Georgia Bankruptcy Blog

In In re Lynas, 2006 Bankr. LEXIS 1072 (Bankr. E.D. Pa. June 16, 2006), the court reviewed and applied the new requirements for Reaffirmation Agreements set forth in §524.  The enactment of the BAPCPA added several new requirements, generally set out in §524(k).  One of the new requirements is that the debtor  provide a statement listing his monthly income and his monthly expenses, and demonstrate that there is enough left to pay the debt to be reaffirmed.  See §524(k)(6)(A).  Otherwise, there is a presumption of "undue hardship" and judicial review is mandated.  See §524(m)(1).  Th debtor may also rebut the presumption. Id.

However, the §524(k)(6)(A) statement, alone, is insufficient to meet the debtor's burden.  The debtor also has to disclose and explain any discrepencies between the statement and the numbers provided in Schedules  I and J.  See Interim Rule 4008.  This prevents a debtor from using one set of numbers for filing the petition, and another set to justify a reaffirmation, but recognizes that situations change. In this case, the debtors §524(k)(6)(A) statement reflected sufficient funds to pay the debt to be reaffirmed, but she did not file the Rule 4008 statement.  The court noticed that her Schedules I & J revealed insuffucient funds to pay the reaffirmed debt.  In the absence of an explanation, the court had to look beyond the reaffirmation statement and to the case as a whole to find that a presumption of undue hardship existed.  Thus, judicial review was mandated.

The court then addressed the standard of the court's review as the subsection (unlike the subsection for unrepresented debtors)  did not set forth any specific requirements.  The court noted that the review could include just ability to pay and undue hardship (ie, enough to get by the ststutory presumption of §524(m)),  or it could also include a determination of what is in the best interest of the debtor.  For example, since the debt at issue was an automobile, the court could consider the necessity of the vehicle and whether the disapproval of the reaffirmation agreement would lead to the debtor's loss of the vehicle.

Alas, the letdown is that the court did not determine what standard it would use as the debtor failed to appear and rebut the presumption of undue hardship.  The court also declined to guess whether a debtor could keep a secured vehicle without reaffirming or redeeming, although pre-BAPCPA law in the Circuit was that a debtor could "ride through" and make payments. 

While the case does not exactly break new ground, it does illustrate that reaffirmation agreements are no longer the short forms executed by the debtor's attorney and promptly filed and forgotten.  A debtor and counsel must jump several additional hoops and get it right the first time if a discharge is imminent.

 

Scott, as you correctly point out, reaffirmation agreements are no longer the quick and dirty one page documents used pre-October 17. As a practical matter, the new 10 page reaffirmation procedure is another example of the useless complexity brought about by the new law. As the debtor's lawyer, I now have more work to do in filling out these documents and more potential liability. So, I have to charge more. And for what? The budget that my client helps prepare and signs as true under penalty of perjury includes the reaffirmed debt monthly payment. Further, except in very unusual circumstances, what ability do I have as the debtor's attorney to judge whether a reaffirmation is in the debtor's best interest. Do you really see Bankruptcy Judges taking the time to evaluate the viability of a reaffirmation? In my view, this new reaffirmation process is a waste of time and resources and it does nothing to protect the debtor.