Champions team

Does Chapter 13 work?  How successful are these cases?  What is the chance of your case being approved by the court? And how are you to decide if filing Chapter 13 is good decision if you have no sense of how often these cases get approved and completed?

I recently reviewed all the bankruptcy cases my firm filed in 2011 to measure our success rate.  Why go back to 2011? Because Chapter 13 cases can last as long as 5 years, so you have to go back that far to count how many cases completed successfully and how many crashed and burned.  The results were amazing, even to someone who works in these cases every day.

Nationally, only about 30% of all Chapter 13 cases receive a discharge.  That’s not a great success rate in my book.  The success rate varies from state to state, and the Trustee and Judge assigned to a case greatly affect the outcome.  In Nebraska I have heard it said that about 60% of Chapter 13 cases result in a discharge.  The Discharge is the order entered at the end of a bankruptcy case that wipes out unpaid debt when a debtor makes every required required monthly payment. Chapter 13 cases require a monthly payment over a 3 to 5 year period of time.

In reviewing the 283 Chapter 13 cases our firm filed in 2011, our clients received a Chapter 13 discharge in 198 of those cases.  That is a 70% success rate!  When you consider how many of those clients went through significant life changes during that time such as loss of job, divorce, medical emergencies, depression, alcohol abuse, problems with children, etc., the success rate is amazing.

The success rate of chapter 7 cases is even higher.  Of the 321 Chapter 7 cases filed, 320 received chapter 7 discharges. That is a 99% success rate!

What about the 30% of chapter 13 cases that did not complete?  Of the 283 chapter 13 cases we filed, 80 did not receive a chapter 13 discharge. Five clients converted their case to chapter 7 and received a discharge.  Twenty clients eventually filed another bankruptcy.  So, if we count the cases converted to chapter 7 and the clients who just filed another bankruptcy to get a discharge, the success rate goes up even more.

What was interesting about the 80 cases that did not complete the chapter 13 process, 55 of the clients did not convert to chapter 7 or file a new bankruptcy later.  What happened to those 55 clients?  There are several answers to that question. First, you would assume that the creditors would go back to suing and garnishing those clients, but in fact that was not the case.  It appears that most creditors simply write off an account once a bankruptcy case is filed and they do not reopen collections when a bankruptcy is dismissed without a discharge.  So, even a dismissed chapter 13 case did produce a positive affect of causing bill collectors to fade away.  Other dismissed were often filed to stop a pending home foreclosure and did not involve much other debt.  It must be assumed that a foreclosure was completed after the case was dismissed and there was no further need to be in bankruptcy.

SUCCESS RATE OF OTHER DEBT RELIEF ALTERNATIVES:

The importance of knowing the bankruptcy success rate is that it enables one to compare it to other forms of debt relief.  It is generally estimated that Consumer Credit Counseling programs (also called Debt Management Programs) have about a 25% success rate.  Only one if four debtors who enter a credit counseling payment plan complete the program.  That is a poor success rate in my opinion.

Debt settlement programs generally have the worst success rate of less than 10%.  The save-up-and-settle programs almost never work.

WHY DO SOME BANKRUPTCY FIRMS HAVE HIGHER SUCCESS RATES THAN OTHERS?

High chapter 13 success rate are not accidental.  At some point almost every case we handle encounters a problem. Clients lose jobs or they get sick or injured or they deal with family stress and divorce matters or depression and other problems.  A three to five year case is long.  A skilled bankruptcy attorney, however, can do several things to keep a case going during bad times:

  • Motion to Suspend Payments. Your attorney may ask the court to suspend payments for good cause.
  • Amended Plans.  Sometimes the original plan is no longer feasible.  Perhaps a monthly payment should be lowered for 6 months while a client recovers from a car accident or illness.
  • Motion to Shorten Plans.  When clients become disabled or other hardships cause a permanent drop in income, in certain cases the length of a case may be shortened, even if the original plan was required to last five years.
  • Home Loan Modifications.  Chapter 13 cases stop foreclosure actions, and that may give a homeowner the necessary time to refinance their home through the Home Affordable Loan Modification Program (HAMP).
  • Referrals to tax and other professionals.  Sometimes you need a great accountant to file or amend tax returns. Sometimes you need a great real estate agent to sell a home quickly.  Sometimes you need to hire a great family attorney or counselor.  A good bankruptcy attorney is connected to other great professionals.
  • Creative Lawyering.  There are written rules and then there are the “unwritten rules.”  A good bankruptcy attorney has a few tricks in the bag they can’t talk about, but that’s why you hire them.  They have experience that helps them ethically navigate around barriers others crash into.  Experience matters.

