There is a Connecticut statute called “AN ACT CONCERNING REPOSSESSION OF MOTOR VEHICLES FROM RETAIL BUYERS” which goes into effect October 1, 2009. The state statute provides that filing bankruptcy or being in a bankruptcy is no longer an event of default under an installment loan agreement and is not grounds for repossession.

The vast majority of installment loan agreements contain a provision that filing bankruptcy is a default under the agreement. This means the loan may be called and the collateral repossessed, even if the payments are current, so long as a bankruptcy was filed. Some lenders are willing to repossess collateral on current loans where the debtors refuse to reaffirm the debt.

The statute essentially re-writes the terms of the contract between the lender and its customers. The title of the statute refers to motor vehicles, but text refers to the Connecticut Retail Installment Sales Finance Act. Therefore, it applies to boats, cars, RV’s, ATV’s, etc.

If the debtor is current on the loan agreement and stays current, then the debtor no longer needs to sign a reaffirmation agreement to retain possession of the vehicle. This effectively is an end run around the Bankruptcy Code provision that ended the 4th Option or “If Pay, Let Pay” arrangement.