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    Execute a Reaffirmation Agreement to Save Your Car!

    In a disappointing decision dated September 15, 2009, the Ninth Circuit Court of Appeals issued its ruling in Doan Law Firm’s Dumont appeal.   This split 2 to 1 decision established new law in the Ninth Circuit.  Essentially, it overturned the long established “Ride Thru” options for debtors that wanted to keep their vehicles in bankruptcy without signing reaffirmation agreements.

    Dumont now holds that the general “Ride Thru” option is no longer available due to the BAPCPA amendments to the Bankruptcy Code in 2005.  But there is good news! Dumont  also appears to have created alternative pseudo “Ride Thru” options as long as reaffirmation agreements are involved.  Thus this firm strongly recommends exploring reaffirmation agreements in every case where a debtor wants to keep a vehicle secured by a debt.  If done properly, “Ride Thru” is still possible, and simply requires a few extra hurdles to accomplish.  Thus this firm, like the Ninth Circuit, has now taken a 180 degree turn with respect to its position on reaffirmation agreements.

    HISTORY:  Prior to Dumont, bankruptcy attorneys looked to the Ninth Circuit’s Parker decision, which allowed debtors to keep their vehicles without executing reaffirmation agreements.  A debtor could “ride thru” a bankruptcy with respect to secured debt as long as the debtor was current on payments.

    In doing so, debtors could keep vehicles and other secured assets so long as the monthly payments were up to date.  By law, creditors were prohibited from repossession or taking any other actions with respect to the secured asset despite the discharge of the underlying debt and elimination of personal liability, so long as payments were up to date.

    This “Ride Thru” law was significant since avoiding the execution of a reaffirmation agreement avoided the resurrection of a debt that would have previously been discharged.  Resurrecting a debt to be discharged with a reaffirmation agreement is often bad since, if a debtor later defaulted due to job loss, financial emergency, or other financial setback, the creditor still had recourse against the debtor.  In no uncertain terms, after default, a creditor could sue the debtor, garnish wages, levy bank accounts, file liens on property, take property, and other actions.  Thus being able to “ride thru” a bankruptcy without having to sign a reaffirmation agreement was significant in alleviating debtors from these liability and exposure risks.

    Thus “Ride Thru” also provided an escape hatch.  If a debtor could no longer afford payments, the debtor could simply surrender the secured asset at any time without liability.  The creditors’ sole remedy for default was to pick up the vehicle, nothing more.  A creditor also could not report the debt as delinquent, that a repossession occurred, etc.

    This previous system worked well.  Creditors appreciated “ride thru” since in many instances, they were being paid substantially more than what they could recover at auction in the event of repossession.  This is because debtors who entirely paid off their vehicles under “Ride Thru” usually did so on a debt greater than the fair market value of the car.  Debtors appreciated paying a debt greater than the fair market of the vehicle since they avoided the future high interest rates associated with a new vehicle after filing bankruptcy, avoided the hassle and time constraints involved in the purchase of a vehicle after bankruptcy, avoided being turned down at some dealerships, etc.

    DUMONT RIDE THRU:  While Dumont has effectively eliminated “Ride Thru” as provided for by Parker prior to October, 2005, a new type pf “Ride Thru”  has now emerged  where the debtor has attempted reaffirmation.  As the Ninth Circuit made clear in Dumont:

    At least where the debtor has not attempted to reaffirm, our decision in Parker has been superseded by BAPCPA.

    Thus the Ninth Circuit specifically tailored its ruling to cases where a debtor never attempted to reaffirm the underlying debt.  As a result, the growing trend among Courts throughout the Country is in finding “Ride Thru” in situations where a debtor only attempts the reaffirmation process as stated in their statement of intention.

    Accordingly, Doan Law Firm is committed to creating the “Dumont Ride Thru” using the following three steps:

    1) Indicate on the statement of intentions that the secured debt will be reaffirmed.

    2) Debtor executes the Reaffirmation Agreement.

    3) Doan Law Firm attorney executes the reaffirmation agreement indicating that an undue hardship exists.

    By doing so, the debtor performs the statement of intention, and performs the reaffirmation action, as required under the Bankruptcy Code.  Yet a new issue arises due to the attorney execution indicating an undue hardship.

    The attorney execution attesting to an undue harship ultimately creates the “Dumont Ride Thru” by creating an unenforceable reaffirmation agreement per 11 USC 524(c), and/or either by the creditor declining to file it, or the Bankruptcy Court denying it.

    So in any case where you have a secured vehicle in a Chapter 7 Bankruptcy, please contact Doan Law Firm immediately to make sure your rights are protected under the “Dumont Ride Thru.”

    Written by Michael G. Doan– Owner of the Carlsbad Bankruptcy Attorney Office, Michael also manages his business and is a highly skilled Bankruptcy Attorney with over 17 years of experience.  Michael is currently concentrating his practice solely in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification, one of only fourteen such attorneys in all of California.

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