Rescission & Bankruptcy
Rescission, what is it and what does it have to do with bankruptcy? 11 U.S.C. § 524(c)(4) outlines the basis for rescission but it really does not identify what rescission does for you. A rescission breaks or cancels a promise to pay and it is completely legal IF performed according to 11 U.S.C. § 524(c)(4). Clear as mud? Let’s break it down even further.
When you file for Chapter 7 relief you may be asked to reaffirm on such things as a house or vehicle note. There are reasons you may or may not want to reaffirm those notes but for the purposes of this article, we will presume you have reaffirmed on the note to pay your vehicle. Meaning you are promising to the debt owed to the lender who lent you money to purchase your vehicle.
At the time of filing, you thought you had no choice but to pay $15,000 for a 2010 Sparksmobile at 27% interest. You need transportation back and forth to work and there is not another lender in sight who would loan you money, so you signed the reaffirmation agreement. You understood that debt must be paid or Big O Bank can repossess the vehicle and sue you for the balance. However, during the bankruptcy process, your life changes.
After the 341 meeting of creditors, you receive the news you are being promoted within the company. Not only does this promotion offer a pay raise but you will receive a company vehicle for personal and business use. As a single person, you certainly do not need two vehicles so what would be the best course of action?
Surrender the Sparksmobile of course. But how can you do so when the reaffirmation or promise to pay the debt has been filed with the court?
Enter the power of rescission. The rescission is a document that counteracts the reaffirmation or promise to pay IF this is done in a timely manner. Filing a rescission says to the court, the creditor, and the world, I will not agree to continue to pay this debt. Once the rescission is timely filed that debt is then eligible for discharge if it meets all other qualifications.
11 U.S.C. § 524(c)(4) lays out how to timely file a rescission. Specifically, the rescission must be filed “at any time prior to discharge or within sixty days after such agreement [reaffirmation] is filed with the court, whichever occurs later”. What does that mean?
If the reaffirmation agreement was filed on June 15, 2018, the discharge order was entered on August 31, 2018, and the rescission was filed with the court on August 20, 2018, then you are good and the rescission is valid. The rescission is valid because the Discharge Order was entered after the rescission was filed. In other words, the discharge date occurred later than the 60 days from the date of the reaffirmation agreement.
If the reaffirmation agreement was filed on August 30, 2018, the discharge order was entered on August 31, 2018, and the rescission was filed with the court on October 19, 2018, you are still good and the rescission is valid. The rescission is valid because it was filed later than the entry of the discharge order but within 60 days of the reaffirmation agreement being filed with the court. In other words, the 60-day time limit occurred later than the entry of the discharge order. One thing to note, IF your case closes between the time of discharge and the time you wish to file the rescission, you will need to file a Motion to Reopen the Case and pay the filing fee which is currently $245.
At the beginning when you decide to file for bankruptcy relief, it may seem as though time stands still. However, once you file the case you may feel as though you are a bullet train with deadlines whizzing by. It is crucial you understand the effects of a reaffirmation and the deadlines controlling your ability to rescind.
Calendar the date your reaffirmation agreement was filed with the court. Then go out 50 days to remind yourself to review the agreement. If you are still satisfied with the reaffirmation agreement there will be nothing to do. However, if you are having second thoughts, you will have given yourself ten days to file a Notice of Rescission with the court.
If your attorney will not help you, go to the clerk of the bankruptcy court and ask for assistance on how to rescind the reaffirmation agreement. The critical part of the Notice of Rescission is to make sure you timely file it with the court AND mail a copy of the filed notice to the creditor at their preferred address on file with the court if there is one AND the creditor’s address listed in the reaffirmation agreement.
Knowledge is power and the more knowledge you have about rescission, the more power you will have to make an educated decision about reaffirming a debt.