Presumption of Undue Hardship with Reaffirmation of 2 loans

[LostNFound]

Hello. We filed for Chap 7 bankruptcy in July. We finally had our 341 meeting in September and received paperwork that our case should be closed Dec 14. However, yesterday, we received 2 letters from 2 different banks that we are reaffirming our debt. Both have a box checked that states "Presumption of Undue Hardship". One of the loans is for our primary car and the other is a 3rd mortgage on our house.

I'm freaking out a little bit because I don't know what we will do without either of those things. I need my auto for work and I can't get a loan for anything else. It was also my understanding that we HAVE to pay the 3rd mortgage or lose our house? Since it's attached to my home, what other option do I have other than pay it? I can't imagine that they will take my house because they assume I can't afford it? But I don't know.

Finally, we don't have the meeting with the judge until Jan 5th, 2011, for the hearing about our 'presumption of undue hardship'. I'm beginning to wonder when we will EVER get through this and KNOW that it is done and over. So far, it's looking like 7+ months!!

Anyone have experience with this (hearing for presumption of undue hardship) and do I have anything to worry about?

Thanks

[tobee43]

in iowa this is taken from a case dealing with a hearing for presumption of undue hardship in United States Bankruptcy Court

for the Northern District of Iowa.....it's just an example for you as to see what can or cannot happen. i have provided you with the link below on the actual case. but it will generally let you know what happens and why....at least in this case.

--------------------------------------------------------------------------------
WOJCIECH STANISLAW TARNOWSKI and DAUNUTA GIEDRYS-TARNOWSKI Bankruptcy No. 08-02262
Debtor(s).



CONCLUSIONS OF LAW

Section 524(c) allows a debtor to reaffirm debt that would otherwise be dischargeable unless reaffirmation would pose an undue hardship on the debtor. In re Chim, 381 B.R. 191, 195 (Bankr. D. Md. 2008). The Bankruptcy Code includes provisions aimed at ensuring “that debtors do not fall victim to coercive and deceptive actions by creditors and to make sure that debtors understand the consequences of entering into such agreements.” In re Schmidt, 397 B.R. 481, 482 (Bankr. W.D. Mo. 2008) (citations omitted). These include disclosures relating to the legal ramifications of reaffirmations. See 11 U.S.C. § 524(k).

If the debtor is not represented by an attorney, the court must hold a hearing to inform the debtor that the reaffirmation agreement is not required and describe the legal consequences of reaffirming debt. 11 U.S.C. § 524(d). The court may also deny a reaffirmation agreement if it concludes that reaffirmation is not in the best interests of the debtor or poses an undue hardship. 11 U.S.C. § 524(c)(6).

If the debtor is represented by an attorney, the debtor’s attorney is required to sign a declaration stating that (1) the debtor was informed and entered the agreement voluntarily; (2) the debt does not impose an undue hardship; and (3) the attorney has explained the consequences of the reaffirmation and the effect of default. 11 U.S.C. § 524(c)(3). Bankruptcy courts have a duty to review reaffirmation agreements, even when the debtor’s attorney confirms that the debtor is capable of paying the reaffirmed debt. In re Miller, No. 07-00581, 2007 WL 2413012, at *1 (Bankr. N.D. Iowa Aug, 20, 2007), citing In re Melendez, 224 B.R. 252, 260 (Bankr. D. Mass. 1998).

The Bankruptcy Code requires a hearing and court approval if the monthly payments on the reaffirmed debt exceed the debtor’s net monthly income. 11 U.S.C. § 524(m)(1). In these circumstances, under the Code, a presumption exists that the reaffirmation agreement imposes an undue hardship. Id. The debtor may rebut this presumption, in writing, by identifying alternative sources of income to the satisfaction of the court. Id.

The debtor cannot rely on speculative income to pay for the reaffirmed debt such as potential raises, tax refunds or additional work hours. See Schmidt, 397 B.R. at 485 (expectation of tax refund not sufficient to rebut presumption); In re Stillwell, 348 B.R. 578 (Bankr. N.D. Okla. 2006) (intention to work overtime was speculative where no evidence was presented that husband’s current business had overtime available); In re Husain, 364 B.R. 211 (Bankr. E.D. Va. 2007) (expectation of additional hours and a pay raise not sufficient to overcome presumption). The debtor cannot overcome the presumption of undue hardship merely by showing that he needs a vehicle. In re Stevens, 365 B.R. 610, 612 (Bankr. E.D. Va. 2007).

