Reopening a Chapter 7 in Order to File a Reaffirmation
IN CHAPTER 7, REOPENING A CLOSED CASE FOR THE PURPOSE OF FILING A REAFFIRMATION AGREEMENT. 11 U.S.C. 350(b); 11 U.S.C. 524(c)(1)
Whether the proposed Reaffirmation needs to have been timely signed by Debtor(s) and the lienholder, or just by Debtor(s)?
Typically, in Chapter 7 practice, the lienholder sends to Debtor’s counsel a proposed Reaffirmation. The Reaffirmation arrives at Debtor counsel’s office without a signature from the lienholder. Debtor’s counsel has debtor execute the agreement and has the Debtor(s) execute the document. Debtor’s counsel then sends it to lienholder for execution and filing with the Bankruptcy Court. On occasion, the lienholder fails to timely file or, simply loses the document. In current practice, due to required cost savings, some lienholders utilize services in India, the Philippines, or other distant locations. My office has found that in recent years timely filing of Reaffirmations by lienholders has become a recurrent problem.
As a result, motions under 11 U.S.C. 350 are more common and necessary.
The case law, of course, allows the reopening if the document was “made” before the statutory deadline. 11 U.S.C. § 524(c) requires that a reaffirmation agreement be “made before the granting of the discharge,” ( § 524(c)(1)) and be “filed with the court.” ( § 524(c)(3))
The legal issue is whether the pre-discharge signature of the lienholder is needed, or, rather, the pre-petition consent of the lienholder. See, Matter of Turner, 156 F.3d 713 (7th Cir. 1998)(Reaffirmation denied where Reaffirmation filed by counsel without “consent” of lienholder). In Turner the Court suggested that a signature by lienholder is the best proof of “consent” but, the Court did not conclude that it was the only method of consent.
It is submitted that only consent is required and the preparation and issuance of the proposed Reaffirmation to Debtor’s counsel constitutes “consent” on the part of the lienholder.
One Court opined that in a decision to reopen a case for the purpose of filing a Reaffirmation should involve an emphasis of substance over technical considerations and consider the benefit to the debtor, prejudice to affected entities, and benefit to the debtor’s creditors. In re Mortensen, 444 B.R. 225, (Bankr. E.D. N.Y. 2011).
The desire of a debtor to Reaffirm (and thereby become again obligated on a note that has been discharged) at first blush, seems counter-intuitive. However, at least one lienholder, Ford Motor Credit, has asserted the position that without a Reaffirmation it would no longer accept payments and would seek recovery of the vehicle.