Bankruptcy Cannot Be Reopened to Permit Reaffirmation Agreement

Posted by NCBRC - January 2, 2014

Some banks are refusing to enter into post-discharge mortgage modification agreements when debtors have not reaffirmed the debt in bankruptcy. In In re Conner, No. 09-42532 (Bankr. S.D. Ga. Oct. 25, 2013), the debtor moved to reopen his chapter 7 bankruptcy in order to reaffirm his mortgage and clear the way to enter into a mortgage modification agreement with Wells Fargo. The bankruptcy court denied the debtor’s motion because section 524(c) specifies that a reaffirmation agreement must have been made before discharge. The court reasoned that because a reaffirmation agreement made post-discharge is unenforceable, reopening the case would be an exercise in futility. See also In re Owens, No. 10-72509 (Bankr. W.D. Va. Aug. 9, 2013) (court has no authority to reopen to allow for reaffirmation agreement); In re Bye, No. 12-15773 (Bankr. S.D. Ohio March 12, 2013) (same).

In so holding, the Conner court joined the majority of courts that hold that a reaffirmation agreement made post-discharge is unenforceable. See, e.g., In re Roderick, 425 B.R. 556 (Bankr. E.D. Cal. 2010); In re Stewart, 355 B.R. 636, 638–39 (Bankr. N.D. Ohio 2006); In re Gibson, 256 B.R. 786, 788 (Bankr. W.D. Mo.2001); In re Rigal, 254 B.R. 145, 148 (Bankr. S.D. Tex.2000); In re Collins, 243 B.R. 217, 220 (Bankr. D.Conn.2000); In re Reed, 177 B.R. 258, 259–60 (Bankr. N.D. Ohio 1995); In re Whitmer, 142 B.R. 811, 814 (Bankr. S.D. Ohio 1992); In re Brinkman, 123 B.R. 611, 612 (Bankr. N.D. Ind.1991); Winters Nat’l Bank & Trust Co. v. McQuality ( In re McQuality ), 5 B.R. 302, 303 (Bankr. S.D. Ohio 1980); In re Mardy, 2011 WL 917545, at *3 (Bankr. E.D. N.Y. Mar. 15, 2011); In re Engles, 384 B.R. 593, 598 (Bankr. N.D. Okla.2008); In re Clark, 2010 WL 5348721, at *5 (Bankr. E.D. N.Y. Dec. 21, 2010); In re Suber, 2007 WL 2325229, at *3 (Bankr. D. N.J. Aug. 13, 2007). The equitable powers of the court under section 105 do not override the language of section 524(c) and the disfavoring of reaffirmation agreements in general. In re Bellano, 456 B.R. 220, 223 (Bankr. E.D. Pa. 2011). But see, e.g., In re Edwards, 236 B.R. 124, 126-27 (Bankr.D.N.H.1999) (permissible to vacate discharge for purpose of reaffirming debt).

Bankruptcy attorneys frequently advise their clients not to sign reaffirmation agreements binding them to the terms of a lending agreement because doing so eliminates the discharge of the debtor’s personal liability upon conclusion of the bankruptcy. Chen . By requiring debtors to reaffirm the debt in bankruptcy before they will consider loan modification, banks are essentially demanding that debtors remove themselves from the protection of the bankruptcy court and pin their financial security, in the event they cannot keep up with mortgage payments, on the banks—an unpalatable prospect. In states allowing post-foreclosure deficiency judgments, where bankruptcy discharge eliminates the debtor’s exposure to deficiency liability, see In re Rogers, No. 08-8341 (Bankr. E.D. N.C. July 8, 2013), a reaffirmation agreement may have particularly devastating consequences. Beede . In re Roderick, 425 B.R. 556 (Bankr. E.D. Cal. 2010). Additionally, a debtor who has reaffirmed a debt in bankruptcy becomes ineligible for mortgage modification under HAMP. See In re Bellano, 456 B.R. 220 (Bankr. E.D. Pa. 2011) (creditor’s requirement that debtors reopen bankruptcy to file reaffirmation agreement contradicts HAMP language limiting eligibility to those chapter 7 debtors who have not reaffirmed their mortgage debt). Thus, a bank requirement that loan modifications are contingent upon reaffirmation, places an often insurmountable hurdle between the debtor and access to more manageable loan terms.

Conner opinion

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One Comment

  • robin Wyatt
    Posted January 7, 2016 at 8:55 pm | Permalink

    I have recently had comments from mortgage loan officers that the current underwriting standards are punishing prospective borrowers who have a bankruptcy in recent years but did not reaffirm their home loan, being current and continuing to make their regular payments. The mortgage underwriters have labeled this “pay and stay” and are extending the time it takes to recover from bankruptcy and either refinance or move to a new home.

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