Recently, a Bankruptcy Judge in Connecticut refused to give a lender the upper hand in forcing a reaffirmation of a car loan in a bankruptcy case. Creditors believed that when they re-wrote the Bankruptcy Code, they would force consumers to reaffirm their car loans. That failed because the language is so awkward.
The law, as currently written, seems to require consumers who file for bankruptcy to either surrender their car to the lender, pay the car loan off in full, or reaffirm the loan putting the consumer back on the hook for personal liability on the account. Under the old version of the law and in some jurisdictions, there was a ‘fourth option’ allowing the consumer to simply continue with the payments and keep the car. The upside under the ‘fourth option’ was that if something happened to either the debtor or the car so that payment was no longer possible, the vehicle could be surrendered later with no penalty or payment. For example, if the car was totaled two years after the bankruptcy, the discharge is still effective and the consumer could simply hand the wreckage back to the lender. Pretty good, huh?
The lenders fought long and hard to change the law. And so they did. The new version provides that if you don’t surrender, redeem, or reaffirm, the automatic stay protection of the bankruptcy case is automatically terminated. Great. But if your state law does not allow the lender to repossess if you are current in your payments, then terminating the automatic stay does nothing. The lender is no longer stopped from repossessing, but can’t repo if you are current. Same thing. No go.
So the lenders started filing motions in the Bankruptcy Court to ask for the Automatic Stay to be terminated. They understand that state laws might prohibit reposession in any event and that getting the blessing of the Bankruptcy Court on such a motion, uneducated consumers or less sophisticated lawyers might allow the repo or sign a reaffirmation when it isn’t necessary. Now you are back on the hook, right where the creditors want you. Check out Judge, Please Deny My Reaffirm Agreement.
What did this clever bankruptcy judge do? He said that since the law is clear that the automatic stay terminates automatically, there is nothing for him to do, no motion is necessary, and the creditor is stuck with state law. The Judge didn’t grant the motion or deny it. He did nothing, and in doing nothing, ensured that the creditor got nothing. This is exactly what the lenders wrote into the law and exactly what they got. Nothing!
About Eugene S. Melchionne, Connecticut Bankruptcy Lawyer
Mr. Melchionne is a graduate of The University of Connecticut (BA 1977) and Drake University School of Law (JD 1980) where he received the American Jurisprudence Award for academic excellence. Most recently, Mr. Melchionne was appointed to the Commission on Mortgage Foreclosures by Connecticut Supreme Court Chief Justice Chase Rogers to recommend changes to procedures to protect consumers in the Connecticut Courts in foreclosure cases. Since 1980, Mr. Melchionne has focused his practice in the areas of consumer bankruptcy, workouts and foreclosure defense in distressed real estate markets, real estate transactions, condominium law, commercial litigation, business organizations and probate. Prior to opening his office in 1990, Mr. Melchionne was the Vice President of the Waterbury Credit Bureau and was associated with Grady & Riley in Waterbury, Connecticut and DiPietro, Kantrovitz & Brownstein, P.C. in New Haven, Connecticut. From 1990-1998, Mr. Melchionne was of counsel to Bender & Anderson handling that firm's complex litigation and trials. In addition to his practice, Mr. Melchionne was an adjunct professor at the American Institute of Banking and Teikyo Post University teaching bankruptcy, real estate, commercial and consumer law. Mr. Melchionne also advised the Corporation Counsel's office for the City of Waterbury on bankruptcy and foreclosure matters and mentored junior attorneys in that office. Mr. Melchionne was appointed State Chair for the National Association of Consumer Bankruptcy Attorneys (NACBA). He acts as liaison between the national organization and Connecticut attorneys who are members of the Association.
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