Bankruptcy Basics – Part 7: Court Hearings

The following program was produced by the United States Courts.

Depending on the chapter of your bankruptcy case and its complexity, you may also be required to appear at hearing before the bankruptcy judge. In a Chapter 13 case you may only have to appear at a hearing for the court to confirm, meaning approve, the chapter 13 plan. In a chapter 7 case you typically will not appear in court and will not see the judge unless an objection is raised or a reaffirmation hearing must be held.

A reaffirmation hearing is held when a debtor wants to continue to pay a debt secured by say a car or home furnishings in order to keep the property. Let’s watch what goes on in a typical hearing where a judge considers whether a debtor’s reaffirmation agreement should be approved. First, the judge will tell you about the consequences of reaffirming a debt as well as your alternatives.

Miss Lopez the bankruptcy code requires that whenever someone wishes to reaffirm a debt that I must hold a hearing at which I discuss with you the alternatives to entering into the reaffirmation agreement, the consequences of doing so. I also must make a finding that it’s in your best interest and doesn’t impose an undue hardship on you. First of all with respect to the alternatives, one alternative of course is reaffirming the debt and that’s why you’re here. Another is that I could approve an arrangement where you buy back the car. It’s called a redemption based on the value of the car is determined by me. Sometime that’s less than the amount of the debt. The only problem with that is that you have to come up with cash to do that. The third alternative is called a surrender. It gives you the opportunity to give the car back and be free of any further liability. That’s a something that’s worth considering if the car payments were beyond what you could reasonably afford. If you do reaffirm the debt, the consequences are that you’ll be liable on the full amount of the debt, and if later on you have financial problems, they can not only repossess the car, but they can put it through the auction and come back against you for anything that’s left over after applying the auction proceeds against the debt. Finally, I must find that the agreement is in your best interest and doesn’t impose an undue hardship on you. Let me ask you now that we’ve discussed those alternatives do you have any questions. No your honor. And you still want to proceed. Yes.

Before approving the agreement the judge must make sure the debtor can handle the payments.

And now this automobile is I understand. It is a 2002 Honda Civic. Yes, your honor. Are you current on your payments? I am two months behind on my car payments. And so you’re two months behind if you have any arrangement where you can catch that up with the lender? Yes, the attorney for the creditor told me that they could put those two months I’m behind at the end of the loan and they will also be willing to reduce the interest rate to decrease the monthly payment. That’s very important because once you reaffirm the debt, if you are behind, they could come after you immediately for those past due payments. Now, is this a car that you drive personally? Yes. Do you need the car to get back and forth to work as your primary means of transportation? I drive it and I use it to go to work and I also take my mom to her medical appointments. Very Well. Well, based on that I will find that this agreement is in your best interest and doesn’t impose an undue hardship on you. I’ll enter an order to that effect. You’ll get a copy of that in the mail. In the meantime, just make sure you stay current on those payments. I will. And thank you very much Miss Lopez. Thank you judge.