisite to refinancing her loan. For her, bankruptcy's fresh start should be helping her improve the terms of her mortgage, not trapping her in an uncompetitive loan. This article explores the reasons many mortgage lenders refuse to refinance loans that were discharged in bankruptcy, describes possible alternatives for homeowners, and proposes systemic changes to reduce or eliminate the problem. Discharge and Reaffirmation of Mortgage Debt A lender's refusal to refinance loans that were discharged stems from two concerns. 2 First, a postpetition agreement for the borrower to repay a pre-petition debt may be unenforceable. Second, any attempt to collect the debt could be a violation of the discharge injunction. The bankruptcy discharge enjoins any act to collect a pre-petition debt as a personal liability of the debtor. 3 For a mortgage, the secured creditor's lien survives a Chapter 7 bankruptcy, but the homeowner is no longer personally liable for the debt. If the homeowner defaults on the loan post discharge, the creditor can foreclose, but it cannot seek a deficiency judgment against the homeowner. 1 Sandy is a fictitious borrower whose story is based on the experiences of homeowners who have contacted the California Monitor Program. 2 This article focuses only on refinances. A different analysis applies to loan modifications U.S.C. 524(al(2). 61

64 A debtor can agree to repay a debt that would otherwise be discharged by reaffirming the debt. To be enforceable, a reaffirmation agreement must be made prior to entry of the discharge. 4 In addition, reaffirmation agreements must conform to strict requirements set forth in the Code. 5 Section 524(c) provides that "[a)n agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable [only if the agreement meets the reaffirmation requirements]". 6 When a loan is refinanced, the borrower signs a new note promising to repay the debt to the lender. But what is the debtor promising to pay? The borrower owed mortgage debt before filing bankruptcy. With a refinance, the debtor is making a new promise to the same creditor to pay at least a portion of the pre-petition debt. Arguably, the debtor's consideration for the new loan is, at least in part, a promise to repay mortgage debt for which the debtor received a discharge of personal liability in bankruptcy. Bankruptcy courts have found creditors violated the discharge injunction for entering into new agreements for borrowers to repay discharged mortgage debt. For example, in Smith " First Suburban National Bank (In re Smith) the court held that the creditor violated the discharge by processing payments and mailing monthly statements on a new post-discharge promissory note. 7 The promissory note included debt incurred to purchase a new home, plus $19,000 of debt that was owed on a mortgage that was incurred pre-petition. The new loan reduced the interest rate and extended the maturity date. Nonetheless, the court found the debt to be invalid because the original mortgage was not reaffirmed. Similarly, in Liptz & Roberts, Chartered Pension Pion Trust v. Stevens (In re Stevens) the court held that the creditor violated the discharge injunction when the debtor executed post-discharge promissory notes for mortgage debt in exchange for the lender's release of the lien that survived the bankruptcy. 8 The court reasoned that the notes "cannot be found valid and enforceable" unless they "are not in any way supported by a promise by Debtor to pay the obligation due under the original notes."' A minority view holds that sufficient new consideration can render a post-discharge obligation to repay a pre-petition debt enforceable. 1 For example, in Minster State Bank v. Heirhofzer (In re Heirholzer}, the former debtor signed a post-discharge promissory note in exchange for the bank agreeing not to foreclose. 11 The court detennined that the bank's promise not to foreclose constituted new consideration, rendering the new loan enforceable u.s.c. 524(c>(l) u.s.c. 524(k) u.s.c. 524(c) (emphasis added) B.R. 388 (Bankr. N.D. IL 1998) B.R. 757 (Bankr. 0. Md. 1998). 9 /d. at See, e.g., Button v. Sheridan Oil Co., Inc. (In re Button), 18 B.R.171, 172 {Bankr. W.D.N.V. 1982) (finding debtor's post-petition promise to pay restitution for criminal larceny in exchange for avoiding jail was supported by good and sufficient consideration); In re Petersen R. 946, 950 (Bankr. o. Colo. 1990} (holding debtor, a "sophisticated, experienced businessmanh did not require protection from an over-reaching creditor in executing a post-petition commercial lease addendum; sufficient post-discharge consideration existed to make the agreement enforceable.) B.R. 938, 941 (Bankr. N.D. Ohio 1994). 62

