One of the most common questions that people considering filing for bankruptcy ask is whether they’ll be able to keep their car. The Ninth Circuit has recently–as in this week–changed the rules on that issue. The case is Dumont v. Ford Motor Company (In re Dumont), 9th Cir, 2009, No. 08-60002).
The answer now is: It depends.
(For those unsure of what the Ninth Circuit is, it’s the United States Court of Appeal that has jurisdiction over Federal Courts in Alaska, Arizona, California, Washington, Oregon, Hawaii, Montana, Nevada and Idaho. Short of the US Supreme Court, it is the final judicial arbiter for legal issues and appeals in those jurisdictions. In other words, it has a lot of clout and if you live in one of those states, its decisions can affect you.)
The issue is whether a debtor in bankruptcy can keep a car which is subject to a loan agreement without expressly reaffirming the underlying debt. It used to be that the obligation would “ride thru” the bankruptcy case and stay in place–thus allowing the debtor to keep their car–as long as the debtor stayed current with the periodic payments. Dumont changes that. Or at least appears to.
Now, it seems that if you want to keep your car, the lender CAN compel you to expressly reaffirm the underlying debt. The key to that statement is that it CAN; it doesn’t have to and, frankly, it seems that in most cases, the lender wouldn’t want to force that because it might cause a debtor who is paying regularly, to have to give up their car. The lender doesn’t want your car; it wants your money.
In the Dumont case, the borrower continued making her payments on the car loan, but after the bankruptcy case was completed, and the debtor had obtained her discharge, Ford repossessed the car, even though she was current on the payments. (Why Ford would do something like that is beyond me, but there it is.)
In order to avoid this outcome, it would seem that the most prudent measure would be to reaffirm the debt in the bankruptcy case. I won’t get into the complexities of that process in this post, but suffice to say that reaffirmation is no guaranty of anything either.
(I have avoided the more technical discussion of the legal issues behind this holding, opting instead to provide the net-net outcome. Michael Doan, one of the lawyers involved in the Dumont case has written thoroughly and articulately on the topic here and for those interested in the nitty-gritty legal discussion, I would suggest going there.)