Court: United States Bankruptcy Court, W.D. Pennsylvania; January 30, 2012; Us Bankruptcy; United States Bankruptcy Court
The Court, presided over by Bankruptcy Judge Jeffery A. Deller, has denied the Amended Reaffirmation Agreement between the Debtor and Reliance Savings Bank regarding a debt secured by a 2009 Fleetwood Edgewood manufactured home located at 212 Caldwell Road, New Millport, PA. The Debtor filed for Chapter 7 bankruptcy on April 27, 2011, reporting a monthly income of $2,750.62 against monthly expenses of $2,668.00, which excluded the proposed payment of $537.27 on the reaffirmed debt, resulting in a negative net monthly income of $454.65.
Under 11 U.S.C. § 524(c) and § 524(m), a reaffirmation agreement may be disapproved if a presumption of undue hardship is established and not rebutted. The Court found that the Debtor's financial situation indicated an inability to make the necessary payments, thus creating a presumption of undue hardship. During a hearing on January 20, 2012, the Debtor's counsel argued for approval based on the involvement of the Debtor's daughter, a co-owner of the Property, who was said to contribute to the payments. However, the Court deemed this argument unpersuasive due to a lack of evidence supporting the daughter's financial capability or obligation to pay.
Additionally, the Court noted that the proposed reaffirmation would obligate the Debtor to monthly payments over twenty-two years without any assurance of sufficient long-term income. The absence of any benefit to the Debtor from reaffirming the debt—given her non-residence in the Property and lack of equity—further influenced the Court's decision. Overall, the Court concluded that the Amended Reaffirmation Agreement was not in the Debtor's best interest and upheld the presumption of undue hardship.
The Debtor's intention to safeguard her daughter's interest in the Property is noted, but the Court finds that this desire does not align with the Debtor's best interests. Citing *In re Hoffman*, the Court states that reaffirming an unaffordable debt to protect a co-obligor is not advisable. The Court's disapproval of the Amended Reaffirmation Agreement does not affect the existing arrangement among the Debtor, her daughter, and Reliance Savings Bank. Although the Debtor's personal liability may be discharged, she retains the right to continue payments on the debt under 11 U.S.C. § 524(f). Counsel for Reliance Savings Bank confirmed that payments from the Debtor’s daughter would be accepted and noted that timely payments would likely prevent foreclosure. The Court concludes that the proposed reaffirmed debt would lead to negative net monthly income for the Debtor, indicating undue hardship, which the Debtor failed to rebut sufficiently. Consequently, the Court ordered that the Amended Reaffirmation Agreement is not approved. The Court also pointed out procedural issues with the Agreement, including discrepancies regarding the presumption of undue hardship and the lack of updated schedules reflecting the Debtor's financial situation. Lastly, it was noted that debtors within the Third Circuit can maintain current payments on real property without entering into a reaffirmation agreement, referencing applicable case law.