So, you were brave enough to file a written response to a lawsuit.  Congratulations, you stopped the bill collector from getting a Default Judgment.  But what happens next?

Most likely you received a series of documents from the bill collector’s attorney called Interrogatories and Requests for Admissions.  Both documents require written answers that must be mailed to the bill collector’s attorney within 30 days.

Failure to respond to the Requests for Admission can be lethal because if no response is made the answer is deemed to be “admitted.” The questions are usually very simple. “Please admit that you owe the Plaintiff $1,000.”  Fail to respond to that and you are admitting you owe $1,000. Case over. The bill collector attorney then files a Motion for Summary Judgment and they attach a copy of the Requests for Admission that were never answered.  Game over.  Judgment for the Plaintiff.

Don’t be intimidated by the Request for Admission. Answer them in a written reply mailed to the bill collector attorney. Usually it is best if you can deny each question. Do not feel compelled to answer Admit or Deny. For example, if they ask you to admit that you owe $1,000 and you are unsure of the answer, just say that. Respond by saying “I am unable to Admit or Deny without reviewing additional information.”  If there is another reason you cannot admit or deny the answer, explain the problem. Again, do not think that you must provide an absolute answer of yes or no.

Request for admission are basically a set up for a Motion for Summary Judgment.   It is important to respond to these requests within 30 days.  Don’t make the creditor’s job easy by failing to respond.

And since all is fair in love and war, feel free to send a set of questions to the other side.  “Please admit or deny that I made every payment on this account.”  or “Please admit that you are unable to produce a written copy of my credit card agreement.” or “Please admit or deny that no payments were made on this account within 5 years of filing the Complaint.”

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dave-ramsey

Dave Ramsey is America’s most famous money adviser when it comes to paying off debt, and the program he promotes like a Sunday morning televangelist is called the Debt Snowball.

The debt snowball method requires that you list every debt owed from smallest to largest.  During the plan you maintain minimum payments on all debts except the smallest.  The smallest debt you pay more than than the minimum amount due until it is paid in full.  Once the smallest debt is fully paid you move onto the next largest debt and devote all extra income to that debt until it is paid in full.  This process continues until all debts are paid in full.

The basic idea in this program is psychological.  Paying off the smallest debt is easy.  Scoring an easy win builds enthusiasm and momentum.  Seeing the list of debts shrink–even if they are small debts–gives a person a sense of accomplishment.  As each small debt gets paid more money is freed up to attack the next larger debt, thus building a “debt snowball” that gets bigger as each debt gets paid.

According to Dave Ramsey, getting out of debt is 80% emotional and 20% head knowledge. Mathematically it makes more sense to pay the highest interest rate debt first, but Ramsey believes that it is more important to get fired up and achieve a sense of momentum since the key factor to success is one’s emotional commitment.

If it were about math, you wouldn’t have credit card debt. It’s not about math. It’s about behavior modification.

In fact, studies now show that Dave Ramsey is correct.  The debt snowball method is more effective than programs that pay the highest interest rate accounts first.  The emotional factor is a key factor to getting out of debt.  Indeed, one does need to be “fired up” to get out of debt.

The problem, however, with Dave Ramsey’s snowball method is the requirement that one maintain minimum payments on all debts during the program.  Also, all accounts currently in default must be brought current before the snowball process can begin.  For many people trying to dig out of a pile of debts, that just is not possible.

The challenge is you.  You are the problem with your money.

So, what do you do if you cannot bring all accounts current and maintain minimal required payments? Well, get fired up!  Why, you need Gazelle intensity!  You know, like that Gazelle who is about to be eaten by a speedy Cheetah, you got to run with reckless abandon and fear to save your life.  Quick, reduce your monthly living expenses.  Sell the fancy car.  Sell the home and rent something cheap.  Increase income now!  Get a second job delivering pizzas and start selling all your stuff on Craigslist.  Get angry. You need to be a little bit crazy to get out of debt.  Gazelle intensity!  Run for your life!

