16 Sep Ninth Circuit Eliminates “Ride Thru”
On September 15, 2009, the Ninth Circuit Court of Appeals issued its ruling in Dumont with a split 2 to 1 decision, holding that “Ride Thru” is no longer an option in the Ninth Circuit as a result of the new Bankruptcy Laws enacted under BAPCPA. In doing so, it overturned its previous Parker decision, and has now eliminated one of the most fundamental benefits to Chapter 7 debtors.
Prior to BAPCPA, a debtor could “ride thru” a bankruptcy with respect to secured debt as long as the debtor was current on payments. This enabled debtors to keep vehicles and other secured assets so long as the monthly payments were up to date, without having to execute and file a reaffirmation agreement with the Bankruptcy Court. Creditors were prohibited from repossession or taking any other actions, despite the fact that the debt was also discharged and no longer personally owed by a debtor.
This was significant since avoiding the execution of a reaffirmation agreement avoided potential future adverse consequences. A reaffirmation agreement essentially resurrects a debt that would have previously been discharged and holds a debtor liable for the same as if the bankruptcy never occurred.
After a reaffirmation agreement is executed, if a debtor later defaults due to job loss, financial emergency, or other financial setback, the creditor still has recourse against the debtor. The creditor can sue the debtor, garnish wages, levy bank accounts, file liens on property, and take property. Thus being able to “ride thru” a bankruptcy without having to sign a reaffirmation agreement was significant in alleviating debtors from these liability risks.
“Ride thru” allowed a debtor to keep the vehicle so long as they were current on payment, but also allowed a debtor to surrender the same at any time without liability recourse. The creditors often enjoyed “ride thru” as well since in many instances they were being paid substantially more than what they might recover at auction in the event of repossession.
But not any more. In its opinion, the Ninth Circuit concluded that Congress intended to eliminate “ride thru.” The opinion seems to create many assumptions to justify its opinion by attempting to ascertain the intent of Congress, of which the Congressional record and history is quite blank.
Moreover, the Dumont decision also completely ignored its entire analysis in the Parker decision. In that decision, the Court based its analysis on the terms “if applicable” as contained in section 521 of the Bankruptcy Code. Since that provision essentially allowed a debtor three options with respect to secured property “if applicable,” the Ninth Circuit concluded in Parker that other options also existed such as “ride thru.”
Ironically, the same “if applicable” language remains under BAPCPA. Of greater significance, is that Congress also added the terms “as applicable” in 362 as well. One of the main arguments in the Debtor’s brief concerned these terms and how the same signified Congress’ intent to keep the universe of options open. Why else continue to use such superfluous words?
Unfortunately, the majority entirely ignored this argument and the opinion contains no analysis on the same. Nowhere in the opinion is “applicable” mentioned. Notwithstanding, the dissent correctly analyzed the argument concerning the “as applicable” and concluded that Parker was not overturned. Its very peculiar that one judge addressed the argument, yet the other two judges comprising the majority ignored the same.
While I will be moving to have the matter reconsidered by the Ninth Circuit, and then petition the Supreme Court of the United States in the event the reconsideration motion is denied, there are steps that can be taken which still allow a “ride thru” in many instances that a debtor can use in the meantime. ndeed, many Courts across the nation are allowing “ride thru” in the event one of the following three circumstances occure:
1) Reaffirmation Agreement is executed but denied by the Bankruptcy Court.
2) Reaffirmation Agreement is not signed by debtor(s)’ attorney and sent to creditor.
3) Reaffirmation Agreement is later rescinded.
As always, thoroughly discuss your options with a competent bankruptcy attorney, and never lose focus of the fact that in many instances, you can simply let that vehicle go and purchase a new vehicle after bankruptcy, which in many instances, will have a lower interest rate, lower payment, and not contain a disproportionate amount of “upside down” debt.
Written by Michael G. Doan
Bankruptcy Law Network (BLN)
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