Can A Vehicle Lender Repossess My Vehicle If I Do Not Reaffirm the Loan in Bankruptcy?

Reaffirmation in Chapter 7 bankruptcy is voluntary. If the creditor does not want to reaffirm, you have no right to force a reaffirmation. Under the BAPCPA changes to the Bankruptcy Code, you, as the debtor, are required to state your intention within 60 days of the 341 hearing. My colleague and fellow blogger Karen Oakes has written a very helpful post about reaffirmations which you can read by clicking on the link.

One of the issues Karen raises is that of the “keep and pay” option, that is, what happens if you do not reaffirm your secured debt, but you keep the collateral and continue to pay as if you had reaffirmed. This question came up in a real life situation as set out in a recent email I received from a gentleman named Kevin:

I have a question about a bankruptsy discharged 2 years ago. I reaffirmed my auto loan during the bankruptsy (or I was told I was) and my vehicle was repossessed approx. 1 month ago anyway. Nissan says they received no paperwork stating my intention to reaffirm. I was making payments and sending extra almost every month to catch up, so I was floored to hear from the finance company no affirmation letter or anything was ever sent to them. Do I have any recourse with the atty. that handled my case? I was in the last year of payments and now I have not transportation, have no way to get to the doctor or work. I live in Atlanta, GA.

Here is my response: I pulled the docket report on Kevin’s case and sure enough, there was no reaffirmation filed.  I practice law in Atlanta and I have never heard of the lawyer he used in this case - it very well may be that the lawyer was not familiar with the extensive reaffirmation agreements now used and she did not know what to do with the 10 page reaffirmation that the lender may have sent.

As Karen pointed out in her post, there is no such thing as a “keep and pay” option.   I do not know if the 11th Circuit or if any of the judges in the northern district of Georgia have addressed the question of whether the stay would be lifted even if the debtor was current.

As a practical matter, by not reaffirming, the debtor no longer has any personal liability for the vehicle loan.  However, the lender still has an in rem claim against the collateral (the car).

I find it very disturbing that the lender waited two years before exercising its rights.  I think that as a starting point, I would advise Kevin to contact his lawyer to see if she can make a call to the lender for the purpose of striking a deal.   If the lawyer failed to file an executed reaffirmation agreement and did not tell her client about this lapse, the lawyer has some exposure.   She should be happy to make a few calls.

If the lender is not willing to play ball, then someone needs to do some research to find out if the 11th Circuit or any judge in the Northern District of Georgia has reached this issue.  If the case law is favorable, and Kevin is current, Kevin should consider filing a motion to reopen his case for the purpose of filing the reaffirmation.

Kevin will have an uphill battle in a Chapter 7, since reaffirmation is voluntary.  I wonder if there are any state law remedies arising from laches (the creditor sat on its rights too long) or perhaps under a theory of an implied contract (they accepted the money for 2 years).

A last resort option would be for Kevin to file a Chapter 13 and then file a Complaint for Turnover.  Given the recency of his Chapter 7, he might not be eligible for a discharge, but the 13 might work to get the vehicle back.

Georgia law requires the repossessing lender to send a “10 day” letter to Kevin setting out its intent to dispose of the vehicle at auction.  This means that the clock is ticking on whatever Kevin plans to do.