Undue Hardship In Reaffirmation Agreement

At the end of a successful Chapter 7 bankruptcy proceedings, the spin-off receives bankruptcy relief that erases his personal liability for the repayment of certain debts. Although the spin is no longer personally required to repay a secured debt, the loan is still tied to the property. A secured creditor retains its security interest and withdrawal interest, but can only expect a deficit balance if the spinner confirms the debt through a confirmation agreement. In a letter of intent qualming a confirmation agreement, a New York Bankruptcy Court showed that some calculations clearly highlighted the unjustified severity caused by certain confirmed debts, even if the debtor obtains a credit extension: 345 In the event that the lender is over-guaranteed, this approach departs from the general rule of Article 506 (b) of the Bankruptcy Act. Under Section 506 (b), if the guarantee of a loan has a credit value greater than the residual debt, a secured creditor may be entitled to a fee and fee up to the value of the guarantee, if the original loan agreement provides for it. Back to text 333 Id. See also In re Hovestadt, 193 B.R. 382 (Bankr. D. Mass.

1996) (confirmed debts would lead to negative cash flow on time, yet counsel signed an affidavit stating that confirmation would not cause inconsequentical severity). See also letter from Hon. Arthur J. Spector, Bankruptcy Judge, E.D. Me. to Melissa Jacoby, (May 20, 1997) (provision of audiotapes and transcripts of confirmation hearings with multiple confirmations exceeding debtors` ability to pay); In re Lantanowich, 207 B.R. 326 (Bankr. D. Mass 1997) (the debtor agreed to repay $1,000, plus interest, to obtain a $200 line of credit).

Back to text One of the most important and abused devices available to the major credit institution is a general security interest for budgetary needs. In practice, our records reflect the fact that household products are rarely seized. The reason for this reluctance of creditors is twofold. Household products have little or no direct economic value in the resale market. Supplements for low-priced furniture and appliances almost always exceed 100%. If the financing costs are added together, it is clear that any intrinsic value that these goods might have will never be close to the credit obligation thus guaranteed. The second reason is related to the unfavorable publicity that participates in the seizure of intimate family furniture such as bedding and kitchen items. This does not mean that the general interests in the security of household goods are not being exploited.

Almost all of the creditors we examined retained such a pledge in all the corresponding contracts.

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