How to enter reaffirmation agreements for cars?

We had discussed in one of our earlier topic the difference between reaffirmation and surrender. A reaffirmation comes into picture when a debtor like to continue making the agreed payments and like to reaffirm the secured debts instead of surrendering the collateral and of course wiping out the deficiency. We know that most of the debtors have cars, and cars is a tool to continue your life and finding a job, and do other daily activities. If you file for Chapter 7 bankruptcy, the lender may require you to reaffirm your car loan in order to keep the car. Here’s why, and what happens if the reaffirmation agreement is, or is not, approved by the bankruptcy court.

Let us say you are behind on your car payments, the accrued payments has to be paid as they are not going to disappear. When you file bankruptcy, everything is stopped, and a secured creditors files motion to lift stay. Once the stay is granted, the secured creditors can move forward and start doing either collection or seize the collateral unless you confirm, or pay the accrued payments. The repo man can come back and haunt you once again unless you sign reaffirmation and continue making the agreed monthly payments.

When you are making payments on a car, your car note has two different parts — the promissory note that makes you personally liable for the debt and the security agreement that allows the lender to repossess the car if you default on the payments. To be enforceable, the security agreement must be registered with the DMV or other state registry — which results in a lien being placed on your car.

When you file Chapter 7 BK you can get rid of the promissory note (the amount you owe pursuant to the promissory note is discharged in the bankruptcy) — and your personal liability — but you can’t get rid of the lien. This lien stays and now you need to reaffirm it to continue possession of the car. This means you will have to continue making your payments if you want to keep the car, even though you don’t actually owe anything on it.

You May Need Reaffirmation Agreements ?
Well, since you had decided to keep the car, then you should pay. First, it is the agreement you had accepted. Second, if you surrender, it would be very expensive to find someone who would lease or sell you car unless you agree an exuberant rate of interests. At least when you doing reaffirmation, you are telling the bankruptcy court that you are willing and financial viable to continue making the monthly payments. If it is not reaffirmed, the lender cannot come after you for deficiency judgment.

The reaffirmation is a complex set of paperwork, and if the lender requires you to reaffirm, you’ll have to sign an agreement the lender will send you, and file the agreement with the court. The court will give you a date for a court hearing at which the judge will decide whether you can afford to make the car payments.

What If The Judge Doesn’t Approve the Reaffirmation?
If the judge decides you can’t make the car payments, the judge will disapprove the reaffirmation agreement and you’ll be off the hook. But what if you remain current on the payments, even though there is no reaffirmation agreement? In this case, you can keep the car. A reaffirmation should be signed with great care because it has lots of implications.

Few Words of Caution:
On the plus side, reaffirming a secured debt gives you a degree of certainty – you are once again in a contractual relationship with your creditor and knows how much to pay every month. You know how much you are supposed to pay each month and you know the payoff balance, interest rate and terms of the agreement. All these things are clearly defined in an understandable way.Sometimes, you may be able to negotiate a more favorable deal when you reaffirm. Other than cars, secured creditors are often not set up to liquidate used merchandise and since you already have possession of the property (collateral), many lenders are happy to negotiate more favorable terms with you so they can avoid the hassle of recovering and disposing of property. The Car negotiations option is less true with motor vehicles, because there is an active used car market. Negotiation option can work well when you are dealing with furniture or electronics.


Does filing of chapter 7 stays collection activities?

Inherent in the filing of chapter 7 is an automatic stay which comes into life right after the filing of chapter 7 petition. Creditors are notified officially of the automatic stay in the notice of meeting of the creditors. However, this notice is not mailed sometime many days after and meanwhile the collection activities continues. The other problem is that when it is mailed, it only goes to the creditors listed in the schedules. Sometimes the creditors keep on changing names, addresses, and even entities when they sell their debtors to other collection agencies. Also, landlord and other entities whom no debt is owed, are not informed. Sometime the unsophisticated creditors does not understand the implication of the automatic stay.

