The Law Offices of Ken McCartney P.C.







The BAPCPA OF 2005 took away the fourth choice we enjoyed in the 10th circuit before October 17th, 2005.  Prior to that legislative limitation a debtor could treat a secured creditor, by surrendering its collateral; redeeming consumer collateral, reaffirming the debt (i.e. agreeing to responsible just as if no bankruptcy has been filed, or simply keeping the contract payments current (the 4th choice).  Now, without the fourth choice,  reaffirmations are necessary and potentially dangerous for debtors.  

The process whereby a pre-petition debt is voluntarily excluded from the operation of a discharge (usually a Chapter 7 circumstance) is called re-affirming the debt. The reaffirmation process is closely controlled by the Bankruptcy Court as it has been the subject of much abuse over the years.

Prior to the 1978 bankruptcy reform legislation, many creditors coerced debtors into reaffirming their loans by threatening protracted litigation over dischargeability issue. Perhaps because of some insignificant omission on the credit application being a A false writing@ used to obtain credit. The bankruptcy law, which is in effect today, has built in penalties for an unsuccessful challenge to dischargeability.

    1. Currently the Bankruptcy Court is required to approve all reaffirmation agreements involving debt other than a debt secured by the debtors= residence. Residential reaffirmations must, however, be filed with the court as are all reaffirmation agreements. Reaffirmations, to be effective, must be filed with the Bankruptcy Court BEFORE THE ENTRY OF THE DEBTORS= DISCHARGE. A debt cannot be legally reaffirmed after entry of discharge.
    2. Debtors who have an attorney must have an attorney= s approval to enter into a binding reaffirmation agreement. This applies to all debt, any portion of which is based on a debt that would be discharged.

Once a debt is reaffirmed, the obligation is treated as it was treated before the bankruptcy was filed. Personal liability exists. This is problematic for an under secured claim in the event of a future default. This means that with a reaffirmation agreement in place, the debtors, in the event of a default foreclosure sale, and a resulting deficiency, will be responsible for all of the deficiency, if one, results. With no reaffirmation agreement, any deficiency is discharged by the bankruptcy.

Sounds straight forward, but it is not.


In Colorado and Wyoming, the controlling court has become involved with a ruling that creates an interesting result for cases filed before October 17th, 2005.

The case of Lowery Federal Credit Union v. West, 882 F.2d 1543 (10th Circ) was decided in 1989. It basically holds that if a debtor pays the contract payments on a secured obligation, the creditor may not declare the loan in default, based solely on having defined bankruptcy as element of default. Default status is required to allow the loan to be accelerated and foreclosed.

In simple English, IF debtors pay a creditor, the debtors may keep the creditor= s collateral. No formal reaffirmation is required, AND, no personal liability is involved. If a debtor misses a future payment, the creditor may foreclose, but not seek any resulting deficiency from the debtors who default some time after a bankruptcy discharge.

The 10th Circuit has joined other courts with a Afourth choice@ whereby a secured creditor=s collateral can be retained. There is a choice on a Wyoming and Colorado debtors= Statement of Intention page in addition to surrender, redeem, or reaffirm:

click here to see a statement of intentions page as used in a chapter 7 bankruptcy

This literally means that Chapter 7 debtors are able to turn secured claims into A non recourse paper.@ The claimant has no recourse against the debtor personally, only recourse as to the collateral. Try and find a non-recourse car loan without bankruptcy. You will not be able to find one.

Creditors have not enjoyed the consequence of this law. Many refuse to send monthly statements without formal reaffirmation agreements. Some have tried to refuse payments, but the court, or just the threat of Bankruptcy Court action, brings a halt to that.


The overwhelming benefit to ARetain, Keep Current@ treatment of a secured claim makes it this office= s choice in almost every instance. Many attorneys in these districts refuse to do reaffirmation agreements entirely. What might be a good exception;


Non-recourse borrowing is wonderfully safe.

On the other hand, most lenders refuse to negotiate from that position. A note that needs re-negotiating will probably require reaffirming.

Unfortunately, reaffirmation is only effective if done prior to the entry of the discharge B normally sixty (60) days from the date of the ' 341 meeting B around sixty to ninety (60-90) post filing.

Can anyone tell me why anyone would reaffirm on an unsecured loan? Pay a relative=s debt, maybe, but reaffirm? Here are a few situations when reaffirming makes sense:

$ when the creditor will re-negotiate to much more favorable terms in order to gain recourse on an overly secured loan;

$ to retain a valuable working relationship with a trusted bank or banker;

$ perhaps to gain a co-signer= s release;

$ to preserve the lender= s ability to modify the loan in the future at the Debtor= s request.


Many times after a bankruptcy, a debtor client will call complaining that when they approached a creditor to A re-do@ a loan that was retained by keeping payments current, A the creditor declines.@ Often A based on the failure of your attorney to forward a reaffirmation agreement.@ Yeah, sure. Had there been a reaffirmation, there could easily have been another reason why a creditor would not choose to re-work a debtors= loan. No law requires any lender to lend.

My question is, if the loan needs re-working post-petition, would I have been doing the client a service allowing personal liability? Resolving a retained, A keep current@ debt can include walking away from the collateral and the loan.

The resulting confusion often times requires informed consideration and tough choices by individual debtors. There is no approach that works in every instance for everyone.

I currently do not recommend or encourage reaffirmation agreements. I do not sign off on reaffirmation agreements of debt with interest rates over 12%. I do not forward a creditor= s routine request for a reaffirmation to a client. I do not approve reaffirming unsecured credit card debt. I discuss refinancing multiple credit lines at attractive credit union rates during initial client interviews, as these most often come within the possible exceptions that make reaffirmation sense.


Currently our office is doing reaffirmations in cases where the debtor wishes to retain collateral for a fee of $200 per reaffirmation agreement.  We attempt to negotiate more favorable terms where possible and labor under the pressure of the discharge date being a deadline by which the agreement has to be signed by all parties and filed with the court.

The bankruptcy code is clear, "debtor's counsel," the attorney that files the petition, is not required to represent the debtor in the reaffirmation process.  There are debts for which counsel will not sign off on as required in order to effectuate a reaffirmation agreement by debtors represented by counsel in a bankruptcy case.  High interest unsecured credit is not a benefit to most debtors.



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