Des Moines, IA (Law Firm Newswire) March 30, 2012 – A debtor has to reaffirm their vehicle if they wish to keep it. This is in spite of being current on all payments.
There is a new law relating to how bankruptcy courts handle repossessing a secured asset. It started with Hall vs. Ford Credit in which the debtor had to endorse his vehicle if he were intending to keep it. This was applicable even if the payments on the vehicle were up-to-date, Iowa bankruptcy lawyer Kevin Ahrenholz pointed out.
Before this new law was handed down, when a debtor filed Chapter 7 and had a vehicle which was collateral for a loan, the Bankruptcy Code had three options for them to follow. The first was to give the vehicle up. The second was to redeem the vehicle by paying off the loan. The third was to reaffirm the debt, but remain personally liable for the vehicle after being discharged in bankruptcy. There was a fourth option, brought into existence by case law. It stated a debtor who is current on a secured debt when they filed for bankruptcy may keep the vehicle without reaffirming or redeeming the debt.
The pendulum has started to swing in a different direction with the Hall vs. Ford Credit decision. There are now consequences for failure to reaffirm or redeem when the debtor is current on payments. Those consequences are the termination of the automatic stay or the removal of collateral from property, with any remedies the creditor may have provided by state law. This is an issue that needs to be discussed in depth with a competent Iowa bankruptcy lawyer.
The facts of this case center on Dennis Hall from Kansas and Ford Credit. Hall financed his loan in 2006 with Ford and stayed current, filing Chapter 7 bankruptcy nine months after buying the truck. The bankruptcy successfully relieved Hall of his truck liability and he declined to reaffirm. Once the bankruptcy was discharged, Ford started the repossession process for the truck even though Hall was still current in his payments. Hall sued Ford for possession stating he was current and therefore not in default.
Ford replied stating they doubted they could collect payment or any collateral from Hall. Ford won in the lower courts, but Hall went to the Supreme Court. The verdict that will change the bankruptcy landscape was handed down in May 2011 by the court affirming the lower court’s decision, but disagreeing with the suggestion the debtor’s bankruptcy necessarily demonstrated that payment was impaired. They suggested circumstances may be present on filing bankruptcy that show the debtor’s continued payment under the installment contract is more likely than not.
Ford Credit was able to prove they had gotten a clear and distinct message that getting payment from Hall would be highly unlikely and courts agreed. Hall lost his argument, and bankruptcy law got even more complicated and complex. For anyone facing a similar situation, common sense would dictate making an appointment with an experienced Iowa bankruptcy lawyer to find out what does and does not apply when it comes to keeping or paying on a vehicle involved in a Chapter 7 bankruptcy filing.
Kevin Ahrenholz is an Iowa bankruptcy lawyer and Iowa bankruptcy attorney. To contact an Iowa bankruptcy attorney, Iowa bankruptcy lawyer, or set up an appointment, visit http://www.iowachapter7.com or call 1.877.888.1766.
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