Knowing When to Walk Away
Riding Through the Reaffirmation Agreement
While the number of ECF notices I receive may overwhelm my inbox, it is the rare occasion when I don't recognize the case number. But that happened this week when a reaffirmation agreement came across the desk. The court "received" the document rather than "filing" it because the case had been closed for two months. Since I've been exploring the new bankruptcy forms which became effective on December 1, 2015, I took this opportunity to compare B240A/B ALT (12/11) with the new form B2400A/B ALT (12/15). But I only found changes in the cover sheet (Form 427) for the reaffirmation agreement (replaced B27). That does follow the pattern of just adding extra numbers to the rules of civil procedure to make them rules of bankruptcy procedure (Rule 4 and Bankruptcy Rule 7004). Since proper service is rarely made for contested matters, we won't talk about the recent changes to Rule 4(m) reducing the time to serve a complaint to 90 days.
The effectiveness of this "received" reaffirmation agreement is the real question. Rule 4008 requires the reaffirmation agreement to be filed no later than 60 days after the meeting of creditors. Section 524 establishes the requirements for an effective reaffirmation agreement, including that any hearing on a presumption of undue hardship be held before the discharge is entered. Even if the creditor reopened the case as the court notice suggested, it is doubtful that the court could approve the reaffirmation agreement for a discharged debt. But with no presumption of undue hardship, the court does not need to approve it. This reaffirmation agreement was signed before the deadlines but neither the creditor nor the debtor filed it. The debtor may be able to ride through and keep the collateral so it had little incentive to make it official. But the creditor has created itself a potential trap if the debtor defaults and it seeks to collect a deficiency which could violate the discharge injunction. The parties intended the debt to be reaffirmed, but instead created a myriad of issues. So, do you have any reaffirmation agreements that need to be filed with the court before a discharge is entered?