Well, the only solution is for the debtor’s attorney to send them direct mail, or additional notices of the stay. This notice should be sent by certified mail

Action taken in violation of the stay are void.
It has been a long time view that actions taken in violations of the stay are void. This includes foreclosure, sales, collection, lawsuits and judgments. This rule applies whether or not the violator acted with the knowledge of the stay.
Courts have the power to undo violations of the stay by injunctions. The Bankruptcy Code in section 362(k) contains a specific cause of action against a creditor who causes injury to an individual by a wilful violation of the section 362 stay. A wilful violation is one committed knowingly. Even if a violation is done innocently, a refusal to rectify or failure to act affirmatively, is a violation. In such cases, section 362(k) provides for actual damages, costs and attorneys fees as well as sometime punitive damages.

Contempt Remedies:
In addition to remedies, under Section 362(k), the debtor also has remedies for violation of the automatic stay as contempt of a court order. Contempt sanctions can be imposed regardless of whether the violation is in willful disregard of the stay. So long as the enjoined party knows of the stay, it is responsible for the consequences.

Can Objections Be Raised Against Discharge?

As we had discussed it few times in this forum that the purpose of filing Chapter 7 is to get a discharge from the accrued debts, and that is one foremost objective. This discharge gives debtors fresh start that the bankruptcy is meant to provide. However, discharges are not automatic and can be contested by Trustee or its attorneys. Even, if discharges are granted, it can be revoked. We have previously mentioned that the procedure to get discharges is not complex rather it is simple. This discharge is generally granted within 60 days in the normal course of business after the first meeting of creditors i.e. 341 meeting in Chapter 7. In Chapter 13, the discharge is granted after the debtor completes payments under a confirmed plan or upon the court granting a motion by the debtor for a hardship discharge. We at the Law Office of Malik Ahmad, are willing to give free consultation to genuine clients (not for academic discussion only)

Objections to Discharge in Chapter 7 Cases.
The objection can arise from a complaint filed by the United States Trustee if there are matters concerning the passing of Means Test, or a wrong calculation was used. The grounds for denial of discharge listed in section 727 only apply in Chapter 7 cases. 11 U.S.C. Sections 103(b). This motion must be filed within 30 days. In addition, the court may deny discharge on its accord. If a discharge is denied in chapter 7, all the non-exempt property to the creditors is lost and property taken as exempt can be used to set off these claims.

What are the Grounds for Objection to Discharge?
1. Debtor is not an individual. Only individuals can be discharged, corporation cannot be discharged.

2.Intentional concealment, Transfer or Destruction of Property 11U.S.C. Section 727(a)(2)
This applies when debtor has intentionally concealed assets in order to prevent creditors from obtaining access to them in bankruptcy. The debtor must have committed the act with actual intent to hinder, delay, or defraud a creditor or officer of the estate.

3. The debtor had unjustifiably failed to keep books or records as to finances. (11 U.S.C. Section 727(a)(3)

4. The debtor had shown dishonesty in conjunction with the bankruptcy case. (11 U.S.C. Section 727(a)(4)

5. The debtor had failed to explain loss or deficiency of Assets (11 U.S.C. Section 727(a)(5).

6. The debtor has refused to obey court orders or to testify. (11 U.S.C. Section 727(a)(6)

7. The debtor had committed some prohibited acts in connection with another bankruptcy case concerning an insider ((11 U.S.C. Section 727(a)(7)

8. The Code also bars a chapter 7 discharge in many cases when a debtor has received a discharge under chapter 13 or its predecessor within the previous six years.

9. The Court may deny a discharge based upon a court-approved written waiver of discharge executed after the order for relief.

10. The debtor had failed to complete course in personal financial management.

Divorce and Bankruptcy

We always advise our clients to first file bankruptcy and then if need arise, to file divorce. A divorce before bankruptcy complicates things, and a bankruptcy prior to filing divorce is a prudent matter as this divides the property more amicably than in a typical divorce courts where emotions run very high.

