Question

The Hoffmans filed for relief under Chapter 7. Among their debts was a loan for $11,500, secured by their 1999 Dodge Caravan. The car was worth less than half that amount. Paying back twice the value of the car made no economic sense, so they would normally have the debt discharged. The problem was that Mrs. Hoffman's mother was a co-signor. If they did not pay, the mother would have to pay the balance. To protect her, the Hoffmans asked to have the debt reaffirmed prior to discharge. The effect of the reaffirmation would mean that their expenses would exceed their income even after the bankruptcy discharge. Should the bankruptcy court confirm the reaffirmation agreement.? Explain.

Answer 1

The bankruptcy court should evaluate whether the reaffirmation agreement is in the best interest of the debtors and creditors. If reaffirming the debt would cause financial hardship, the court may deny confirmation.

Step-by-step explanation:

Reaffirmation agreements in bankruptcy cases allow debtors to voluntarily agree to continue paying a dischargeable debt even after the bankruptcy has been discharged. In this case, the Hoffmans want to reaffirm their car loan debt, which is secured by their 1999 Dodge Caravan. By reaffirming the debt, they would be obligated to continue making payments on the loan, even after the bankruptcy discharge. The bankruptcy court should evaluate whether the reaffirmation agreement is in the best interest of the Hoffmans and their creditors. This includes considering whether reaffirming the debt will cause the Hoffmans' expenses to exceed their income. If the reaffirmation agreement would lead to financial hardship, the court may deny confirmation.