Can the debtor safely ignore the Bankruptcy Code requirement that collateral has to reaffirmed or surrendered?
Prior to enactment of the 2005 amendments to the Bankruptcy Code, case law concerning reaffirmation agreements held that the collateral could not be repossessed so long as the debtor stays current on the payments, thus ignoring the nonmonetary default provisions in most contracts that are automatically triggered by filing bankruptcy. Effectively, this allowed the debtor to enjoy the “ride thru” without the detriment of continuing personal liability. However, the provisions of the new law say that if the debtor fails to perform the required “intention” with 45 days after the first meeting of creditors, the automatic stay is terminated with respect to any personal property securing the obligation and the Code says, “the creditor may take whatever action as to such property as is permitted under applicable nonbankruptcy law, (unless the trustee timely seeks and obtains an order from the court requiring the debtor to surrender the property to the trustee.
