As you are probably aware, debtors and guarantors who are pursued for a deficiency often attempt to raise every defense imaginable to attempt to avoid liability, and one of the most frequently used defense is that the diposition of the collateral following a foreclosure of personal or real property was not conducted in a commercially reasonable manner. See UCC Sections 9-625, 9-610(b) and 9-626.
As a creditor planning for avoidance of this defense, it is helpful if the secured party and these obligors, at the time requesting the loan, contract for and agree to the method of the disposition of the collateral and accept the method/manner of the sale detailed to be commercially reasonable. This is particularly helpful if the collateral being financed is unique or very large equipment, or something where it is difficult to find a buyer or a "market" for the goods.
Wednesday, October 6, 2010
Interesting case on Reaffirmation Agreements in Texas
Hat tip to Stephen Sather, this is an interesting case where the Texas bankruptcy court denied a reaffirmation agreement due to the hardship it placed on the debtor. The judge goes through the process of when a court will deny a reaffirmation agreement (even if debtor and creditor agree), and has some advice for Chapter 7 attorneys in practice on how to deal with debtor clients.
If you're not familiar with reaffirmation agreements in bankruptcy, basically a reaffirmation agreement under Section 524(c) is a new contract between a debtor in bankruptcy and a creditor (typically a secured creditor) wherein the debtor "reaffirms" the debt owed to the creditor in order to not have to surrender the property to the creditor with that lien interest/security interest. Typically there is an agreement on the fair market value of the property to be paid back with an agreed interest rate, and it is enforceable as a post bankruptcy debt that will not be discharged in the bankruptcy. This is usually done with vehicles used by the debtor, but it also is used to keep household property like washers and dryers, etc.
Copy of the case is here.
If you're not familiar with reaffirmation agreements in bankruptcy, basically a reaffirmation agreement under Section 524(c) is a new contract between a debtor in bankruptcy and a creditor (typically a secured creditor) wherein the debtor "reaffirms" the debt owed to the creditor in order to not have to surrender the property to the creditor with that lien interest/security interest. Typically there is an agreement on the fair market value of the property to be paid back with an agreed interest rate, and it is enforceable as a post bankruptcy debt that will not be discharged in the bankruptcy. This is usually done with vehicles used by the debtor, but it also is used to keep household property like washers and dryers, etc.
Copy of the case is here.
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