by Howard A. Chorost, Attorney at Law Tucson, Arizona
Published July 2000 in Credit Union Magazine
Obtaining a reaffirmation of an otherwise dischargeable debt is the primary goal of an unsecured creditor affected by a Chapter 7 Bankruptcy filing.
Why isn't your Credit Union having much success in obtaining reaffirmations? More often than not, it's the member's lawyer--not the member-- who is at the root of the problem. If we could motivate the debtor's lawyer to agree to a reaffirmation, we can obtain results.
Traditionally, you have probably thought of the debtor's lawyer as the enemy. In some cases, that may be so. But what you need to realize is that he is also the key to your success in obtaining reaffirmations. Once we shift the focus from the debtor to the debtor's lawyer, we can take full advantage of the opportunities that are available to us in bankruptcy loss prevention.
Getting the Debtors Bar on Your Good Side
Look at it this way. If the debtor's lawyer saw that you were trying to help debtors rebuild their credit, instead of tearing his clients apart every time you take to the microphone at a First Meeting of Creditors, don't you think he might be more inclined to at least entertain the prospect of reaffirmation for his client? I see too many creditors attending the 341 and taking the "shotgun approach" to reaffirmations.
Let me tell you the story about Tom. Tom works for a finance company. Tom isn't a lawyer, but his job is to go to the 341 Meetings on all cases where his finance company is going to sustain a loss. Tom is always there. I see him every time I go to a First Meeting on behalf of my clients. He is always in the debtor's face. He is always upsetting debtor's counsel. Tom takes up a lot of time, generally gets little or no results, and ultimately ends up offending everyone, including the Trustee. Yes, it's good to see that some creditors take an interest, but the "shot gun approach" just doesn't get the results Tom or the finance company really wants.
What would I tell Tom and his finance company if they asked me to help them in their reaffirmation recovery effort? I would tell them to throw out the shot gun, and pick up the surgeon's scalpel. It's what I call the "surgical strike approach" to reaffirmations and to First Meetings of Creditors, in general.
Here's what I'd tell Tom:
"Tom, it's like this. I sit in my office, and I get a call. It's from a debtor's lawyer.
He tells me that he has a client who is about to file bankruptcy. He knows that I represent the Credit Union. His client wants to keep a good relationship with the Credit Union, and he knows how we will do almost anything to maintain that good relationship. He asks me to contact the Credit Union, and then to send him a reaffirmation agreement. Tom, all this happened while I was in my office, and while you were down here at the First Meeting of Creditors trying to intimidate the poor debtor about how much money he should be allowed to spend to watch cable TV."
To Tom, it sounds too good to be true, but, as I explain to him, it happens to me almost every day. I explain to Tom that the calls I receive, and the calls that the credit unions that I represent receive, are the end result of many years of building relationships with the Debtor's Bar. The key is to build the relationships that will position both your Credit Union and your attorney to receive calls such as this.
Building a Relationship with Debtors Counsel
If you want to send the right message, don't show up at each and every 341 Meeting! If they get tired of seeing you, they get tired of seeing you. They aren't going to give you anything, and you shouldn't be expecting much. The "shot gun approach" just upsets people. If you are going to go down to the First Meeting of Creditors, go with a specific addenda, and be prepared to deal.
You need to show some good faith. That means a willingness to work with the Debtor to rebuild his credit. If you are not prepared to do this for a particular individual, that's fine. Just skip him, don't attend the 341, and move on to someone you are willing to deal with. Once you begin to do this, you will be noticed in a positive way. As time goes by, you will build a reputation of cooperation which will allow you to take the next step. And it's the next step where things seem to happen by themselves. You will get those phone calls. You will get those reaffirmations!
Address the Debtor's Attorneys Potential Liability
Many lawyers are hesitant to allow their clients to enter into reaffirmation agreements. They have a genuine fear of being sued by their clients. I like to take the sting out of reaffirmations by inserting language which I believe will preclude a debtor from coming back to his lawyer and asserting a claim for non-disclosure. I have been getting very good results by the addition of this clause:
"Undersigned debtor acknowledges and affirms that he has been advised by his Counsel that he is under no legal obligation to enter into this Reaffirmation Agreement; that under current law he may be able to retain the subject collateral, if any, without entering into a formal Reaffirmation Agreement as long as he make timely payments on same; that if he enters into a Reaffirmation Agreement, there is a possibility at some time in the future that if debtor defaults on the loan that a deficiency judgment or other judgment can be taken against him; and that notwithstanding Counsel's advice and concerns, which have been duly communicated to debtor, debtor has elected to enter into a formal Reaffirmation Agreement with the Creditor herein."
Please note that in many jurisdictions, you are required to follow a specific format in your reaffirmation agreements. Not only should you consult with local counsel before modifying your forms in any way, but you should also consult with local counsel prior to implementing the suggestions contained in this article.
Mr. Chorost is the Principal of the Law Firm of HOWARD A. CHOROST, P.C. in Tucson, Arizona. His primary area of practice focuses on the representation of credit unions. He can be contacted at (520) 792-0011 or at www.credit-union-lawyer.com
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