As we know, divorce is the end of marriage, but it is not the end of many things including liabilities and obligations, which sometimes outlast the marriage itself.

Nevada is considered a community property, which means both husband and wife are responsible for each other’s debt after marriage, and sometime prior to marriage if they were acquired, payments made, or improvements done on the joint or even separate property. A separate property is the property, which is acquired prior to marriage by each spouse and kept that way without any transformation. A joint property is property, which is jointly acquired during marriage or even if acquired in individual’s spouse name during marriage. Bankruptcy can have devastating effect on the non-filing spouse. Sometime, it is prudent to keep one spouse outside bankruptcy but such decision should be made with the consent and advice of an attorney who know such tricky and complicated matters. In addition, one should know that only one spouse filing of bankruptcy can leave the non-discharged debt to the other spouse. Sometime, it can be used as a vendetta against the other spouse. As such, an advice from a helpful attorney is important and can be very helpful in such divisive issues.

Bankruptcy and Second Liens–What Happens?

As a bankruptcy law practitioner, I had been asked this question many times: what happens to your second or third mortgages and liens on your home when you file bankruptcy? Excellent question. Even though the law and practices are different, we still like to address these issues, basically from the perspective of Nevada standards only. As I had written earlier, the exemptions are state specific and controlled by State laws and not by the federal exemptions standards in Nevada. By state specific means, the exemptions are controlled under State laws of Nevada because that is how Nevada had chosen this entitlement. Well, if you play your cards right, maybe you don’t have to pay anything back to your lenders. Of course, your primary home is deeply submerged under water (unfortunately, and no light is visible at the end of the tunnel), so you need to make smart moves. First and foremost, it is advisable to have a homestead protection filing with the respective counties in Nevada. In Nevada, the homestead value for a single home is $550,000. The homestead is a simple process and cost very little probably less than $20. Why would you risk your home for this small amount?

The Real Estate Crash Has Resulted in Many Unsecured Second and Third Mortgages:
We know Nevada has been, unfortunately, number one state (we are tired of this top priority now) when it comes to foreclosure for so many years, and we not losing this dishonorable distinction in near future too. There has been a real estate crash and despite the innumerable gurus telling us (they always tell us something) that the bottom has reached, the prices of homes are still going down rapidly. The real estate boom also as a collateral effect resulting in many layers of lien of second trust and in some cases third lien on homes. The prices of homes were so high that without including second and third lien, many could not have bought these pricy homes. This is how your brokers softened the approach to give you a fast pitch. They also pose a problem in short sale as the second lien holder invariable do not agree to short sale and principal lender cannot do short sale unless the junior interests agree with them.

What Happens to Those Mortgages if You File for Bankruptcy?
Chapter 7:
Well we had written before that in Chapter 7 bankruptcy, your bankruptcy discharge will eliminate your personal liability on the second mortgage but will not eliminate the lien.

Chapter 13:
In Chapter 13 bankruptcy, you can eliminate both your personal liability and the lien in a procedure called lien stripping. Let us reiterate this rule one more time. The basic lien stripping rule is: You can eliminate a lien that has no security in the home, but you can’t eliminate the lien if part of it is secured by the home’s value.

What if a Lien Remains on Your Home After Chapter 7 Bankruptcy?
There is no lien stripping in Chapter 7 but you discharge your financial obligation minus lien on the property. This lien cannot be discharged. However, this lien has no long-term financial implications. The Chapter 7 bankruptcy will discharge your personal liability for the second mortgage (meaning you can’t be sued for money owed on it and no judgment can be levied against you, or your wages can be garnished.). The net result is that the holder of the note cannot foreclose on your home. But there is a likelihood, that you may have more equity on your home some day, and the same lien holder can come back and institute a deficiency judgment against you. It all depends if he see enough value in your home. So, it is not a bad idea to include second lien in your Chapter 7 and not reaffirm it. It is your bankruptcy, and you are the beneficiary here. Let us help you play your cards rights. Afterall, the goal is to get you a smooth discharge.

