A similar provision has already been considered. The Senate bill that led to the Bankruptcy Reform Act of 1994 originally included a similar amendment that would have required leases with an option to purchase to be treated as installment sales in the event of bankruptcy. This change was supported by the Commercial Law League of America, the National Bankruptcy Conference, and the National Association of Chapter 13 Trustees, among others. (400) A stand-by arrangement is a document that constitutes an agreement between a bankrupt borrower and one of its creditors. The agreement allows the borrower to hold on to an asset such as a house or vehicle in exchange for repaying some or all of the original loan amount. Leases of personal property are a difficult question of characterisation in both State law and bankruptcy law (392), in particular because they contain characteristics of both a lease of personal property and an instalment purchase contract. When one owner rents personal property, the owner allows another to use the property for a period of time in exchange for certain payments, after which the owner has the absolute right to keep the property. In contrast, a retail lease agreement provides that the buyer must make payments over time and ultimately own the property. Since the purchase is subject to a security right, the contract provides for the return of the property and possible prosecution for a defect if the buyer is in default. When consumers make lease transactions with an option to purchase, they make payments on extended terms for various household and personal items. If they don`t pay, they lose the items, much like a buyer who is subject to a security agreement. However, they are only responsible for payments for the rental period, similar to an actual lease agreement. However, as with an installment sale, the goal of most leases is to buy the item over time.

In fact, signing a stand-by agreement puts you back on the spot. 302 Letters from Marianne Culhane and Michaela White, Re: The VISA/Staten Consumer Debtor Study and Reaffirmation (11 June 1997) (suggesting that a superior approach would be to allow refunds only to the extent of the value of the guarantee); Letter from Jean Braucher (8. July 1997) (the prohibition of the affirmation and facilitation of passages means the repayment of an unsecured part of the debt, which goes against the bankruptcy policy); Lawrence Ponoroff, Surf`s Up, Dude: Riding Through Bankruptcy, Bankr Dev. J. (published in 1997) (recommends the passage by bicycle). Back to text The creditor must also pay for the seizure of the house or for the repossession of the car, which is expensive, so if the creditor insists on a stand-by agreement, the creditor may get stuck with the collateral and not receive payments. 374 See, for example. B, a letter from Perry Caliguiri, President and CEO, First Iowa Community Credit Union, West Des Moines, Iowa (July 30, 1997) (Report that auto loan claims help the credit union work with the debtor and provide an excellent collection tool for credit unions). Back to text Current affirmation requirements explicitly require an affidavit from the lawyer stating that the proposed statements do not cause undue hardship to their clients. Recent practice suggests that some lawyers sign these affidavits with little or no attention to this requirement.

The Hon. John Akard of Texas wrote to the commission in the final days of preparing this report to present a stand-by agreement signed by the debtors to its court. The agreement required them to repay a loan for a pickup truck that cost $18,027.71 over fifteen years. With compound interest, debtors would pay a total of $42,861.84. Judge Akard questioned the debtor`s lawyer about the amount of the payment, after which ”the lawyer admitted to having neglected this fact.” 333 Id. See also In re Hovestadt, 193 B.R. 382 (Bankr. D. Mass.

1996) (confirmed debts would result in a negative cash flow for the debtor according to the schedules, and yet counsel signed an affidavit stating that reconfirmation would not result in undue hardship). See also letter from the Honourable Arthur J. Spector, Bankruptcy Judge, E.D. Mich. Melissa Jacoby, (20 May 1997) (provision of recordings and transcripts of confirmation hearings with multiple confirmations that exceeded the creditworthiness of debtors); With regard to Lantanowich, 207 B.R. 326 (Bankr. D. Mass 1997) (The debtor agreed to repay $1,000 plus interest to obtain a $200 line of credit).

Back to text A stand-by agreement removes a specific debt from your bankruptcy debt relief and legally requires you to make payments based on the terms of the agreement. Therefore, it is important to consider reconfirmation well in advance of the release date. Take the time to reconsider your situation and consider hiring a bankrupt lawyer if you haven`t already helped with decision-making. Other implications of current assertion practices. The high number of reconfirmation agreements – filed and not filed – in the consumer insolvency system affects the financial recovery of debtors, but several other types of assertion issues have also been identified in the Commission`s discussions on consumer insolvency. The American Bankruptcy Institute`s Consumer Bankruptcy Forum, which included representatives of debtors, creditors, judges, academics and trustees, unanimously asked the Commission to recommend that all leases be treated as admissible secured claims and not as contracts or leases. (398) In particular, this was one of the few issues in the OJ Forum on which all parties agreed. (399) The representatives of secured and unsecured creditors who participated in these discussions expressed concern about the favourable treatment of tenants, which is based on the ambiguity of the transaction under State law. They stressed that the economic consequences of the characterization will be extremely relevant to a debtor`s other creditors. If the transaction is marked as a sale of purchase money hedging interest or installment payment interest, the seller will be treated like other secured creditors. Due to the current affirmation provisions, some creditors receive a 100% refund, while creditors with the same priority receive nothing. In a Chapter 11 cramdown case, such an outcome would be considered ”unfair discrimination” and would not be permitted.

(344) Nevertheless, it is tolerated in Chapter 7 of the consumer. The bankruptcy system was not intended to encourage unequal treatment among creditors with similar priorities, but the current affirmation system creates opportunities for some creditors to be treated much better than others. It is not clear whether the practices of some creditors will change significantly in the long run. (361) Courts and consumer advocates have questioned alternative approaches to post-bankruptcy debt collection. Old accounts of bankrupt debtors are sold or transferred to other companies that attempt to collect the relieved debt, either by offering new credit cards for payment or by taking post-bank consolidation measures to get debtors to sign ”post-legislative asset retention agreements.” (362) The latter is the subject of a class action lawsuit in the Rhode Island case. (363) Borrowers who only have to absolve themselves of their debts and who are unlikely to make regular payments cannot benefit from the assertion process. Confirmation makes a borrower liable for a debt and is organized by a formal agreement with the courts and is therefore a legal process for the borrower to protect himself and his assets. If the debt you have is secured, which means it uses your home or vehicle as collateral, and you want to retain ownership of that collateral, a stand-by agreement will prevent you from losing it by trade-in or seizure. It can also help reduce the damage that bankruptcy will have on your credit score.

321 Id. Table XZ, Reaffirmations by type of guarantee (30% of reaffirmations concerned motor vehicle loans). Back to text The agreement contains several pieces of information, including the amount of debt you confirm, your repayment terms, the APRC, the details of the guarantee (if any), and more. 311 The courts have struck down certain subsequent debts that are truly excusable under the guise of a new debt if the parties have not met the requirements of paragraph 524(c). The cases in which the courts have invalidated stand-by agreements for this reason are as follows: With respect to Getzoff, 180 B.R. 572 (B.A.P. 9th Cir. 1995); In re Artzt, 145 B.R. 866 (Bankr. E.D.

Tex. 1992); In re Gardner, 57 B.R. 609 (Bankr. D. Me 1986); In re Gilliland, 62 B.R. 587 (Bankr. D. Neb. 1986).

Of course, courts can only formally invalidate these post-petition agreements if they are informed, and it is difficult to say how often this happens. Back to the text, Article 521(2) should be amended to clarify that a debtor with consumer debts secured by high net worth goods in accordance with the provisions of Title 11 must repurchase the assets or obtain judicial approval of an agreement under Article 524(c) of Title 11 in order to retain the assets after their release, with the exception of a security right in immovable or movable property, which have the principal residence of the debtor ….