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Chapter 7 Reaffirmation Question: show cause hearing


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I filed chapter 7 pro se and went to the meeting of creditors last week. It went smoothly. Then, I had to go to a hearing about two items: 1) my request to have the filing fee waived (judge ordered me to pay 100 in 4 installments, so that's not too bad at all!) 2) approval of a reaffirmation agreement between myself and a finance company who had made a small loan to me with my 2002 accord as collateral.

So, that's where my question comes in. The creditor was fine reaffirming. They took my principal + interest (VERY high interest rate) and rolled it into the new principal and called it a 0% interest reaffirmation agreement. The judge asked me about it and I said that the interest was included in the new principal. So, he ordered a show cause hearing to find out why the finance company did this. The hearing is next week, and I just have two quick questions for anyone who's familiar with this process at all:

1) will I need to go? I planned to go because I want to be on the safe side, but I'm not sure what's expected of me and I want to be prepared.

2) what is likely to happen? Is this happening because the judge plans to order a new agreement with the interest changed? Will I be in danger of losing my car?

I didn't ming paying the interest, honestly. The loan wasn't much, so the interest, while very high, didn't amount to a whole lot extra per month, and I just want all of this mess behind me. I only filed because I was getting sued and having trouble keeping up with answering and trying to fight all the lawsuits, and a default judgment had just been ordered and I absolutely cannot afford a garnishment and didn't want to risk trying to file more answers or appeals to stave off what seemed to be an inevitable loss anyway. My score has gone up by over 100 points now, though I know that doesn't necessarily mean anything, and I have 0 desire to get any lines of credit any time soon. I'm gonna just live lean from now on!

Any advice or experience you can offer about the show cause situation would be very helpful.

Thanks so much!

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What happens with reaffirmations is that your attorney is normally suppose to check the agreements and verify that you can afford the payments and that the other side is not trying to pull a fast one because of the situation and the fact that the debtor is usually the underdog. When a BK filer is pro-se, the judge steps in to do what the attorney would normally do in the case of reaffirmations, again to make sure that the finance company is not taking advantage of the reaffirmation process to put the debtor into a loan they cannot afford. This is important because if you do not pay on this loan, you will not have the BK courts available to protect you once the discharge is done.

I think in your case, the judge is trying to verify that the terms of the loan are reasonable and that all finance laws are being followed. Since you did not understand the terms and the judge did not understand them, he is now demanding that the finance company explain the terms. You can and probably should be there. The greatest danger will be that the judge does not allow the reaffirmation agreement to go through. This means that you can either come up with another agreement (but realize the judge will be very critical of them going forward in your case), redeem the property by paying off the loan, or turn in the property (in this case, the car). The worst thing that can happen is that you will lose the car so start setting aside payments to get another car if that is the case.

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So, the show cause hearing was this morning. I'm very frustrated, and I'd love to know if you guys have any thoughts on this. It seems like this judge was giving me a VERY hard time, and I feel like an idiot.

The finance company representative did not show up to court to answer the judge's questions about the interest rate on the loan. The rate of the original loan was very high, at 36%. It was a small amount, just 2000 dollars. I was fine with making the payments of 180 and included that in my schedules, and I showed in my paperwork that I could afford the payment, not to mention the car's value is around 3000 dollars, so I felt like this was an ok agreement. The company rolled the APR into the reaffirmation and showed it as a 0% interest rate, but the principal, obviously, was the combined principal + interest on the original debt. The judge, at the first hearing to approve the agreement, gave me a lot of trouble about having the APR "buried" in the new agreement and made a big show of ordering the show cause hearing. Some of his comments to other lawyers made it seem like he was overly dramatic, and he was surprisingly difficult for me to talk to. 

So, today, he rips me a new one for taking the loan in the first place, saying that a 500 dollar addition that I made to the loan earlier this year in order to have my pet diagnosed and euthanized was frivolous and "that money should have gone to your creditors," and I responded that I was in no position to pay my creditors but that this loan was still the same payment amount and that the money was not used for extensive tests, but merely to have a diagnosis made and a euthanization performed. He asked me about my income, and I repeated, as I had before, that I had worked 2 jobs--one a part time lecture position which didn't pay much but allowed me time to finish my dissertation. The other had been a 40-hr a week job as a server, which paid the bills, but which kept me from having the time to finish my PhD. And that now that I only have the one job, I am going to be graduating in December. He said "so you don't have a job." and I said, "I'm a teacher, and that's always been my main job." He said "you're not a teacher, you're an adjunct and you only make ___ per course," which seemed way out of line to me. I repeated that the finance company had been flexible with me and that the loan was small and I needed my car to get to work, and he said it didn't matter, that this seemed shady, and that he wasn't going to approve it.

Am I insane for thinking that this was way more complicated than it should have been? 180 a month is not a lot of money. Especially for a car that books higher than the loan, and especially since the judge denied my application for a fee waiver because I have an extra 23 dollars a month, which he said I can use to make monthly payments on the filing fee (to be fair, he reduced the fee from 385 to 100). He seemed very rude, and after some of the unnecessary comments I heard him make to attorneys who represented creditors, I can't help but feel he was giving me a hard time because I'm filing pro se.

Any thoughts? It's my first time doing this, and I am really upset right now about the way he acted, but maybe this is normal.

My finance company at least said they'll continue to let me pay payments and that the reaffirmation wasn't necessary. But, wtf was this judge's deal? He seems to be using his power to punish me, under the pretext of protecting me from a predatory lender. But come on. A 2000 dollar loan? 

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Sounds like this reaffirmation is not going to go through and I am sure the judge is going to demand that you either turn in the car or redeem it. I would discuss that with the finance company and inform them that they are about to get the car back whether they wanted it or not since they decided not to show up at the hearing.

This is one of the pitfalls of doing a BK pro se.

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  • 3 weeks later...

The bankruptcy law is very complex.  When you are pro se, the courts will almost always hold a hearing on any reaffirmation agreement to make sure the debtor can afford the payments because of the consequences of reaffirming a debt.   To be honest, in my practice I almost always set the approval of a reaffirmation agreement my client wants to sign with the court because in most cases they are unrealistic and do not want to listen to me when I say they cannot afford a vehicle.   Since I can be held personally liable on a debt I know my client cannot afford, I let the court decide admittedly to protect myself if things go wrong.   

Most people need a Chapter 7 for a reason and sometimes that reason is they cannot see they cannot afford their spending habits and they need a judge to tell them that.   Yes, clients get angry with me but it is what it is.

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