I am starting this thread as I have done a bit of research due to the posts that say one must reaffirm the mortgage. What I have found has made me conclude that the requirement to reaffirm (which I believed there was none) depends upon the Circuit you are in. In those Circuits (majority, including mine) that have previously held one has the “ride through” (pay and retain) option, BAPCPA (the 2005 law) does not require one to reaffirm a loan secured by real property and you can continue to keep the property so long as you stay current. On the other hand, in those Circuits (minority) which held one does not have the “ride through” option, you are required to reaffirm the mortgage (I assume only if you are pressed into it by the lender - can’t imagine lenders wanting to foreclose on more real estate especially if payments are current.)
Again, this is a long post but worth the reading as the below decisions give you the reasoning behind the choices you have. I have taken Opinions from 2 Circuits which are on opposite sides of the argument: The 11th Cir. and the 4th Cir.
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11th Cir. - must reaffirm based upon no “ride through” option as held in In re Taylor, 3 F.3d 1512 (11th Cir. 1993:
In re Linderman, Case No. 6:09-BK-02087-KSJ (Bankr.M.D.Fla. 10/9/2009)
Whether a debtor can keep real property securing a mortgage loan by simply making payments and not reaffirming the debt, the so-called ability to "ride-through," remains an issue even after enactment of BAPCPA in 2005. Previously, a split existed among the circuit courts of appeals as to whether ride-through was allowed or not. Several, perhaps the majority of circuits, held that debtors indeed could retain secured collateral without reaffirming the debt, exercising the ride-through option. Other circuits, including the Eleventh Circuit Court of Appeals, rejected the ride-through option and held that the "plain language" of Bankruptcy Code Section 521(2) "does not permit a Chapter 7 debtor to retain the collateral property without either redeeming the property or reaffirming the debt."
(Under BAPCPA), Congress enacted three other sections that appear to remove the ride-through option for personal property in those circuits that previously had allowed debtors to retain personal property without reaffirming or redeeming. Now, debtors cannot retain personal property securing a debt anywhere in the country without first attempting to reaffirm the debt or to redeem the property. The issue then becomes what happens if a debt is secured by real property. Does the old split among the circuits still exist or did BAPCPA somehow resolve the split by eliminating or by allowing the ride-through option as to real property? Several bankruptcy courts have held that, in their jurisdiction which previously allowed the ride-through option, BAPCPA did not alter the result as to real property. BAPCPA essentially is silent as to whether a debtor is required to either reaffirm or redeem real property. Therefore, in concluding that the ride-through option survives as to real but not personal property, each of these courts ultimately rested their opinions upon the established law that existed in their particular jurisdiction prior to BAPCPA.
The 11th Circuit was clear under the still unchanged language of Section 521(a)(2)(A)—a debtor must act either to redeem or to reaffirm a debt if the debtor desires to retain the collateral. The appellate decision makes no distinction between real or personal property; nor is any distinction merited. The 11th Circuit looked at the plain language of the statute and interpreted the language to prohibit ride-through, regardless of the type of property involved. The modifications enacted by BAPCPA simply support the 11th Circuit's conclusion as to personal property.
Nationally, debtors no longer can keep personal property without reaffirming the debt or redeeming the property. All debtors are treated similarly in every circuit. The Court acknowledges that a split apparently still exists as to real property collateral. Certain courts in jurisdictions that previously allowed the ride-through option have returned to pre-BAPCPA law to conclude that the option remains viable for real property. However, such is not the case in this circuit. The 11th Circuit clearly has stated that a Chapter 7 debtor must either redeem or reaffirm a debt if the debtor wants to keep the collateral. As to personal property, the ruling is national. As to real property, the decision in Taylor is still applicable and controlling, unless and until the 11th Circuit rules otherwise.