65 Courts have criticized the reasoning of Heirholier and similar decisions as ignoring the plain language of S24(c). 12 The Heirholzer line of cases focuses on whether there is any new consideration for the loan, rather than whether any port of the consideration is based on repayment of a discharged debt. 13 The language of 524(c), coupled with majority case law, explains lenders' decisions not to refinance mortgages that were not reaffirmed in the bankruptcy. The Voluntary Repayment Argument A borrower like Sandy might argue that a refinance should be allowed as voluntary repaymem of discharged debt. Section 524(f) provides that a debtor can voluntarily repay a discharged debt, even if the debt was not reaffirmed. 14 Sandy wants to refinance her mortgage (after all, she chose to retain her property in her 2006 bankruptcy) and has been voluntarily paying on the discharged debt for years. A refinance would lower her monthly mortgage payments, help her keep her home, and continue to effectuate a financial fresh start. Courts have held that voluntary payments under 524(f) must be truly voluntary, meaning free from creditor Influence or inducement. 15 Making voluntary payments does not revive the debt or obligate the debtor to continue making payments. 16 If a transaction "leaves a debtor obligated to pay, or believing that he or she is obligated to pay any part of a discharged debt, [it cannot) be characterized as voluntary repayment within the meaning of 524(f)." 17 Section 524(f) is unlikely to soothe lenders' concerns about impermissible refinances. Signing new loan documents is likely to make a borrower believe that payments are obligatory, rather than voluntary. Thus, courts are unlikely to find that 524(f) renders a refinance of a discharged debt enforceable. Reopen and Reaffirm: A Dead End for Many Borrowers Lenders sometimes tell borrowers to reopen a closed bankruptcy case and reaffirm the mortgage debt. This suggestion is problematic because the borrower will incur costs, including reopening fees and attorneys' fees, yet the borrower is unlikely to be successful. Section 524(c)(l) provides that reaffirmations that are made after the discharge is entered are invalid. ut If borrower and creditor enter into an agreement purporting to reaffirm a debt that has already been discharged, the court is unlikely to approve the agreement. 19 Efforts to retroactively vacate a discharge to seek approval of a late-filed reaffirmation agreement are also likely to fail. Courts have held that they cannot set aside the discharge retroactively. 20 Additionally, the debtor is unlikely to prevail in a motion to revoke the discharge under 727(d} or to vacate the 12 See In re Getzoff, 180 B.R. 572, S7S (B.A.P. 9th Cir. 1995); In re Smith, R. at See 11 U.S.C. 524(c) u.s.c. 524(f). 15 DuBois v. Ford Motor Credit Co., 276 F.3d 1019, 1023 (8th Cir. 2002). 16 Hudson v. Central Bank (In re Hudson), 168 B.R. 368, 373 (Bankr. S.O. II. 1994). 17 In re Bowling, 116 B.R. 659, 664 (Bankr. S.O. Ind. 1990) u.s.c. 524{c)(l). 19 In re Salas, R. 394, 396 (Bankr. W. D. Tex. 2010) (if a reaffirmation agreement was "made" after entry of discharge, it matters not whether it is filed because it is not an enforceable agreement). 20 See e.g., Riga/ v. Fleet Mortg. Co. (In re Riga/), 254 B.R. 145, 148 (Bankr. S.D. Tex. 2000). 63

