Aug 21, 2021 | Read Time: 5minutesUS Bankruptcy Court
Here in Southern Maryland most people would find it impossible to work or even live without a car. For most people it is critical to know what they have to do to keep their car when they file for bankruptcy.
If that car has a loan on it you also need to understand the steps after the filling that help you keep the car. When you file a Chapter 7 bankruptcy you have to state what you intend to do about the loan that is secured by your vehicle.
The most common way to hold onto your car that has a loan on it is to keep current on your payments and state that you intend to reaffirm your the debt. When you state this intent some lenders will send a reaffirmation agreement for you to sign.
The agreement, in legalese, basically provides that the bankruptcy will not apply to this lender. If the Court approves this agreement and something bad were to happen you would be responsible for any money left owing after a repossession, totaling of the vehicle, or if you ended up with a repair you couldn’t afford.
Such an agreement needs to be filed by the Court and reviewed by a Judge. Because the reaffirmation could come back to hurt you the Judges don’t want to approve them unless you can show you can now afford the vehicle.
Here is where things a little weird or complicated depending on how you want to put it. The good news is that there is an easy way to make sure that you get to keep your car if you make the payments. If you timely file your statement of intent to reaffirm the debt, sign the reaffirmation agreement and file it with the Court in time, and make your payments on time, you get to keep the vehicle even if the Court does not approve the reaffirmation agreement.
They do this by entering an order pursuant to the case In re Chim. For short hand we sometimes refer to this as a Chim Order. To make sure the option of a Chim Order is available to you we file your Statement of Intent with the filing of the case. When the reaffirmation agreement arrives we either have you sign it at the Meeting of Creditors, or if it arrives after the meeting we call you and have you come into the office to review and sign it right away.
After the agreement is signed and filed with the Court the Judge in many cases will want you to appear for a hearing to make sure you understand the agreement and to decide if they should approve the agreement. Each of the Judges has their own approach to this hearing, so we will have a phone appointment a day or to before the hearing so you know what to expect before you go to the Court House.
The Hearing By Zoom
For now the 341 meeting with the Trustee is now being conducted by the Zoom video or phone platform because of COVID 19. While the Court is allowing these meetings to proceed by zoom there are a couple of changes. The nice part is we don’t have to drive around the beltway and deal with the stress of traffic.
To make sure your meeting goes as smoothly as possible we want to make sure you are familiar with using zoom. If possible we want you to practice using zoom and we will do the Trustee meeting prep using Zoom. You don’t want to be trying to figure it out for the first time on the day of your meeting. Here is the Court’s Guide for Zoom.
When your case was filed your petition probably showed that your income was not as much as your expenses. In bankruptcy world would say that Schedule J showed your expenses exceeded your income on Schedule I. Because of this most of the Judges want to enter a Chim order to make sure the loan does not come back to haunt you.
The Judge will ask if your income or expenses have changed since the filing of your case. If they have not improved, the Court will most likely ask if you are current on your payments and the vehicle is insured. If you are current and the vehicle is insured the judge will likely state that they are denying the reaffirmation agreement, but finding that you stated you intent in a timely fashion, that you acted on timely on your intent and that they are entering an order pursuant to In re Chim. At least one of the Judges will often state that hopefully your lawyer has explained what that means. We of course appreciate when a client lets the Judge know that we are doing our job.
Rebutting The Presumption
There are a couple of reasons why you may want to persuade the Court to approve the Reaffirmation Agreement. One trade off is that with a Chim order the lender probably won’t report your on time payments to the credit bureaus. Other situations where you may want the agreement approved are where you haven’t met the requirements to have the Court enter Chim Order, or if you want the Court to approve the reaffirmation agreement because the Reaffirmation Agreement contains a concession from the original loan terms that you want.
One way to get the Court to approve the Reaffirmation Agreement is to show that you have cut back on your expenses since your case was filed by enough money to offset the amount that schedule I & J show you are negative. With one of the Judges in particular this will have to go down the expenses listed on schedule J of your bankruptcy petition and explain which expenses you have cut. If you can show that things have changed enough so that you can afford to make the payments so that they won’t be an undue hardship the Court may approve the Reaffirmation Agreement. The Court may also approve the Agreement if lender has agreed to make a concession such as lowering the interest rate from the original terms.
Conclusion & Next Steps
If the Court approves the Reaffirmation Agreement, it will be like your bankruptcy never happened as to that lender. This means they may report both good and bad information to the credit bureaus. It also means that if they repossess the vehicle that they could come after you for the deficiency. Because of this we usually will advise clients to seek a Chim order unless the lender has reduced the interest rate on the loan in the Agreement.
