Cautionary Tale: Pro Se Debtor Stuck with Reaffirmation Agreement

The court was powerless to permit the pro se debtor to rescind her reaffirmation agreement with her car creditor where she failed to rescind the agreement within the sixty-day time limit set forth in section 524(c)(4). In re Galloway-O’Connor, 2015 Bankr. LEXIS  3283, No. 15-70981 (Bankr. E.D. N.Y. September 29, 2015).

During the course of her no-asset chapter 7 bankruptcy, Ms. Galloway-O’Connor entered into a reaffirmation agreement with Santander Consumer USA committing herself to repaying the debt on her car. Santander filed with agreement with the court on May 27, 2015. The court noted that Ms. Galloway-O’Connor was not represented by counsel and ordered a hearing on the agreement. At the hearing Ms. Galloway-O’Connor explained that, despite her schedules showing an income deficit of over $7,000 per month, between the discharge of some of her debts in bankruptcy, an expected raise at work, and a drastic reduction of expenses, she could manage to continue to pay for her vehicle. Upon questioning of the debtor at the hearing, the court was convinced that she understood the ramifications of her decision and that she believed she could maintain the car payments. The court approved the agreement on July 7. Ms. Galloway-O’Connor obtained her discharge on July 8.

On August 26, Ms. Galloway-O’Connor moved to reopen her case to rescind the reaffirmation agreement.

The court began with the standards for reopening a case under section 350(b) finding that it is appropriate only if it would not be an exercise in futility or a waste of judicial resources. Therefore, the court turned to the debtor’s legal purpose for reopening to determine if she had a valid argument in favor of rescinding the reaffirmation agreement.

Section 524(c) provides that a debt is enforceable pursuant to a reaffirmation agreement so long as: “(4) the debtor has not rescinded such agreement at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later, by giving notice of rescission to the holder of such claim.” In this case, the debtor did not seek to rescind prior to her discharge, nor did she try to rescind within sixty days of the date the agreement was filed with the court. In denying her motion to reopen the court relied In re Saunders, 169 B.R. 192, 195 (Bankr. E.D. Mo. 1994) which recognized that “reopening a case to grant a discharge on a debt which debtors reaffirmed and failed to rescind in a timely manner would be unfair to creditors who are entitled to rely on the reaffirmation agreement.”

Galloway-O’Connor Bankr ED NY opinion