(6) [I]n a case under chapter 7 of this title in which the debtor is an individual, not retain possession of personal property as to which a creditor has an allowed claim for the purchase price secured in whole or in part by an interest in such personal property unless the debtor, not later than 45 days after the first meeting of creditors under section 341(a), either –
(A) enters into an agreement with the creditor pursuant to section 524(c) with respect to the claim secured by such property; or
(B) redeems such property from the security interest pursuant to section 722.
Wisconsin’s default provisions are outlined at Wis. Stat. § 425.103. I’ll include them here for reference, but I’m not going into an analysis of the code. The point is that since the right of recovery is an issue of state law, the bankruptcy court has no authority to compel surrender of collateral, which means you – as a bankruptcy debtor – can force this issue before a state court judge. An informal survey suggests that most judges are not inclined to permit repossession based solely on the lack of a reaffirmation agreement.
(2) ”Default”, with respect to a consumer credit transaction, means without justification under any law:(a) With respect to a transaction other than one pursuant to an open-end plan and except as provided in par. (am); if the interval between scheduled payments is 2 months or less, to have outstanding an amount exceeding one full payment which has remained unpaid for more than 10 days after the scheduled or deferred due dates, or the failure to pay the first payment or the last payment, within 40 days of its scheduled or deferred due date; if the interval between scheduled payments is more than 2 months, to have all or any part of one scheduled payment unpaid for more than 60 days after its scheduled or deferred due date; or, if the transaction is scheduled to be repaid in a single payment, to have all or any part of the payment unpaid for more than 40 days after its scheduled or deferred due date. For purposes of this paragraph the amount outstanding shall not include any delinquency or deferral charges and shall be computed by applying each payment first to the installment most delinquent and then to subsequent installments in the order they come due;(am) With respect to an installment loan not secured by a motor vehicle made by a licensee under s. 138.09 or with respect to a payday loan not secured by a motor vehicle made by a licensee under s. 138.14; to have outstanding an amount of one full payment or more which has remained unpaid for more than 10 days after the scheduled or deferred due date. For purposes of this paragraph the amount outstanding shall not include any delinquency or deferral charges and shall be computed by applying each payment first to the installment most delinquent and then to subsequent installments in the order they come due;(b) With respect to an open-end plan, failure to pay when due on 2 occasions within any 12-month period;(bm) With respect to a motor vehicle consumer lease or a consumer credit sale of a motor vehicle, making a material false statement in the customer’s credit application that precedes the consumer credit transaction; or(c) To observe any other covenant of the transaction, breach of which materially impairs the condition, value or protection of or the merchant’s right in any collateral securing the transaction or goods subject to a consumer lease, or materially impairs the customer’s ability to pay amounts due under the transaction.
As a matter of practice, most creditors will permit a ride-through, and there are two major reasons for this. First – if a debtor is willing to continue make payments on a secured debt, they’re going to receive more money if they permit the ride-through rather than immediately demanding turnover of the collateral. If the debtor defaults, they still have a right of recovery and sale later on. (For example, if collateral is worth $10k at auction and a debtor makes $500/mo payments for a year before defaulting, the creditor potentially gets $16k out of the deal; whereas they only get the $10k if they repossess immediately.) The circumstances in which a creditor may not want to wait for a default is where there is significant risk or danger that the property will be damaged or wasted before the default, significantly devaluing the asset by the time it can be sold.
- Talk to the lender. Ask them to report your payments. (This works better with smaller local banks and credit unions than it does with the big banks.) If the creditor failed to provide you with an agreement – tell them that you would have signed the agreement if they had drafted one. Since they chose not to, it’s hardly fair to punish you for their inaction.
- Refinance. This is going to be difficult without the payment history to help rebuild your credit. If you’re refinancing with the same lender – many of them refuse to refinance because of the lack of the reaffirmation agreement (which is really stupid, because with the refinance, they have a legal claim to the money; without it, they do not).
- Dispute the lack of reporting with the credit bureaus. This has been suggested by a few attorneys. Gather evidence of all of your post-petition payments and send them in to TransUnion, Experian, and Equifax. Explain that your payments haven’t been reported because a reaffirmation agreement was not filed. The problem with this approach is that – if you’re disputing a credit reporting error – there’s no error to correct. Again, FCRA only requires that creditors report accurately, it does not require them to report at all. Even if the credit bureaus do amend your report to show the payments, it still doesn’t mean that your lender will report payments going forward, which means that you will have to continually update the bureaus yourself.
- Listing a debt is NOT the same thing as “filing against” or discharging a debt.
- You have an obligation to disclose all creditors – dischargeable or non-dischargeable, secured or unsecured – as a matter of due process.
- Bankruptcy wipes out debts, but it does not remove liens (with some exceptions).
- Secured debts are generally dischargeable debts.
- What is the monthly payment? Can I afford to pay it?
- What is the interest rate? Could I get a new loan for this sort of collateral at a better rate? How much of my payment is actually going to the principal balance?
- What is the term of the loan? Do I have to make this payment for 6 months or 30 years?
- How much is the collateral worth? Does it make sense to pay $20,000 for a car that is worth $6,000? Might it be cheaper to finance a new car?
- Is the collateral necessary? Sure, I love my 72″ plasma television, but is paying $200 a month for it really worth it when I have a wife and two kids to feed?