Really, watch a Dave Ramsey video and you will see this man scream like a crazy person.  He really means this. To be fair, he effectively motivates people and gets many to start believing that they can solve their debt problem.  Believing you can fix a problem is half the solution.  So, part of this is old-fashion motivational talk. The problem is, not all debt problems exist because of lack of motivation.

The people I meet every day have already cut their expenses to the bone.  They do work part-time jobs and their living expenses are minimal.  Yes, I do meet folks who are their own worst enemy and who can eliminate their debt by reducing unnecessary spending.  But the vast majority of people I meet for debt counseling are not living beyond their means and they cannot make the minimum payments any longer. They have hit the wall.  That’s why they come to see me in the first place.  They are stuck.

Family and Health Considerations

Another thing to consider is whether you should be taking on extra jobs when your health, both physical and mental, are already suffering from too much stress.  Sometimes that extra job is doing more damage to your health in the long run, and that stress eventually leads to more health problems and more medical debt.  Also, is it a wise thing to leave your family for another 15 to 20 hours a week?  Who is watching the children when you are gone?  Does your spouse of children have emotional needs that outweigh your financial problems? There is always a trade-off. Is spending more time at work a really wise choice for your family?

I like much of what Dave Ramsey teaches. His message is positive and his method is basically sound. But it is not for everybody. The Dave Ramsey program works better for folks who are just being stupid by overspending than it does for those who simply lack steady income, health insurance and family support to meet their financial needs. By all means, consider the Dave Ramsey system first and take time to listen to his broadcasts or watch is videos. But if the problem is more than motivation and overspending, consider other options.

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carpetbagger

Junk debt buyers are the modern version of a post Civil War carpetbagger as they suck money out of every county in the State of Nebraska without contributing anything in return.  I cannot think of a single positive thing these debt collectors contribute to our state.

Junk debt buyers typically purchase defaulted credit card accounts for about 3 to 7 cents on the dollar.  Common debt buyers include Midland Funding, Portfolio Recovery Associates, Calvary Portfolio Recovery, Cach LLC, Asset Acceptance LLC, and many others.

Debt buyers clog our courts with collection lawsuits.  In a sense, the debt buyer is in a race to recover its investment before the debtor is garnished by another creditor or files bankruptcy, so they are quick to file lawsuits after acquiring the debt.

Most junk debt buyers are located outside the State of Nebraska.  Consider the damage they do to our state:

  • Nebraska courts are clogged with tens of thousand of junk debt buyer lawsuits annually. Our taxpayers are burdened with providing enough judges and court personnel to handle these lawsuits.
  • Debtors lose up to 25% of their paychecks and all of their bank account balances due to garnishments.  Where does all that money go?  To the debt buyers residing in other states.
  • Every dollar garnished by junk debt buyers is a dollar not spent in the Nebraska economy.
  • Junk debt buyers pay no taxes to Nebraska.

So why is Nebraska allowing junk debt buyers to suck money out of our state, to burden our courts with tens of thousand of lawsuits, and to economically damage working families in our state without paying anything back in return?  What is Nebraska getting out of this arrangement?  I honestly cannot see why Nebraska is being so generous to these carpet-bagging outsiders.

Perhaps or legislators should consider a few modest reforms:

  • Debt buyers that file more than 100 lawsuits per year should be required to register with the Nebraska Secretary of State and pay an annual licensing fee.
  • Debt buyers should not be awarded Default Judgments on credit card accounts unless they can provide the courts with a copy of the signed credit agreement.
  • Debt buyers should not be allowed to garnish more than 10% of a debtor’s wage income or bank account balances.
  • Telephone collection calls should be limited to one call per week.
  • Junk debt buyers should pay state income taxes on the revenue they generate from our state.

Debt buyers are certainly entitled to enforcement of the contracts they purchase, but such rights should not cause an undue burden for the taxpayers of our state.  If they want the benefits of our efficient court system, they should pay their fair share of the cost of that system.

Dave Ramsey

The most famous name in the getting out of debt industry is Dave Ramsey.  As a young man Dave himself was in a pile of debt and wound up filing bankruptcy. The pain of that experience lead him on a quest to learn about personal finance and he began a career in advising others how to get out of debt.

I’m a talk radio/podcast junkie.  I don’t care what the topic is as long as it is interesting.  Dave Ramsey is the host of a nationwide talk show and it played on the radio as I was driving home.  So, as I counseled clients every day about how to file bankruptcy, I would listen to Dave on the way home explaining how to avoid it.  Gosh, was I doing my clients wrong by not teaching them the tough road out of debt that Dave advocated?

