The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 forever changed the way courts handle repossessing a secured asset. Recently this new law was affirmed by the courts.
Creditors have to have some guaranteed protection to ensure if someone goes bankrupt on them, that they have recourse to collect some or all of their outstanding money. Things got easier for creditors after 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) changed how courts handle repossession of secured assets.
Just recently, the Kansas Supreme Court upheld that law in Hall vs. Ford Credit Motor Credit Company Inc. No. 103370. In a nutshell, their finding indicated that a debtor “must” reaffirm their vehicle if they want to keep it, even if they were keeping current on all of their car payments.
Things didn’t used to be that way. At one time, when a debtor filed a Chapter 7 bankruptcy and owned a vehicle that was used to secure a loan, the bankruptcy code offered that debtor three options: give up the vehicle; redeem it by paying the loan; or, reaffirm the debt and stay liable to the creditor after the bankruptcy discharge.
And then, there was a fourth option – thanks to case precedent – that said that a debtor who was current on a secured debt at the time of filing a bankruptcy could keep the property without redeeming or reaffirming the debt. Now, the BAPCPA makes things crystal clear. There are consequences for not redeeming or reaffirming when the debtor is current on payments. Ending the automatic stay or removing the collateral from property now comes into play, and the creditor’s remedies are provided by state law.
Now, more about the story of Hall vs. Ford Credit Motor Credit Company Inc. No. 103370. Mr. Hall was from Kansas and had financed a Ford with a loan in 2006. He always kept his loan current, but filed for Chapter 7 in 2007, approximately nine months after buying the car. Hall’s bankruptcy tore away any liability he had for his car and he would not reaffirm.
After the automatic stay was lifted and he was discharged, Ford Credit initiated the repo process to reclaim the vehicle even though Hall was current on his loan. He chose to sue Ford Credit, so he could keep the car on the grounds that he was currently up-to-date on payments and “not” in default. Ford wasn’t happy with that turn of events and challenged his claim, indicating they were under the impression he wasn’t going to be paying for his vehicle or live up to any other clause in the original contract. Ford won in the lower courts and the plaintiff carried on to the Supreme Court of Kansas.
In essence, the court indicated that they affirmed the lower court’s decision, but issued a warning that they disagreed that the debtor’s Chapter 7 established that the prospect of getting money, performance or realization of the vehicle (collateral) was significantly impaired. They further stated that circumstances which existed when debtors filed for bankruptcy may indicate they “would” continue to perform under the installment contract. In other words, don’t judge a debtor by his bankruptcy.
In plain English, this decision indicated that Ford Credit had proved its initial case that it had evidence of a compelling nature that they had received significant impairment of the prospects of payment. Hall lost his battle, and Ford’s interpretation of Hall going bankrupt prevailed, meaning he’d likely not pay Ford what he owed them was acceptable, but not in “every” case.