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“Back Door Ride Through” and Chapter 7 Bankruptcy

When it comes to a chapter 7 bankruptcy one really needs to make informed decisions, and some decisions just require an attorney’s expertise and guidance.  Just because something may be acceptable as a standard practice that doesn’t mean it will be seen that way by the all knowing eyes of the judicial system.

For example, one important, confusing, and often overlooked area in the bankruptcy process is that of re-affirmation agreements, which are typically used to keep vehicles. This mechanism, as opposed to discharging a creditor in a bankruptcy, is the concept of establishing a new payment plan termed a ‘re-affirmation agreement”. In essence, you are entering into a new contract that will be in effect upon completion of the bankruptcy.  Ironically, it has to be something that the borrower can readily handle without undue hardship.[1]

Although both parties may agree upon what they believe is a satisfactory arrangement, final approval of any re-affirmation agreement is at the discretion of the judge, and judges deny more re-affirmation agreements than they approve.  The drawback, if the re-affirmation is actually approved – is that the debt is not discharged in the Chapter 7 Bankruptcy, and the creditor will come after you, once again, and for money, if you fail to make any payments in the future.  Sort of defeats the point of bankruptcy – does it not?

What if I keep paying on my loan, will they take my car then?  The answer is MAYBE!

Contradictions?  Oh yes, and in summary,  In re Dumont, 383 BR 481 (9th Cir BAP 2008) clearly suggests that failing to ask for a re-affirmation on the initial petition creates a set of circumstances whereby vehicle owners, even with their payments current, can and may lose their vehicle to repossession after discharge of the bankruptcy.  In other words, a debtor who made payments, is current on payments, may still lose their car.  Key point here – At least to drivers who did not initially seek reaffirmation.


As noted above in my Key Point – At least to drivers who did not initially seek reaffirmation, – butwhat happens if you try to re-affirm and the judge denies the re-affirmation, or the re-affirmation fails in some other manner?  Well, that is where it gets VERY interesting.


As a result, a fourth option has begun to take shape.  This option is not listed on the Chapter 7 Bankruptcy Petition (I’ve looked, there is no check box), and it is often referred to by the courts as “the backdoor drive-through option”.  Obviously, this is a much grayer area of the law as it is not specifically addressed in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005.  If fact, many argue part of the BAPCPA’s intent was to do away with such a concept altogether.

Of interest, is the apparent position the judicial bench has taken regarding this matter.  It appears, that Judges are very reluctant to approve re-affirmation agreements, particularly for vehicles. See video of Judge Eileen W. Hollowell.


Likewise, try and find an bankruptcy attorney that will signoff on a reaffirmation agreement (good luck).  Here is my thought as to why – liability to the attorney and dereliction on behalf of the judge.  Simply put, “a number of judges have ruled that “pay and drive” survives bankruptcy reform if the debtor signs a reaffirmation agreement that is denied by the judge as not being in the debtor’s interest.  Lose in court and drive away in your car!”  Cathy Moran, Keep Your Car Through Bankruptcy Without Risk, Bankruptcy Law Network, (2009).


Another, related and very interesting memorandum In re Nelson, 9 ABR 20, Ch. 7, (2008), reveals some very interesting points concerning the concept of a “backdoor ride-through”, and why courts may be so reluctant to approve those re-affirmation agreements.  In other words, it just isn’t in the best interests of the debtor!  But…, don’t forget to ask for the re-affirmation anyway.  In fact, the Honorable Judge Herb Ross cautioned the two separate creditors in the memorandum regarding In re Nelson to be sure to obtain a ruling through the bankruptcy court prior to taking any actions against the borrowers, as the creditors may incur liability for violating the discharge injunction – why?  Because the debtors requested re-affirmation.

Often judges when rendering a decision will rely on previous case law to help them reach and support their decisions.  In particular, In re Moustafi, 371 B.R. 434, 438 (Bankr. D. Ariz. 2007) is often used in supporting “backdoor drive-through” policies when a debtor has requested re-affirmation.

For example, “With the reaffirmation agreement not approved, the debtor still complied with § 521(a)(6), § 521(a)(2), and § 362(h), and can maintain his collateral so long as he does not default. The denial of a reaffirmation agreement, along with debtor compliance with BAPCPA provisions, allowed the courts to continue the ride-through after BAPCPA.” Christopher M. Hogan, Will the Ride Through Ride Again?, 108 Colum. L. Rev. (2008).


It appears, the courts can sanction a “backdoor ride through” by denying the reaffirmation agreement. Huh? No wonder the attorney won’t sign off and the judges prefer to deny them.  And, your best course of action would be to request the re-affirmation on your bankruptcy petition, and pray it is denied by the court.  Keep paying on the loan, maintain insurance, and keep on driving, or “pay and drive” will then apply.

However, if at some point you cannot afford the payments, well – the loan was discharged anyway, so you wouldn’t have to worry about a lawsuit for monies owed.  Of course, if you stopped paying altogether – they would still take the car.

[1] Brunner v. New York State Higher Educ. Services, 831 F. 2d 395 – (Ct. Appl. 2ND Cir. 1987) (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.

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