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The above unpublished decision was the basis for the below referenced published decision which came out earlier this year:
In re Harris, 421 B.R. 597 (Bankr. S.D. Ga., 2010)
Before the Court is the Motion for Relief from Stay filed by the Bank seeking stay relief based upon the Debtor’s stated intent to retain the Bank's collateral without entering into a reaffirmation agreement. According to Debtor's Statement of Intention, Debtor intended to retain the Property and make regular payments to the Bank. Both parties agree Debtor is current with his payments to the Bank and there is equity in the Property. The Bank's motion seeks relief from the stay because Debtor's Statement of Intention does not offer to surrender, reaffirm or redeem the debt, rather Debtor seeks to retain the Property and remain current with the payments. Although Debtor is current, the Bank avers it is not adequately protected because Debtor's personal liability for this debt will be extinguished when Debtor receives his bankruptcy discharge. Debtor contends there is no "cause" to lift the stay as there is equity in the Property and Debtor is current with his payments. Debtor further contends the changes made by the BAPCPA reflect Congressional intent to allow such a course of conduct regarding real estate. . . While Taylor, involved personal property, the 11th Circuit's concern and rationale is the same concern the Bank is expressing in regards to real property. . .Based upon this, Debtor is given 14 days from the date of entry of this order to comply with the terms herein. If Debtor does not reaffirm the debt or surrender the Property, relief from stay is appropriate.
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4th Cir. - ride through allowed and ipso facto clause (as it relates to real property) regarding the filing of a bk is an incident of default under the loan is not enforceable, following the pre BAPCPA ruling in In re Belanger, 962 F.2d 345 (4th Cir. 1992).
In re Wilson, 372 B.R. 816 (Bankr. S.C., 2007)
The bank seeks the entry of an order directing or compelling Debtor to reaffirm the debts owed to the bank. . .Debtor asserts that she may retain possession of her real property and continue making payments as scheduled under the "ride through" option provided by In re Belanger, 962 F.2d 345 (4th Cir. 1992). . . The bank argues that Belanger only addressed a "ride through" for personal property and was superseded by the enactment of the BAPCPA. . .
The 4th Circuit (in Belanger) held that a debtor who is not in default may elect to retain the property and make the payments specified in the contract with the creditor. . . The Court is not convinced that the Belanger opinion limits its application to personal property. . . The reasoning underlying Belanger further supports its application to both real property and personal property.
Limiting a debtor to the three choices of surrender, redeem or reaffirm for real property would impair the debtor's ability to obtain a fresh start, which is one of the primary purposes of bankruptcy law. Thus, under the bank’s proposed interpretation, the only alternative for a debtor who wishes to keep his home would be to reaffirm the debt. The creditor would have to consent to the terms of the reaffirmation agreement, thus the creditor could have an improved bargaining position. Congress intended the reaffirmation agreement to be a voluntary, consensual action. . . The bank argues that the overall intent of Congress was to eliminate the "ride through" altogether. The facts of this case demonstrate that eliminating the "ride through" for real property would have overly burdensome consequences for certain debtors. Moreover, the continued existence of the "ride through" option for real property is supported by the plain language of the statute. Surely if Congress intended to force a debtor, who otherwise is current under the contract, to choose between giving up her home or agreeing to the creditor's terms, it would have included specific language in the statute dictating this result. Such an onerous requirement should not arise by implication.
The bank argues that even if a “ride through” option remains for real property, it could hold the debtor in default under a nonmonetary default provision such as an ipso facto clause. . . While the 4th Circuit held in Riggs National Bank v. Perry, 729 F.2d 982 (4th Cir. 1982) that an ipso facto clause was unenforceable as a matter of law, section 512(d) was added by BAPCPA to preserve the enforceability of these types of clauses. However the language in 521(d) referes to such provision in agreements covered by 521(a)(6 and 362(h), which address only personal property liens. . . For the foregoing reasons the Court finds that the Belanger case is controlling precedent in the 4th Circuit and provides for a “ride through” option for real property that was unaffected by the BAPCPA amendments. Thus Debtor has the right to retain her real property without being required to reaffirm or redeem, so long as she remains current in her payments and complies with any other contractual obligations, such as maintaining insurance on the property.