The hallmark of the Dave Ramsey system is a series of seven “Baby Steps” one takes to eliminate debt and build wealth.

  • Step 1:  Save $1,000 Emergency Fund.
  • Step 2:  Debt Snowball.  Pay off all debt.
  • Step 3:  Save 3 to 6 months of expenses.
  • Step 4:  Invest 15% of income in retirement.
  • Step 5:  Establish College Fund for children.
  • Step 6:  Pay off house.
  • Step 7:  Build Wealth and Give.

The Debt Snowball is the program to eliminate debt.  The basics of the program are as follows:

  1. List all debts from Smallest to Largest.
  2. Maintain minimum payments on all debts and get all debts out of default status.
  3. Devote all extra income to pay off the smallest debt first, regardless of whether that debt has a higher or lower interest rate.
  4. Reduce expenses, sell off unnecessary possessions, and take on part-time jobs to fund the debt snowball.
  5. Once the smallest debt is paid, move onto the next smallest debt and then the next smallest, etc., etc., until all debt (except the home mortgage) is paid in full.

Why pay off the smallest debt first instead of the debts with the highest interest rate?  Because, according to Ramsey, getting out of debt is 80% emotion and 20% head knowledge.

If it were about math, you wouldn’t have credit card debt. It’s not about math. It’s about behavior modification.

Paying off the smallest debt “fires you up!” says Ramsey, and that small success helps ignite an emotional reaction to kill off the remaining debts.  There is actually a lot of scientific fact to back up that claim, especially in the study of healthy habit formation.  Small victories do lead to bigger wins.

The challenge is you.  You are the problem with your money.

Ramsey focuses on “behavior modification” as the key to solving a debt problem.

Most financial people make the mistake of trying to show you the numbers, thinking that you just don’t get the math. I am sure that the problem with my money is he guy in my mirror.

A large part of the behavior modification is about daring to be radical–to sell your home and fancy car and to take on a part-time pizza delivery job–to drop out of society’s pressure to keep up with the Jones’.

Stop buying things you don’t need with money you don’t have to impress people you don’t even like.

It is hard to disagree with any of this.  This is sensible and old-fashion advice to getting out of debt.  Cut expenses.  Increase income.  List the debts and have a plan of attack.  Paying off debts from smallest to largest is also a valid strategy since getting out of debt does require a person to be “fired up” and focused.

The power of focus is what causes our Baby Steps to work . . . if you attack too many areas at once you don’t finish anything you start for a long time . . . That makes you feel that you aren’t accomplishing anything, which is dangerous.

The key weakness of the Debt Snowball program, however, is the requirement that you must be able to get all debts out of default status and maintain minimum payments on all debts during the plan.  Is that feasible? Can you really maintain minimum payments on all debts and get the delinquent debts current while you pound away at the smallest debt?  Yes, some folks just need to cut the cable bill and downsize their life to free up the necessary money to make this plan work, but that simply does not work for the vast majority of people I see on a daily basis.

So, if you squander a lot of money on foolish entertainment, cars, eating out, cell phones, etc., the Dave Ramsey program may work just fine for you.  Get on a financial diet and start paying off the debt.  Yep, that works . . . if you have the income.  But what if you don’t?  Then what?  What if 25% of your paycheck is being garnished and the judgments are stacking up one on top of another and the mortgage payment is behind on a house worth no more than what is owed?  How do you downsize that expense?

And what if you can’t get a second job to speed up the debt snowball?  What if your health, both physical and mental, is already taxed to the maximum?  What if getting a part-time job means abandoning your children and a stressed out spouse for another 20 hours a week?  Is that a smart decision?  Sure, you might become debt-free, but will you have a family left to come back to?

Dave Ramsey is a positive voice of reason and encouragement in the personal finance industry.  I like his attitude and enthusiasm.  Overall, I think we all should really pay attention to his message.  Stop lying to yourself and stop pretending to be somebody you are not.  Downsize your life, become debt free, and then realize the blessing of truly being a free person.  That’s a great message and goal.

But the Dave Ramsey program is not for everyone and it is just not feasible for too many.  If you are living beyond your means, try it.  But if you are already struggling after devoting every dime to stay out of debt and now you are draining your retirement or mortgaging your home to make minimum payments on debts, consider other options.

Image courtesy of Flickr and Bonnie Brown.