66 discharge under Federal Rule of Civil Procedure 60(b). 21 Debtors lack standing to seek revocation of the discharge under 727(d}. 22 A discharge will only be vacated under Rule GO(b) if it was entered in error. 23 Thus, a lender's suggestion that a borrower reopen his bankruptcy case to reaffirm the debt is merely an empty suggestion that avoids breaking the bad news to the borrower: you did not reaffirm your mortgage, it is too late to do so now, and we will not refinance your loan. Lenders should recognize that few, if any, borrowers will be able to go back to bankruptcy court and obtain relief that will pave ttle way for a refinance. Presenting this as an option merely creates consumer confusion and imposes costs on courts and all parties. A Viable Alternative: Refinance With Another Lender Borrowers who have received a bankruptcy discharge should contact other lenders to refinance their mortgages. A new lender that was not a creditor in the homeowners bankruptcy case may refinance the loan without concern about the bankruptcy discharge or reaffirmation provisions. Unfortunately, this fix will not work for all homeowners. A homeowner's current lender is more likely to refinance a loan for an existing customer than a new lender with no relationship. Particularly for a homeowner with limited equity or marginal credit, it may be impossible to qualify for a refinance - at least on terms close to those otherwise available from the original lender. Borrowers also may face difficulty refinancing because of post-bankruptcy credit reporting practices. Even If the borrower maintained consistent mortgage payments post-discharge, lenders report mortgages as "included in bankruptcy" and do not report subsequent mortgage payments to the credit bureaus. This practice makes it more difficult for the borrower to establish creditworthiness after bankruptcy, particularly with regard to mortgage debt. To alleviate this problem, lenders should provide verification of post-petition payments to facilitate borrowers' access to credit from other lenders. Lenders considering a refinance loan to a borrower with a past bankruptcy should accept evidence other than a credit report - such as a payment history - to establish creditworthiness. The complications of seeking credit from a new lender and establishing a clear record of creditworthiness post-bankruptcy disadvantages borrowers who took advantage of the fresh start by not reaffirming a mortgage debt. A Reform Proposal The current impasse is unfavorable for all parties. Homeowners like Sandy are harmed because it is difficult for her to refinance. Additionally, because Sandv's only likely route to refinance is with a new lender, it is in the creditor's best interest to retain Sandy as a customer. Being able to offer Sandy a refinance without concern about violating bankruptcy Jaws would benefit both parties. Borrowers get lower rates, increasing their odds of home retention, and lenders get the profits of the refinance transaction. 21 Federal Rule of Civil Procedure 60(b) is made applicable in bankruptcy by Federal Rule of Bankruptcy Procedure Winters Nat'J Bank & Trust Co. v. McQuality {In re McQuality), S B.R. 302,303 (Bankr. S.D. Ohio 1980); Markovich v. Samson (fn re Markovich), 207 B.R. 909, (B.A.P. 9th Cir. 1997). 23 FEO. R. Qv. P. 60(b). 64

67 The most complete solution to this problem would be adding an exception to 524 of the Code. Section 524 already clarifies that a lender can seek post-discharge periodic payments on a mortgage secured by a debtor's primary residence. 24 An exception should be added to make clear that a lender can refinance a mortgage without violating the discharge injunction, and that a refinance is not an impermissible postdischarge reaffirmation agreement. Such an amendment would be consistent with the Code's reaffirmation policy. Reaffirmation requirements exist to protect debtors against overreaching credito,s. 2 5 Reaffirmations should "protect debtors from compromising their fresh start by making unwise agreements to repay dischargeable debts." 26 In the case of a mortgage refinance, the borrower is seeking new loan terms that better meet his current needs. To avoid any concern that refinancing could be detrimental to a borrower who would otherwise be protected from personal liability for the debt, the Code could specify that the discharge injunction does not prohibit acts to collect any refinanced mortgage that meets the definition of "qualified mortgage" as defined in U c.f.r If the Code were amended in this way, borrowers could be personally liable for the new debt as long as the mortgage has stable terms. This proposal would allow borrowers access to credit on consumer-friendly terms while minimizing the risk that lenders could coerce a borrower to refinance into a less favorable loan. While a Code revision would provide the most clarity, jenders could offer certain refinances without concern about violating the discharge injunction. Specifically, refinancing into a non-recourse loan would not violate the discharge injunction. Lenders may have little incentive to offer such loans due to difficulty selling non-recourse loans on the secondary market. Federal programs like the Home Affordable Refinance Program (HARP) should clarify that loans that have been discharged in bankruptcy remain eligible for the program with the pre-bankruptcy lender. Finally, if asked to rule on a challenge to the validity of a refinanced mortgage debt, bankruptcy courts should consider treating mortgages differently from other debts. The Code's current interpretations yield the absurd result that borrowers cannot refinance mortgages for many years post-discharge. Borrowers should benefit from a fresh start after bankruptcy, rather than encountering unnecessary barriers to refinancing. Lenders should be allowed to retain creditworthy customers and have access to the post-bankruptcy refinance market u.s.c. 524(j). 2 s S. REP. No , at 60 (1983). See also Jn re Petersen, 110 B.R. 946, (Bankr. D. Colo. 1990). 26 In re Bowling, R. 659, 664 (Bankr. S.D. Ind. 1990). 27 Features o: a qualified mort_gage include: A term of no more than 30 years, points and fees less than or equal to 3%, and no risky features like interest-only, negative amortization, or a balloon payment. 65

