09 Nov In Pennsylvania, the Pre-BAPCPA Ride-Through Option Is Still Alive and Well Per State Law
When filing for bankruptcy protection under Chapter 7, of paramount concern to many debtors is the status of their vehicles. There three primary options expressly endorsed by the United States Bankruptcy Code:
- Reaffirmation. Reaffirmation is governed principally by Section 524(c) of the Code. Of concern in post-BAPCPA cases in the vehicle context is the manner in which reaffirmation agreements interact with the imposition of the Automatic Stay. Reaffirmation is an agreement between the Debtor and the lender which is essentially a new commitment post-petition and thus is not affected by the bankruptcy discharge.
- Redemption. Redemption is governed by Section 722 of the Code. Redemption permits a debtor to pay the secured lender an amount equal to the value of the collateral in exchange for a clear title.
- Surrender. Surrender permits the debtor to notify the lender that he or she intends to permit the lender to exercise their contractual right of repossession with regard to the vehicle/collateral.
Doug Jacobs posted a more full explanation of a debtor’s options with respect to vehicles here.
In addition to thee “enumerated” options with regard to vehicles, most bankruptcy courts have long recognized a “fourth option” commonly known as “ride through”. Ride through was a concept embraced by most debtors prior to the change in the law which permitted bankruptcy filers to keep their cars in the event that they took no action beyond keeping up with their car payments. There is language in the April 2005 amendment to United States Bankruptcy Code, known as BAPCPA, which appears to be an attempt by the creditor lobby to eliminate “ride through.” In fact, as obsered by Jay Fleischman, a recent Eastern District case pronounced that the ride through option would no longer be recongized by the Bankruptcy Court.
However, regardless of what bankruptcy courts decide with regard to the “official” existence of ride through in a post-BAPCPA world, the contractual rights of creditors to collateral is governed by state law. A bankruptcy court may decide that the Automatic Stay is no longer in place with regard to a vehicle, along with deciding that the making of payments when they are contractually due will not prevent the Stay from being automatically lifted pursuant to Section 521 and Section 362. A bankruptcy court may not decide whether a creditor may repossess a vehicle in the absense of the Automatic Stay; this issue is the exclusive domain of the state court.
The case of Malachin v. Daimler Chrysler, which is still pending in the Court of Common Pleas of Allegheny County, is directly on point. In this case, the Court rendered a very pithy opinion which states in no uncertain terms that a vehicle lien holder’s contractual right to repossession is not triggered automatically by the filing of a bankruptcy case absent some other form of substantial contractual default, which, by contract, justifies repossession. The Court invalidates the power of the “ipso facto” bankruptcy filing clause in Pennsylvania contracts at least with regard to the remedy of payment acceleration and repossession. In conclusion, the Court ordered Daimler Chrysler to return the vehicle to the Debtor. May Bower Sheats, the attorney for the Debtor in this case, is to be commended for a fine job representing her client.
In light of this opinion, debtors in Chapter 7 may want to reconsider the wisdom of entering into reaffirmation agreements.
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