Courts “should not be in the business of approving reaffirmation agreements where the debt is something the Debtor cannot afford.” Stillwell, 348 B.R. at 582. Several courts have rejected reaffirmation agreements when the debtor failed to show that additional income is available to pay both existing monthly expenses and the reaffirmed debt. In re Payton, 338 B.R. 899, 904 (Bankr. D.N.M. 2006) (denying reaffirmation after finding that the debtor would be “underwater” by $314 per month); Husain, 364 B.R. at 217 (finding additional income insufficient to overcome presumption when the debtor would still have a deficit of $3,000 per month).

http://207.41.19.195/scripts/show_matches.pl?file=decisions/20090211-pk-WOJCIECH_STANISLAW_TARNOWSKI_and_DAUNUTA_GIEDRYS-TARNOWSKI.html&strings=iowa

[backtoschool]

To sum it up, a presumption of undue hardship means that the bank believes that your income is not high enough to cover the car payment and/or the three mortgage payments. You will have to prove to the bk judge that you have steady income to cover these expenses without it causing you to miss other expenses, etc.

[tobee43]

To sum it up, a presumption of undue hardship means that the bank believes that your income is not high enough to cover the car payment and/or the three mortgage payments. You will have to prove to the bk judge that you have steady income to cover these expenses without it causing you to miss other expenses, etc.

thanks b2s...that's a better way to state it!! that will help the OP..

[LostNFound]

My husband contacted one of the banks today. The banker said that it's actually in our best interest NOT to sign the reaffirmation because it allows the bank to come after us for payment in the event that we can't or don't pay the monthly payments. Apparently, because we said we wanted to reaffirm these 2 debts, we are now required to go to court to see if the judge approves or denies it. Forgive me for still wondering about all of this, but if we don't sign it, doesn't that mean they will take it away?
Bottom line, I don't want to pay a 3rd mortgage on my house. That was the banks error from years ago and when they realized they weren't listed at a lien on our property, they created a 3rd mortgage for us. But if I am understanding correctly, doesn't that mean I pay it or I lose my house? I do daycare out of my home so the thought of losing it would completely ruin my business. I don't know anyone that would rent to someone and allow a daycare. I know this because we were landlords too and it was in our lease agreements.

I just wonder what the bottom line is...do we still risk losing our car and house if the judge feels we shouldn't reaffirm? Or does that mean we can keep paying and not lose anything? Also, this pushes the court date out even further....is this NORMAL ??? 7-8 months before a discharge for CHAP 7?

[biotechsolution]

if you continue to pay you won't lose anything. Doesn't really matter what the judge says on the 3rd mortgage, just continue to pay and you'll be fine. The car is pretty much
the same, no bank is going to turn down your monthly payment.

[angles]

tobee, that was a nice detailed response. I dont know how you know about those cases but its very impressive.

[tcreegan]

Hi LostNFound,

...hopefully you are being advised by an attorney, you have a lot going on....

Yes, the delay in the case is expected and reasonable.

The banker said that it's actually in our best interest NOT to sign the reaffirmation because it allows the bank to come after us for payment in the event that we can't or don't pay the monthly payments.
The banker is right and expect the judge to agree with him.

Apparently, because we said we wanted to reaffirm these 2 debts, we are now required to go to court to see if the judge approves or denies it.
Actually you only need the hearing if a reaffirmation was actually signed and filed. You and the lender agree to terms, sign the papers, and your attorney files it with the court. If you haven't done all this, you are not reaffirming no matter what box you checked on the BK forms.

Forgive me for still wondering about all of this, but if we don't sign it, doesn't that mean they will take it away?
like biotechsolution said, keep paying and most likely you will keep staying

Bottom line, I don't want to pay a 3rd mortgage on my house.
Depending on how much equity you have in the first, you might be able to settle the 2nd and 3rd. Without reaffirming, once you are discharged the 2nd only has value past the amount of equity in the 1st. The 3rd only has value past equity in the 1st and 2nd. If you have little or no equity in the house, the 2nd and 3rd become essentially worthless and you can settle, usually for pennies on the dollar.

BUT...you really need to be working with an attorney on this. Hubby calling the bank is a faux paus, everything should be going through your attorney. You have a lot at stake, best to take no chances!

Tom in Colo