Role of Court in Reviewing Attorney-Approved Reaffirmation

Pursuant to 11 U.S.C. § 524, after filing a bankruptcy petition, a debtor may enter into a contract with a creditor in which he agrees to pay an otherwise dischargeable debt. 11 U.S.C. § 524. To be binding, such an agreement reaffirming a debt must comply with the requirements set forth in 11 U.S.C. § 524(c). When a debtor is represented by counsel, as the Debtor was here, a reaffirmation agreement between the debtor and a creditor is enforceable, to the extent enforceable under applicable nonbankruptcy law, only if: (1) the agreement is made prior to the entry of the debtor’s discharge, (2) the debtor receives certain disclosures set forth in § 524(k), (3) the agreement is filed with the bankruptcy court and the debtor’s counsel signs an accompanying affidavit or declaration attesting that (a) the agreement represents a fully informed and voluntary agreement by the debtor, (b) the agreement does not impose an undue hardship on the debtor or a dependent of the debtor, and (c) such counsel has fully advised the debtor of the legal effect and consequences of the agreement and any default under such agreement, and (4) the debtor has not rescinded such agreement at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later. See 11 U.S.C. § 524(c). If these requirements are met, and the debtor was represented by counsel during the negotiation of the agreement, the agreement becomes effective immediately upon being filed with the court so long as there is no presumption of undue hardship. 11 U.S.C. § 524(k)(3)(J)(i).2 A presumption of undue hardship exists if the debtor’s monthly income less the debtor’s monthly expenses, as shown on the debtor’s completed and signed statement in support of the agreement, is less than the scheduled payments on the reaffirmed debt. 11 U.S.C. § 524(k)(6)(A) and (m).

If a presumption of undue hardship exists, the presumption “shall be reviewed by the court.” 11 U.S.C. § 524(m)(1). The presumption may be rebutted in writing by the debtor by identifying “additional sources of funds to make the payments.” Id. If the presumption is not rebutted to the satisfaction of the court, the court may disapprove the agreement, but only after “notice and a hearing to the debtor and creditor, and such hearing shall be concluded before entry of the debtor’s discharge.” Id.

If the agreement meets all the requirements of 524(c) and if schedules I and J show that there is sufficient disposable income to make the reaffirmation payment, and if the Debtor was represented by counsel during the negotiation of the agreement, it becomes effective immediately upon filing with the bankruptcy court. In re Morton, 410 B.R. 556 (6th Cir. B.A.P. 2009)(disapproval of a Reaffirmation reversed where bankruptcy court had looked up the value of the reaffirmed vehicle and concluded that the car was not worth the reaffirmed amount, and, as a result, was not in “the best interest of the debtor”). The Morton court opined that the “best interest of the debtor “determination“ is only required in the case of a debtor who was not represented by an attorney during the negotiation of the agreement and the debt is not a consumer debt secured by real property.” Morton, 410 B.R. 556 at 562.

Although bankruptcy courts retain broad discretion to look beyond attorney certifications to determine whether a presumption of undue hardship exists, “a bankruptcy court may not disapprove an attorney certified reaffirmation agreement solely because the court believes it is not in the best interest of the debtor. “ Id. The best interest requirement is limited to cases involving a debtor who was not represented by an attorney during the negotiation of the agreement and the debt is not a consumer debt secured by real property. Id. Given the language added to section 524 by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub.L. No. 109–8, 119 Stat. 23, that attorney certified reaffirmation agreements are effective upon filing so long as there is no presumption of undue hardship, see 11 U.S.C. § 524(k)(3)(J)(i), “a bankruptcy court’s review of attorney certified agreements should be focused on the presumption of undue hardship under section 524(m) and whether the attorney’s certification complies with Rule 9011.” In re Morton, 401 B.R. 556 at 563.

In addition, a bankruptcy court may only disapprove an attorney certified reaffirmation agreement for undue hardship after notice and hearing. See 11 U.S.C. section 524(m)(1).