68 66

69 67

70 68

71 69

72 70

73 practice tips BY MAGDALENA REYES BORDEAUX Reaffirmation Agreements in Chapter 7 Bankruptcy Proceedings RICHARD EWING A DEBTOR WHO FILES FOR CHAPTER 7 bankruptcy relief must state an intention to retain or surrender personal property usually a car. After the passage of the Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA) in 2005, the options available to the debtor wanting to keep a car were greatly restricted. 1 Prior to the passage of BAPCPA, five circuits including the Ninth allowed debtors who wanted to keep their cars to carry out this intention by selecting from three options: 2 1) A redemption agreement, which allowed the debtor to pay the creditor the present value of the vehicle soon after filing bankruptcy. 3 2) A reaffirmation agreement, which imposed personal liability on the debtor if the debtor later defaulted on the car loan. 4 3) The ride-through option, 5 which allowed a debtor to continue making payments on the vehicle without requiring a reaffirmation agreement to be filed with the bankruptcy court. 6 The other circuits rejected the ride-through option and only recognized a debtor s right to indicate an intention to redeem or reaffirm. 7 In the five circuits that permitted it, the ride-through option was extremely popular, because debtors could retain their vehicles without having to assume personal liability for the car loans. 8 The ridethrough option also prevented creditors from impinging on a debtor s right to a fresh start because it did not impose personal liability on the debtor for the car loan. When a debtor selected the ride-through option a creditor still retained the right to repossess the vehicle if the debtor later defaulted on the loan. 9 After BAPCPA, key provisions in Bankruptcy Code Sections 362 and 521 restricted a debtor s ability to state a ride-through intention when filing for Chapter 7 bankruptcy relief. 10 A debtor who seeks to retain a vehicle after filing for Chapter 7 relief is now required to state a permissible intention which after BAPCPA is either an intention to reaffirm or redeem. 11 Failure of a debtor to indicate a permissible intention may allow a creditor to exercise nonbankruptcy options, such as to invoke an ipso facto clause, 12 a contract provision that permits a creditor to declare the contract in default by virtue of the other party s insolvency or bankruptcy. 13 However, courts have held that a creditor is not permitted to exercise an ipso facto clause when a debtor complies with the newly adopted BAPCPA provisions under Sections 362 and 521 in the reaffirmation agreement process. 14 As such, even if a bankruptcy judge denies a reaffirmation agreement, a creditor is not permitted to exercise an ipso facto clause unless the creditor demonstrates that the debtor failed to comply with Sections 362 and 521. Debtor Compliance When a debtor files for bankruptcy, the automatic stay is triggered and prevents a creditor from repossessing a vehicle without permission from the court. 15 Generally, ipso facto clauses in installment contracts are unenforceable as a matter of law. 16 The bankruptcy code has afforded the debtor protections upon filing for bankruptcy pursuant to Bankruptcy Code Sections 365(e)(1)(B) 17 and 541(c)(1)(B), 18 which generally restrict or render unenforceable ipso facto clauses. However, under a new BAPCPA provision, Bankruptcy Code Section 362(h)(1)(A), the automatic stay can now be terminated in a Chapter 7 bankruptcy case when a debtor fails to timely file a statement of intention pursuant to Section 521(a)(2)(A), which requires a debtor retaining a vehicle with a secured loan to indicate either an intention to redeem or reaffirm. If a debtor fails to state an intention to redeem or reaffirm, the secured creditor has the right to take whatever action is permissible under nonbankruptcy law pursuant to Section 521(a)(6). 19 Accordingly, when a secured creditor has a permissible ipso facto clause in the loan agreement, a debtor s failure to comply with Sections 362 and 521 can trigger the ipso facto clause Magdalena Reyes Bordeaux is a senior staff attorney with Public Counsel and specializes in consumer bankruptcy litigation. 12 Los Angeles Lawyer March