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So, deciding whether or not to reaffirm a mortgage, if pressed into it by the lender, depends upon how your Circuit ruled as it relates to the “ride through” option until such time as the USSC resolves the split in the Circuits. Regardless, unless your State’s anti deficiency statute (if there is one) will protect you, signing a reaffirmation agreement for such a large amount is a huge risk if you default and lose the property before you are eligible to file another Chapter 7 or even a Chapter 13.
Des.
Again, this is a long post but worth the reading as the below decisions give you the reasoning behind the choices you have. I have taken Opinions from 2 Circuits which are on opposite sides of the argument: The 11th Cir. and the 4th Cir.
________________________________
11th Cir. - must reaffirm based upon no “ride through” option as held in In re Taylor, 3 F.3d 1512 (11th Cir. 1993:
In re Linderman, Case No. 6:09-BK-02087-KSJ (Bankr.M.D.Fla. 10/9/2009)
Whether a debtor can keep real property securing a mortgage loan by simply making payments and not reaffirming the debt, the so-called ability to "ride-through," remains an issue even after enactment of BAPCPA in 2005. Previously, a split existed among the circuit courts of appeals as to whether ride-through was allowed or not. Several, perhaps the majority of circuits, held that debtors indeed could retain secured collateral without reaffirming the debt, exercising the ride-through option. Other circuits, including the Eleventh Circuit Court of Appeals, rejected the ride-through option and held that the "plain language" of Bankruptcy Code Section 521(2) "does not permit a Chapter 7 debtor to retain the collateral property without either redeeming the property or reaffirming the debt."
(Under BAPCPA), Congress enacted three other sections that appear to remove the ride-through option for personal property in those circuits that previously had allowed debtors to retain personal property without reaffirming or redeeming. Now, debtors cannot retain personal property securing a debt anywhere in the country without first attempting to reaffirm the debt or to redeem the property. The issue then becomes what happens if a debt is secured by real property. Does the old split among the circuits still exist or did BAPCPA somehow resolve the split by eliminating or by allowing the ride-through option as to real property? Several bankruptcy courts have held that, in their jurisdiction which previously allowed the ride-through option, BAPCPA did not alter the result as to real property. BAPCPA essentially is silent as to whether a debtor is required to either reaffirm or redeem real property. Therefore, in concluding that the ride-through option survives as to real but not personal property, each of these courts ultimately rested their opinions upon the established law that existed in their particular jurisdiction prior to BAPCPA.
The 11th Circuit was clear under the still unchanged language of Section 521(a)(2)(A)—a debtor must act either to redeem or to reaffirm a debt if the debtor desires to retain the collateral. The appellate decision makes no distinction between real or personal property; nor is any distinction merited. The 11th Circuit looked at the plain language of the statute and interpreted the language to prohibit ride-through, regardless of the type of property involved. The modifications enacted by BAPCPA simply support the 11th Circuit's conclusion as to personal property.
Nationally, debtors no longer can keep personal property without reaffirming the debt or redeeming the property. All debtors are treated similarly in every circuit. The Court acknowledges that a split apparently still exists as to real property collateral. Certain courts in jurisdictions that previously allowed the ride-through option have returned to pre-BAPCPA law to conclude that the option remains viable for real property. However, such is not the case in this circuit. The 11th Circuit clearly has stated that a Chapter 7 debtor must either redeem or reaffirm a debt if the debtor wants to keep the collateral. As to personal property, the ruling is national. As to real property, the decision in Taylor is still applicable and controlling, unless and until the 11th Circuit rules otherwise.
