The Reaffirmation of Debts in Bankruptcy Cases

When individuals decide to file a Chapter 7 bankruptcy action, they are generally commencing a process in which they will be liquidating most of their assets so that they can use the proceeds derived from that liquidation to achieve two goals; (1) pay off creditors to the extent required by the bankruptcy court and (2) correspondingly, and in conjunction with the first goal, secure legal discharge of their debts.  The basic process seeks to give debtors with financial difficulties stemming from insolvency a method by which they can legally rid themselves of their overwhelming financial obligations and get a fresh start.


But some Chapter 7 debtors may not want to discharge all of their debts.  It is not unusual, for instance, for some Chapter 7 debtors to want to keep their primary vehicle, albeit their car or truck. Besides the emotional attachment some harbor for their car or truck, in most parts of the country, including New Mexico, a car is a unique necessity in that it permits people to take care of the things that matter most: get to their job every day, look for a new job, pick up the groceries, run other errands, take the kids to school and other events important in their lives, etc.  So it is not uncommon to find Chapter 7 debtors deciding to keep their cars instead of giving it up to be liquidated.


Particularly where the debtor still owes money on their car, the asset may still be subject to a purchase money debt obligation stemming from the secured transaction in which the purchaser received financing to buy the car. Frequently, a person’s vehicle constitutes one of the two most valuable assets – besides one’s house, a person owns. But if the person in Chapter 7 wants to keep their car, they may decide they want to avoid seeking a discharge of the debt on the car and instead reaffirm the debt. Bankruptcy law provides for exercising the reaffirmation option in Chapter 7 cases. (It should be noted that the reaffirmation option can and does apply to other debts besides those incurred to buy a vehicle; the previous explanation is intended merely as an example of a situation in which debtors seek to reaffirm a debt in lieu of its discharge.)


The topic of reaffirmation recently arose in the case of In Re Kirk, No. 7-13-13269 (U.S Bankr. Ct. D. N.M. 2014), where the debtor wanted to reaffirm the debt on her vehicle after the court had entered a discharge order closing the case. On appeal the debtor argued she was proceeding pro se on her own behalf during that part of the legal proceedings and therefore, should have been granted leeway so she could enter in to the reaffirmation agreement during the post-discharge period. The Court rejected that position in an opinion which reviewed the amendments to bankruptcy law over recent decades addressing this subject. This decision underscores the critical need that Chapter 7 debtors in New Mexico retain representation by a New Mexico bankruptcy attorney to obtain important advice throughout the bankruptcy process.


In Albuquerque, Giddens & Gatton Law, PC has New Mexico bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, PC at (505) 633-6298 to set up an appointment or visit the firm’s website at Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.