 

Hospital

Just about the first thing we all do when visiting a doctor’s office is to provide them with a copy of our insurance card. It is generally understood that the medical office will submit a claim for whatever treatment we received and that you will then pay the amount insurance does not cover.

But what if the doctor’s office fails to file the insurance claim?  What if the doctor files the claim after the normal 90-day insurance claim deadline?  Do I still owe the doctor for services that would have been covered under insurance but, due to the negligence of the doctor’s office, are now unpaid?  What about claims that are filed incorrectly because the doctor used the wrong medical code?

The other day I met with a client who owed $25,000 of medical debts that would have been covered had the doctor’s office timely filed the claim. The client was being sued by a collection company that was assigned the debt by the very doctor who failed to file a claim! Gosh, that seems so unfair.

If a bill collector sues you for a medical debt where a claim should have been filed by the doctor with your medical insurance, take the following actions:

  • File a written response to the lawsuit ASAP.  If you fail to respond in writing to the Clerk of the Court within 30 days of receiving a court summons the bill collection will obtain a Default Judgment and begin garnishment proceedings.  Always, always, always file a written response to a lawsuit with the clerk of the court.  Always.
  • Obtain a copy of the Provider Agreement between your doctor and the insurance company.  Your insurance company should provide a copy.  Some provider agreements require the doctor to file a claim in a timely manner using the correct billing codes and that if a doctor does not do this they prohibit the doctor from billing the patient.
  • If the Provider Agreement requires the doctor to file a medical claim correctly, provide a copy of that agreement to the court.
  • File a medical claim with your health insurer, even if the claim is late.  If they deny coverage because the claim is untimely, appeal the coverage denial.  In life, the squeaky wheel gets the oil.  Start squeaking.
  • Negotiate the Debt.  If the doctor negligently failed to file a medical claim, make that an issue and demand that the bill collector discount the fee due to this error.
  • Obtain a copy of the late claim filed with the insurance company and a copy of the coverage denial letter.  The court will be interested in seeing a letter denying an untimely claim submitted by the very doctor who assigned the debt to a bill collector.

We assume professionals will act carefully to ensure that medical claims are filed in a timely manner.  Unfortunately, a great many medical claims do not get filed correctly or not at all.  Beware of your deadlines to submit health claims (typically 90 days) and circle your calendar to ensure they get filed.  If you do not receive an Explanation of Benefits within 60 days of seeing a doctor, assume something is wrong and contact your insurer and the doctor’s office.

Image courtesy of Flickr and David Syzzek.

Notice

Want to see a copy of every document filed in your bankruptcy case? Now you can by filling out a Debtor’s Electronic Noticing Request form.  Give this completed form to your attorney to file or mail it directly to the clerk of the court.

Once you sign up for this service you will receive an email of every document filed in your case and you will be able to save a copy of the documents filed.  Deadlines, claims, objections, notices and everything else will come to you within seconds after they are filed with the court.

Why would you want to be noticed?  There is a lot of information I would want to know as soon as possible:

  • Was a motion to borrow money to buy a car approved?  You will know instantly.
  • You will see exactly what the objections to your case is immediately.
  • Mortgage payment changes will come to you as real estate taxes and home insurance rates change.
  • Claims filed by creditors will come to you so you can object to inaccurate claims.
  • Did your attorney filed that motion you requested?  Now you will know.
  • Is your payment to the court in default?  Check the notice.
  • Did a bill collector say they never got notice of your case?  Check your records and see if they are telling the truth.
  • Was your case discharged?

Signing up for electronic noticing just makes sense.  It’s your case, and the more you know the better.

Image courtesy of Flickr and Bart Everson.

 

 

1537887398_f87e903c7a_b

There is a lot of chatter going on among Nebraska bankruptcy attorneys about reports of court hearings where debtors are being told they can keep a car even if they choose not to reaffirm the car loan as long as payments are kept current.

That’s news to me and many of my colleagues.  The Bankruptcy Reform Act of 2005 was supposed to end the Ride-Through option.  A “ride-through” is where a lender cannot legally repossess a vehicle even if the debtor does not sign a formal Reaffirmation Agreement as long as the loan was paid current.

