Reaffirmation Agreements in Arizona
The city of Phoenix and its surroundings are difficult to navigate without a vehicle. Hence, as a Phoenix-based bankruptcy law firm, a common question from our clients is, "Can the bank take my car from me if I file a Chapter 7 bankruptcy?" Although not a substitute for an attorney’s advice geared to your specific situation, this article will provide you with some basic information.
Available Options in Bankruptcy for your Vehicle
First, when an individual files bankruptcy, the bankruptcy code requires that you file a document called a “Debtor’s Statement of Intention”. This document lets every party know what your intentions are regarding your secured debts. There are three options possible. You can surrender the property to your lender and owe them nothing, you can redeem the property, or you can reaffirm the obligation with your bank or finance company. The intention listed on the Statement of Intention must be performed within 30 days of the 341 meeting of creditors.
11 U.S.C. § 521(2)(B). In Arizona, if you do not perform your intentions in a timely manner, the property is removed from the estate 11 U.S.C. § 362(h) and loses its protection from the automatic stay. If your intention is to reaffirm a secured obligation you must attempt to do so within 30 days of the first meeting of creditors. Arizona is in the Ninth Circuit and the Ninth Circuit Court of Appeals has determined that if you do not attempt to reaffirm your obligation with the creditor, your property is no longer protected under the bankruptcy stay. Dumont v. Ford Motor Credit Company, 581 F.3d, 1104 (9th Cir. (Cal.) Sep. 15, 2009).
The Reaffirmation Option
Reaffirming your debt is done by entering into a reaffirmation agreement with your bank or finance company. A reaffirmation agreement usually requires you to continue making payments as if no bankruptcy had been filed and you get to keep your property.
A reaffirmation agreement must state whether the agreement will create an undue hardship on you or your dependents. If your lender is a Credit Union, it won’t matter if it creates an undue hardship or not. Credit Unions have an exemption from the undue hardship clause in the Bankruptcy Code. If the presumption of undue hardship arises, your Bankruptcy Judge may set a hearing to consider the approval of the reaffirmation agreement.
What happens if the judge denies your reaffirmation agreement? In Arizona, the judge may deny your reaffirmation agreement and enter an order prohibiting your finance company from repossessing your property as long as you continue to make the payments. You might ask if that would be the same as approving the reaffirmation agreement. The answer is definitely no. If your reaffirmation agreement is approved by the court that means that you are on the hook for the entire contract. That means that if something unfortunate occurs after the bankruptcy and your property gets repossessed, the bank or finance company will sell the property and they will be able to sue you for the difference between what you owe and what it sells for. If you find yourself not being able to make the payments after the judge denies the reaffirmation agreement and the property is repossessed, then you will owe nothing further than the property. This is commonly referred to as a ride-through.
So, whether or not you get to keep your personal property will depend on you. If you want to continue to make the payments on it and are willing to enter a reaffirmation agreement then the answer is, yes, you can keep your property. If you choose to discharge the debt instead, you can surrender the property and be done with it. If you think that a reaffirmation agreement would benefit you, please be sure to discuss it with your Arizona bankruptcy attorney.
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If you are located in Phoenix, Scottsdale, or Tempe, contact the
Contact Wright Law Offices online or call 480-845-0145 to set up a free consultation. This article is not meant to be a substitute for legal advice from an attorney as every person’s situation is unique. It is important that you hire an attorney to help you avoid the many pitfalls that can occur in a bankruptcy.