Notwithstanding the debtor’s right to a Chapter 7 discharge, the Bankruptcy Code allows for voluntary reaffirmation of a debt by debtor and creditor agreement. A reaffirmation makes the debtor liable on both the secured portion of the debt and any unsecured deficiency allowed by state law. Reaffirmation agreements are most commonly used for vehicles, motor homes, boats, etc. where the debtor wishes to retain the property and pay the creditor in installments instead of redeeming in one lump sum. Of course, the debtor will have to pay the creditor a greater amount for the privilege of paying in installments.
An individual debtor in a chapter 7 case is prohibited from retaining possession of personal property in which the Bank has an allowed purchase money security interest, unless the debtor enters into a reaffirmation agreement with respect to the secured claim or redeems the property from the security interest within 45 days after the first Section 341 creditors’ meeting.
Failure to reaffirm or redeem the PMSI debt will result in an automatic termination of the stay with respect to the property, which will then cease to be property of the estate, unless the trustee files and the court renders a decision a motion before the expiration of the 45-day period that the property is of “consequential value or benefit to the estate” and orders appropriate adequate protection of the Bank’s interest, as well as a delivery of the collateral in the debtor’s possession to the trustee.
Payments by a chapter 13 debtor to the holder of a purchase money security interest in personal property must commence by the earlier of 30 days after the date of filing the plan or the order for relief. (A sample form of Reaffirmation Agreement is located at the end of this Chapter).