Response to Prof. Scarberry re Reaffirmations

Hi Jon,

I read Mark’s summary.  I think that although we reach opposite conclusions, we don’t disagree on the analysis of the issue.

However, there is a long line of cases which I cited in my article that support the position that provided the debtor states an intention to reaffirm, cooperates with creditor in executing reaffirmation K, and attends reaffirmation agreement  then ride-though exists if the judge denies the agreement.

11 U.S.C. §§362(h)(1)(a), 521(a)(2)(A), 521(a)(2)(B),521(a)(6)(B), 521(d).  In re Perez, 2010 Bankr. LEXIS 2229, at *29 (Bankr. D. N.M. July 12, 2010) (The court held that §521(a)(2)(B) does not require the debtor toconsummate an enforceable reaffirmation agreement,since whether the agreement is enforceable depends on factors outside the debtor’s power or control, but only to do all that is within the power and control of the debtor.). See also In re Moustafi, 371 B.R. 434, 438 (Bankr. D. Ariz. 2007); In re Husain, 364 B.R. 211, 219 (Bankr. E.D. Va. 2007); In re Barron, 441 B.R. 131, 137 (Bankr. D. Ariz. 2010); In re Chim, 381 B.R. 191, 198 (Bankr. D. Md. 2008). In re Hardiman, 398 B.R. 161, 187 (E.D. N.C.2008) (The court held that since the debtor had alreadycomplied with §§362 and 521, the remaining language stating, “[n]othing in this title shall prevent or limit the operation of an [an ipso facto clause]” does not apply.); In re Perez, 2010 Bankr. LEXIS 2229, at 40.  The same analysis should be applied when reading the language used later in §521(d).

As for language in 521(d), the Hardiman case sets forth that this provision only applies when the debtor fails to do something required after the passage of BAPCPA which basically requires the debtor to:

1) State an intention to reaffirm 2) Cooperate with creditor in executing and sending reaffirmation agreement back to creditor (This may be something debtors and debtor’s counsel may want to document in case creditor tries to claim debtor did not do this); and 3) Attend the reaffirmation hearings.

Also, there are several cases stating the a creditors failure to comply with the 524(k) disclosure requirements could limit the ability of the creditor to exercise an ipso facto clause. In re Quintero, 2006 Bankr. LEXIS 906, at 909-10. The court reasoned that Congress could not have intended to leave it within a secured creditor’s power to thwart a Chapter 7 debtor’s attempt to retain his or her car and reaffirm the debt by failing to comply with the requirement that the creditor supply the debtor with the expanded disclosure at the appropriate time and that by failing to comply with §524(k) the creditor had in effect refused to enter into an enforceable reaffirmation agreement with the debtor and was prohibited from repossessing the car.

As for the applicability of 365(e), the facts in the Dumont case demonstrate that they felt 365(e) protections did apply in auto installment contracts, not just leases.  I read this case very carefully and am attaching an excerpt from the case.

There is an important caveat, however: 11 U.S.C. § 365(e)(i)(B) generally renders unenforceable any contractual term which purports to create a default solely based on the commencement of a bankruptcy case. Dumont’s loan contained an ipso facto clause, but unless section 365(e) is trumped Ford cannot rely on the clause to justify its actions. 18   Although neither party discusses it in any detail, 11 U.S.C. § 541(c)(i)(B) also restricts ipso facto clauses,

I think Mark’s point is a good one about the possible conversion claims when a creditor refuses to accept payments.  We haven’t had this issue come up but are researching it now to examine all possible state law claims if the creditor repossess the car after putting them in default.  Although the recent Oberman decision states there is nothing in the Bankruptcy Code that requires the creditor to accept payment, the facts in this case were somewhat problematic because the debtor was already in default prior to filing bankruptcy and had failed to state an intention to reaffirm.  In these circumstances, the debtor is vulnerable to repossession because of his failure to comply with both 362 and 521, as well as being in default.

I have attached a copy of the Dumont case and my article (Maggie Reaffs) which more clearly set forth my position and support for my view that the creditor could be in violation of the stay or discharge injunction if the debtor has complied with BAPCPA, the judge denies the agreement and the creditor still proceeds to repossess the car.  As I mentioned already, I have not looked at the issue regarding refusal of a creditor to accept payments, but we will be looking at that issue this summer after Oberman.

Thank you for sending me Mark’s post because it gives us a headstart on types of state law claims we could have against a creditor who tries to put a debtor in default by refusing to accept payments.

Maggie Bordeaux, Public Counsel