Recent Articles from Rosensteel Fleishman, PLLC
When an individual files for bankruptcy protection under chapter 7 of the United States Bankruptcy code they are required within 30 days of filing the petition to file their 'statement of intention' in regards to secured items, §521(2)(A). While this is a mouthful, it boils down to letting the trustee and creditor know what the individual debtor proposes to do with the property. The debtor then has 45 days after filing the statement of intention to do what they propose, §521(2)(B)
North Carolina allows the debtor to select a number of different options in regards to their secured goods. Typically, the secured item is the debtor's house, car, or consumer good purchased with credit from the selling store (PMSI). This article will focus on the four main options of surrender, reaffirmation, redemption, and retain and pay.
Surrender
One option for the debtor is to surrender the asset to the secured creditor. A common example of surrender occurs when a debtor owns a vehicle that has a market value significantly less then the lien amount on the vehicle, otherwise known as being upside down on the loan. Without bankruptcy protection the creditor could reposes the vehicle, sell it, and the individual would still be financially responsible for the difference between what the car was sold for and amount of the lien.
By surrendering the vehicle the secured creditor can reclaim the vehicle, however, the individual debtor is no longer personally responsible for the unsecured amount of the lien. While this is a great benefit to the debtor, they are now left without a vehicle if a spare is not available.
Redemption
Another option for the debtor is to redeem the asset from the creditor. A common example of redemption occurs with PMSI consumer goods. For example, buying a washer and dryer from Sears, with money loaned by Sears at the time of sale gives Sears a lien on the washer and dryer. Therefore, without bankruptcy protection, if an individual fails to pay, Sears has the right to pursue remedies under NC law for the deficiency.
By opting to redeem the items the debtor can keep them by paying the current market value, not the full lien amount. Typically the debtor's attorney and the creditor can agree on the current market value, however, the Court can get involved to set the market value, if needed.
Redemption allows the debtor to essentially buy the asset for the current value and treat the balance of the lien as unsecured. However, the Court must approve any motion to redeem and the debtor is required to pay the redemption amount in a lump sum payment.
Reaffirmation
Another option for the debtor is to reaffirm the debt. A common example of reaffirmation occurs with a debtor's home. In North Carolina a chapter 7 debtor can reaffirm the debt on their home thereby keeping their residence after bankruptcy.
While there are limitations with reaffirmation, including being current on the lien, a debtor might be able to work with the creditor to keep the property. As reaffirmation requires the debtor to waive the personal discharge they would receive on the individual obligation (the house in this example) reaffirmation agreements are required to be in writing and approved by the Court before discharge.
However, if the debtor later defaults the creditor is entitled to exercise its right of recovery as if the bankruptcy had not taken place. As such, Debtors are given a period of time to rescind their reaffirmation agreements.
Retain and Pay
The last option discussed in this article is retain and pay. A common example of retain and pay deals with PMSI consumer goods. If a debtor is current on their payments and would like to keep the property after bankruptcy but does not have the lump sum payment to redeem it, then retain and pay is a good option.
As the property is fully secured, the trustee will not include it in the bankruptcy estate. If the debtor continues to make the payments on the property the creditor will allow the debtor to keep it. While the debtor will have to pay the full lien amount, they won't be required to pay a lump sum, especially at a time when funds might be tight.
Conclusion
An individual debtor thinking about bankruptcy has many options regarding their property. The options listed above are not an exhaustive list nor should they be taken as applicable to your individual case without first talking with a lawyer. There are other options available to individuals thinking about Bankruptcy as well as significant consequences with each choice they make.
The lawyers of Rosensteel Fleishman PLLC concentrate in bankruptcy law and will provide you with all of your options prior to filing. There is no fee for an initial consultation.
If you are considering bankruptcy call: (704) 714-1450 to make an appointment to speak with an attorney, or stop by the office during regular business hours. We understand that the last thing you need to do is miss more time from work when you are thinking about bankruptcy. We will work with you to schedule an appointment that meets your needs.
At Rosensteel Fleishman, we provide exceptional legal representation without prohibitive cost. Although the fee arrangement varies according to the type of case, we pride ourselves on being very clear about the costs at the outset of representation. We know that an informed client is a satisfied client. Our commitment to client service and efficient, effective legal representation is why Rosensteel Fleishman continues to be the best.
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