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Judge, please don't confirm my reaffirmation...


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An interresting case in the Eastern District of Virginia, ruled on by Judge Kevin R. Huennekens. (in re Husain 06-32952-KRH)

Basically, it says that if the debtor files a reaffirmation agreement which is later not confirmed by the court or not signed by the debtor's lawyer, the debtor gets to keep the secured property as long as payments are up-to-date.

It further says that as long as payments remain current after the discharge, the creditor is unable to take any action to recover the secured property without violating the permanent injunction. And, that ipso facto clauses in contracts that say filing a bankruptcy is default on the loan are unenforceable versus the bankruptcy injunction.

So what does that all mean? In the case of a secured debt, it means you make a reaffirmation offer and even if the creditor, your lawyer, or the court fails to approve it, you have satisfied the obligations of the bankruptcy code to keep the stay and injunction on the property in-tact after the discharge. You get to keep the property as long as you keep up on the payments. As soon as you stop payments, they can take the property but CANNOT pursue any deficiency balance!

So lets do an example: You fill out a reaffirmation agreement to keep a car. Your attorney refuses to sign the certification that it will not cause you undue hardship. The court can't confirm the agreement because your attorney won't certify. The lender is forbidden under the bankruptcy code from taking back the car because you have satisfied the requirements of section 362(h) completely even though the court did not approve it. You keep the car and payments current for a year after your discharge and then the car is totalled in a wreck. You turn in the mangled remains of the car to the lender and walk away. The lender gets nothing more because the reaffirmation was never confirmed, and the bankruptcy discharge is still in effect!

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