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CUNA NC league join in bankruptcy suit
WASHINGTON (3/24/08)—The Credit Union National Association (CUNA) and North Carolina CU League (NCCUL) have filed a joint amicus brief in support of Coastal FCU, Raleigh, and its lawsuit involving a bankruptcy reaffirmation agreement. The credit union has a case on appeal in the U.S. District Court for the Eastern District of North Carolina. Coastal FCU is the 2nd largest credit union in its state with over $1.7 billion in assets and over 160,000 members. The case involves a member’s automobile loan from the credit union made in February 2005. The borrowers filed a Chapter 7 bankruptcy in May 2007 and signed a reaffirmation agreement with the credit union, without representation by an attorney, in order to retain their automobile. Because the debtors were not represented by an attorney during negotiation of the reaffirmation agreement, the court scheduled a hearing to determine whether the reaffirmation agreement imposed an undue hardship on the debtors, according to Mike McLain, CUNA’s assistant general counsel and senior compliance counsel. The situation could also arise where debtors are not represented by an attorney at all during the bankruptcy process. The court declined to approve the reaffirmation agreement and stated that the debtors could retain the automobile as long as the loan was not delinquent and they continued making payments. “The Court’s decision essentially revived the ‘ride-through’ that was eliminated by the new bankruptcy law enacted through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),” McLain said. He added that Coastal’s brief in the appeal, as well as the CUNA-NCCUL amicus brief, argue that Congress intended to eliminate the ‘ride-through’ when it enacted the BAPCPA. The term refers to an interpretation of former bankruptcy laws that permits a debtor to keep the loan collateral, such as an automobile, without either reaffirming the debt or redeeming the loan as long as timely payments continue. Today most courts, McLain said, interpret that law to say there are just three valid actions, which are: surrendering the collateral with no further liability; keeping the collateral through a reaffirmation agreement; or redeeming the collateral through a lump-sum payment. “Most bankruptcy courts agree that the BAPCPA eliminated the ride-through option and now requires debtors that wish to retain possession of the collateral to do so through either redemption or reaffirmation. “However, a small number of courts have now created a new ride-through option, as in the Coastal FCU case, where the court refuses to approve the reaffirmation agreement, rendering it unenforceable,” McLain explained. He added that these courts reason that where the debtor has complied with the requirements of the bankruptcy code and the only reason the debtor has not performed his or her stated intention of reaffirming the debt is because of the court’s refusal to approve the reaffirmation agreement, the stay will not terminate and the debtor may retain the collateral as long as payments are made pursuant to the terms of the loan agreement. The Coastal and CUNA-NCCUL briefs, filed Feb. 26, also maintain that a creditor should be allowed to repossess collateral where a debtor has not truly reaffirmed a debt because the court fails to approve such a reaffirmation making it unenforceable.


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