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Related Keywords: reaffirmation . ride-through . secured debt . surrender .

Case Law Topics

  • Secured debt: "Ride Through" still viable after BAPCPA? Can debtor keep keep property by making payments if reaffirmation submitted and rejected by court?

    Before the passage of BAPCPA in 2005, five Circuit Courts had held that a "fourth option" existed in addition to the choices of "redemption" "reaffirmation" and "surrender".

    This fourth option was nicknamed the "ride through" which essentially meant that the debtor's personal liability for the original debt was discharged, but the creditor was precluded from repossessing the item so long as the debtor remained current on the original contract payments.

    In a "ride through" scenario, if the item suddenly becomes worthless, due to, say a car accident or deterioration, the debtor can simply stop making payments, surrender the now-worthless property, and owe not a penny more.

    Understandably, ride through is an attractive option that consumer bankruptcy lawyers advocated for their clients in the jurisdictions that allowed it.

    The question now is whether this option still exists.

    At first blush, it looks like BAPCPA eliminated the "ride through" option, and many courts have ruled that way.

    However, a strong argument has been made and followed by some courts that IF a debtor submits a reaffirmation agreement for approval, the court can effectively grant a "backdoor ride through" by disallowing the reaffirmation -- thereby satisfying the new law's requirement that the debtor pick one of the three options -- in this case reaffirmation.
    The judge cooperates in setting up the ride through by disapproving of the reaffirmation on the grounds that the "ride through" option will give the debtor a much better deal, and as a consequence, the reaffirmation is not "in the debtor's best interest" as required by law.

    End result: the contract goes forward under state law, whatever it happens to be. The Federal judges ruling on a matter of Federal Bankruptcy law is limited to only those provisions affected by it -- in this case, the debtor's personal liability for the debt is NOT reaffirmed, other aspects of the contract may still be enforceable under state law.

    In some states, this means that that, as long as the debtor remains current on the payments, the property can't be repossessed, but the debtor is is no longer personally liable for unpaid amounts in the case of a default, but the property must be surrendered)

    The Columbia Law Review Article makes the case that ride through should survive in those jurisdictions that allowed it.

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