A reaffirmation agreement is an agreement to pay a debt (typically a home or auto loan) listed in a bankruptcy case.  Reaffirmations basically pull a debt out of the bankruptcy and makes a debtor liable again for the payment.  Secured debts tend to be reaffirmed in Chapter 7 and unsecured debts almost never.  Clients tend to reaffirm their car loans because if they don’t the banks may repossess a vehicle regardless if the loan is paid current.

In contract to the reaffirmation agreement, a “ride through” gives the debtor the best of both worlds:  they keep the vehicle but are not liable for the debt in the event they can not afford future payments.  Keep the vehicle if you can afford the payments, but surrender it without being responsible for the debt if you cannot.  Everybody loved the ride through, except the banks.

BANKRUPTCY REFORM ACT ENDS THE RIDE-THROUGH?

Along comes the Bankruptcy Reform Act of 2005, and the bankers finally got what they wanted. The automatic bankruptcy stay rule was modified to ban the ride-through option:

11 U.S.C. 352(h)(1):

In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim, or subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2)—

(A) to file timely any statement of intention required under section 521(a)(2) with respect to such personal property or to indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant to section 722, enter into an agreement of the kind specified in section 524(c) applicable to the debt secured by such personal property, or assume such unexpired lease pursuant to section 365(p) if the trustee does not do so, as applicable; and

(B) to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action, unless such statement specifies the debtor’s intention to reaffirm such debt on the original contract terms and the creditor refuses to agree to the reaffirmation on such terms.

And with that 2005 amendment to the Bankruptcy Code, we all waived goodbye to the ride-through.  You want to keep that car?  Sign here please.

But now our court seems to be saying something else.  Several bankruptcy attorneys report of hearings where the court is saying they can keep their vehicle as long as the loan is paid current.  Is the Ride-Through back?

STATE LAW:

It appears that Nebraska Statute 45-1,107 is the key law in question.

Consumer credit transaction; default; consumer’s right to cure.

(1) With respect to a consumer credit transaction, after a default a creditor may neither accelerate maturity of the unpaid balance of the obligation nor take possession of collateral, except voluntarily surrendered collateral, because of such default until twenty days after a notice of the consumer’s right to cure is given. The consumer shall have twenty days after the notice is given to cure any default by tendering the amount of all unpaid sums due at the time of the tender, without acceleration, plus any unpaid charges, or by tendering any other performance necessary to cure the default as specified in the notice of right to cure. Cure shall restore the consumer to his or her rights under the agreement as though the default had not occurred.

(2) With respect to defaults on the same obligation after a creditor has once given notice of the consumer’s right to cure, the consumer shall have no further right to cure and the creditor has no obligation to proceed against the consumer or the collateral.

Okay, so a consumer has 20 days to cure a default.  But how exactly does this law help when a car loan is not reaffirmed in bankruptcy?  There are no cases in Nebraska even mentioning this law. Most auto loan contracts contain a “bankruptcy clause” which states that filing bankruptcy itself constitutes a breach of the agreement.  How does one cure that type of breach?

Based on the complete lack of case law on this statute, it is very unclear that Nebraska state law permits a general ride-through option.

BACKDOOR RIDE-THROUGH

Perhaps the court is referring to something called a “Back Door Ride-Through.”  To qualify for a backdoor ride-through, a reaffirmation agreement must be filed with the court and the court must then disapprove the agreement.  By filing the reaffirmation agreement with the bankruptcy court, the technical requirements of §521(a)(2) and §362(h) are satisfied.  See Coastal Fed. Credit Union v. Hardiman, 398, B.R. 161, 166 (E.D.N.C. 2008); In re Baker, 390 B.R. 524, 532 (Bankr. D. Del. 2008); In re Blakely, 363 B.R. 225, 2230 (Bankr. D. Utah 2007).  See Debtor’s Dilemma: The Economic Case for Ride-Through in the Bankruptcy Code, Amber J. Moren,The Yale Law Journal.

A backdoor ride-through creates a binding nonrecourse loan subject to the automatic bankruptcy stay protection.

Why would a court deny a filed reaffirmation agreement?  Generally, if it appears that a debtor does not have sufficient income to justify the monthly expense or if the the loan balance significantly exceeds the value of the vehicle, a court may decline to approve a reaffirmation agreement.

Is the backdoor open in Nebraska?  Does a reaffirmation agreement filed with the bankruptcy court that is not approved give rise to a ride-through?  There is no written opinion stating this, but it would seem from reported court hearings that such an option may exist.

Image courtesy of Flickr and Anders Ljungberg.