Debts for Newer High-Cost Vehicles Could Not Be Reaffirmed

Posted by NCBRC - March 29, 2016

The debtors failed to rebut the presumption of undue hardship in their motion to reaffirm two vehicle loans for newer, high-cost vehicles. In re Nielsen, 2016 Bankr. LEXIS 456, No. 15-1596 (Bankr. N.D. Iowa Feb. 12, 2016). The debtors, Lucas Asker and Joy Ann Nielsen, sought court approval to reaffirm two debts totaling over $60,000, at 7% interest, for their 2014 Jeep Wranglers with Collins Community Credit Union. The Nielsens had an income deficit of $1422.22, $1,213.00 of which was attributable to their car payments. In support of their request to reaffirm, the Nielsens stated they had remained current on the debts and would continue to do so, that they needed their cars for work and that interest rates on their loans were lower than they could get if they were to finance a vehicle purchase now.

Because they had negative income, to gain court approval to reaffirm the debts the Nielsens were required to rebut a presumption of undue hardship under section 524(m)(1). The court weighed the debtors’ ability to make the monthly payments against their need for the high-cost vehicles and found that the balance tipped against reaffirmation. While the Nielsens demonstrated their need for vehicles they did not justify the use of high-cost, new vehicles. As far as the higher interest differential, the court calculated that two $15,000 vehicles at 18% interest would result in savings of over $400.00 per month. The court therefore denied the motion to reaffirm.

Nielsen Bankr ND Ia opinion

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One Comment

  • Larry Foyle
    Posted April 4, 2016 at 6:33 pm | Permalink

    I thought that under section 524(m)(2) that the issue of Hardship was ignored if the Creditor was a Credit Union. Though I may not disagree that a debtor should probably not reaffirm high debts on high end vehicles, it seems to me that the Code takes the issue of discretion away from the Courts when the Creditor involved is a Credit Union.

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