How to File Proof of Claims?

This is our part two here. In the first post, we had defined various actors like debtor, creditor, unsecured creditor, priority of claims. In this post, we would address how to file proof of claims. It is important if you need to get some money from the estate, and the bankruptcy has been transformed to an Asset kind of bankruptcy.

Court, Name of Debt, and Case Number.

Fill in the name of the federal jurisdiction where the bankruptcy case was filed, the name of the debtor in the bankruptcy case, and the bankruptcy case number. If you received a notice from the bankruptcy, all of this information is near the top of the notice.

Information About the Creditor.
Complete the section giving the name, address, and telephone number of the creditor to whom the debtor owes money or property, and the debtor’s account number, if any. If anyone has already filed a proof of claim relating to this debt, if you never received notices from the bankruptcy court about this case, if your address differs from that to which the court send notice, or if this proof of claim replaces or changes a proof of claim that was already filed, check the appropriate box on this form.

Basis for Claim
Check the type of debt for which the proof of claim is being filed. If the type of debt is not listed, check “Other” and briefly describe the type of debt. If you were an employee of the debtor fill out your social security number and the dates of work for which you were not paid.

Date Debt Incurred.
Fill in the date when the debt was first owed by the debtor.

Court Judgment
If you have a court judgment for this debtor, state the date the court entered the judgment.

Total Amount of Claims at Time Case Was Filed.
Fill in the total amount of the entire claim. If interest or other charges in addition to the principal amount of the claim are included, check the appropriate place on the form and attach an itemization of the interest and charges.

Secured Claims
Check the appropriate place if the claim is a secured claim. You must state the type and value of property that is collateral for the claim. Attach copies of the documentation of your lien, and state the amount past due on the claim as of the date the bankruptcy case was filed. A claim may be part secured and party unsecured.

Unsecured Non Priority Claim
Check the appropriate place if you have an unsecured priority claim, and state the amount entitled to priority.

By signing this proof of claim, you are stating under oath that in calculating the amount of your claim you have given the debtor credit for all payments received from the debtor.

Supporting Documents

Finally, you must attach to this proof of claims form copies of documents that show the debtor owes the debt claimed or, if the documents are too lengthy, a summary of these documents.

How to reopen your BK if discharged for lack of filing of Form 23?

As have written before that there are two kinds of certificates required: one for financial counseling and the other debtor’s education certificate, commonly called Form 23. However, if the debtor does not file Form 23, the bankruptcy case is dismissed without a discharge. Now, you are stuck and the only choice left is to reopen your bankruptcy case. Of course, this would trigger a new bankruptcy fee. The whole reopening is a complex case as the client does not like to pay fee, and not even getting a discharge. The client has hired you to get a discharge, and now he is not happy, and you are also unhappy about the outcome.

To avoid this, we have made a religious practice in the Law Office of Malik W. Ahmad to send the second debtor’s class link right away and tell the debtor to complete it, and if they don’t complete it we also tell them that we would charge them filing fee as well as fee for our time which would be hefty. The good thing is that all is not lost here, and one can reopen the bankruptcy case again by filing the motion to reopen. How does this process works out: The process for reopening a bankruptcy case involves two steps. Step One: Ex Parte Motion to Reopen. The first step can be done by filing an ex-parte motion to reopen the case. This is a request to the judge that the case be reopened without giving advance notice to the creditors or scheduling a hearing. The paperwork, which consists of the motion or request, and an order granting the request, is mostly generic and widely available. Make sure you need a new filing fee and request motion to reopen. Step Two: Request for the Desired Action. The second step is to request (by motion and order) that the judge allow the desired action. The fee for reopening a bankruptcy case is $274 and should be paid upfront.