__________________________
The above unpublished decision was the basis for the below referenced published decision which came out earlier this year:
In re Harris, 421 B.R. 597 (Bankr. S.D. Ga., 2010)
Before the Court is the Motion for Relief from Stay filed by the Bank seeking stay relief based upon the Debtor’s stated intent to retain the Bank's collateral without entering into a reaffirmation agreement. According to Debtor's Statement of Intention, Debtor intended to retain the Property and make regular payments to the Bank. Both parties agree Debtor is current with his payments to the Bank and there is equity in the Property. The Bank's motion seeks relief from the stay because Debtor's Statement of Intention does not offer to surrender, reaffirm or redeem the debt, rather Debtor seeks to retain the Property and remain current with the payments. Although Debtor is current, the Bank avers it is not adequately protected because Debtor's personal liability for this debt will be extinguished when Debtor receives his bankruptcy discharge. Debtor contends there is no "cause" to lift the stay as there is equity in the Property and Debtor is current with his payments. Debtor further contends the changes made by the BAPCPA reflect Congressional intent to allow such a course of conduct regarding real estate. . . While Taylor, involved personal property, the 11th Circuit's concern and rationale is the same concern the Bank is expressing in regards to real property. . .Based upon this, Debtor is given 14 days from the date of entry of this order to comply with the terms herein. If Debtor does not reaffirm the debt or surrender the Property, relief from stay is appropriate.
___________________________________
4th Cir. - ride through allowed and ipso facto clause (as it relates to real property) regarding the filing of a bk is an incident of default under the loan is not enforceable, following the pre BAPCPA ruling in In re Belanger, 962 F.2d 345 (4th Cir. 1992).
In re Wilson, 372 B.R. 816 (Bankr. S.C., 2007)
The bank seeks the entry of an order directing or compelling Debtor to reaffirm the debts owed to the bank. . .Debtor asserts that she may retain possession of her real property and continue making payments as scheduled under the "ride through" option provided by In re Belanger, 962 F.2d 345 (4th Cir. 1992). . . The bank argues that Belanger only addressed a "ride through" for personal property and was superseded by the enactment of the BAPCPA. . .
The 4th Circuit (in Belanger) held that a debtor who is not in default may elect to retain the property and make the payments specified in the contract with the creditor. . . The Court is not convinced that the Belanger opinion limits its application to personal property. . . The reasoning underlying Belanger further supports its application to both real property and personal property.
Limiting a debtor to the three choices of surrender, redeem or reaffirm for real property would impair the debtor's ability to obtain a fresh start, which is one of the primary purposes of bankruptcy law. Thus, under the bank’s proposed interpretation, the only alternative for a debtor who wishes to keep his home would be to reaffirm the debt. The creditor would have to consent to the terms of the reaffirmation agreement, thus the creditor could have an improved bargaining position. Congress intended the reaffirmation agreement to be a voluntary, consensual action. . . The bank argues that the overall intent of Congress was to eliminate the "ride through" altogether. The facts of this case demonstrate that eliminating the "ride through" for real property would have overly burdensome consequences for certain debtors. Moreover, the continued existence of the "ride through" option for real property is supported by the plain language of the statute. Surely if Congress intended to force a debtor, who otherwise is current under the contract, to choose between giving up her home or agreeing to the creditor's terms, it would have included specific language in the statute dictating this result. Such an onerous requirement should not arise by implication.
The bank argues that even if a “ride through” option remains for real property, it could hold the debtor in default under a nonmonetary default provision such as an ipso facto clause. . . While the 4th Circuit held in Riggs National Bank v. Perry, 729 F.2d 982 (4th Cir. 1982) that an ipso facto clause was unenforceable as a matter of law, section 512(d) was added by BAPCPA to preserve the enforceability of these types of clauses. However the language in 521(d) referes to such provision in agreements covered by 521(a)(6 and 362(h), which address only personal property liens. . . For the foregoing reasons the Court finds that the Belanger case is controlling precedent in the 4th Circuit and provides for a “ride through” option for real property that was unaffected by the BAPCPA amendments. Thus Debtor has the right to retain her real property without being required to reaffirm or redeem, so long as she remains current in her payments and complies with any other contractual obligations, such as maintaining insurance on the property.
____________________________________________
So, deciding whether or not to reaffirm a mortgage, if pressed into it by the lender, depends upon how your Circuit ruled as it relates to the “ride through” option until such time as the USSC resolves the split in the Circuits. Regardless, unless your State’s anti deficiency statute (if there is one) will protect you, signing a reaffirmation agreement for such a large amount is a huge risk if you default and lose the property before you are eligible to file another Chapter 7 or even a Chapter 13.
Des.
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