By Keri P. Claeys, Esq.
Recently, lenders/credit unions in Pennsylvania have been advised by debtors of their intentions and wishes to reaffirm unsecured lines of credit and/or visa loans in order to maintain their good relationship with the lending institution. With increasingly stringent lending practices and approval on loans being harder to secure, debtors are doing so in the hopes that the debtor(s)’ bankruptcy filing does not affect their chances in the future with such lending institution to receive approval on additional loans.
Upon such requests being received, the lenders/credit unions have been requesting reaffirmation agreements be prepared and sent to the debtors(s) and/or their counsel for review and execution. If feasible, the debtors(s) and their counsels are executing such reaffirmation agreements, even though this technically thwarts the act of Chapter 7 bankruptcy itself; to discharge all unsecured debt and to allow the debtor a clean start.
The issue arises when the reaffirmation agreement is filed with the court. The bankruptcy court in the Western District of Pennsylvania is declined to approve such reaffirmation agreements. The court is scheduling hearings on such agreements and even upon the agreement and recommendation of both parties and their counsels; the courts are not issuing orders to approve the reaffirmation of any unsecured debt. As explained by one judge in the Western District of PA, regardless of the reason for wanting to reaffirm, he would not approve (even if it did not pose an undue hardship on the debtor) an agreement to reaffirm an unsecured debt, as the debtor filed bankruptcy in order to discharge such debts. Generally, in his opinion, what would be the point of filing bankruptcy, if upon discharge the debtor still owed thousands of dollars in unsecured credit card debt? The judge went on to say that he could not see any instance where he would approve such an agreement.
Upon review of 11 U.S.C. §524(m)(1) and (2), the code is clear that approval based on presumption of undue hardship does not apply to credit unions. Whether or not these sections leave room for discretion for the judge to deny based not upon presumption of undue hardship but based solely upon the fact of the debt being unsecured is left undetermined and such order could be appealable.
While the good intentions of the debtor(s) may be to maintain responsibility for his/her debts to certain lenders/credit unions, and likewise of the lender to try and collect upon a debt that nonetheless would be discharged, the courts, regardless of the intentions and/or reasoning of the parties, are not willing to reach beyond and approve such agreements.
If you have any questions on this matter, please contact Ms. Keri P. Claeys, Esq. Keri is an associate in the bankruptcy group located in the Pittsburgh office of Weltman, Weinberg & Reis Co., LPA. She can be reached at 412-338-7102 or .