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Reaffirming a Debt When Your Lawyer Refuses to Sign a Certification that Reaffirmation is in Your Best Interests

The standard form reaffirmation agreement used by creditors in the Northern District of Georgia contains several paragraphs that speak to the debtor’s lawyer’s review of the reaffirmation.  Specifically, in a standard reaffirmation agreement, the debtor’s lawyer signs off on a statement that he has reviewed the terms of the agreement and that he believes it is his client’s best interest.  Further, there are often paragraphs that include language that debtor’s counsel has reviewed the debtor’s budget and that the debtor can afford to make payments of the reaffirmed debt.

Reaffirmation Agreements and Attorney Liability

In theory, at least, the debtor’s attorney assumes some liability for signing off on the reaffirmation.  Although I am not aware of any litigation arising from the terms of a reaff, it is possible that a debtor could sue his lawyer months or years following the close of the debtor’s case if it turned out that the debtor could not afford the reaffirmed debt.  Since reaffirming a debt in effect makes that debt “permanent,” an unfortunate debtor might find himself on the losing end of a collection lawsuit.  That debtor might then cross claim his lawyer for offering inappropriate advice and for signing a document that implemented the reaffirmation.

The drafters of the 2005 changes to the Bankruptcy Code intentionally included provisions that could give rise to liability on the part of debtor’s lawyers.  Congress wanted debtor’s lawyers to counsel their clients about the wisdom and viability of reaffirmation, and not just rubber stamp a debtor’s desire to keep a house, car, furniture or other debt.

Whether or not is is appropriate for a debtor’s lawyer to bear the burden of predicting his client’s financial wherewithal in the future is a debate for another time, but the practical effect of forcing attorneys to take at least some responsibility for a debtor’s decision to reaffirm has been to cause attorneys to refuse to sign off on a reaffirmation in cases whether the budget filed by the debtor does not show disposable income.  For example, if an unemployed debtor wants to reaffirm a $350 per month car note in a Chapter 7, most debtor’s lawyers would refuse to do so because an “underwater” budget cannot support a $350 monthly payment.

Chapter 7 debtors, not surprisingly, are not going to be very happy if their lawyers refuse to sign off on the document that will allow the debtor to keep his car, house, furniture or jewelry.  The debtor may have made arrangements to get help from friends or family, or perhaps there are part time “cash” jobs that can support the payment and as far as the debtors are concerned, if they believe that they can make the payment, their lawyer ought not interfere.

Judicial Review of Reaffirmation
for Represented Debtors

Now there may be an out for both debtors and their lawyers.  In a recent 2009 decision called In re Goodman by Judge Paul Bonapfel in the Northern District of Georgia, the Court considered a case in which the debtor had only $10 of monthly disposable income but wanted to reaffirm a $558 per month car payment.  The debtor’s mother had co-signed on the car note and the debtor recognized that if she surrendered the vehicle, her mother would eventually be sued for a large deficiency claim.  A copy of the Goodman decision is available for you to read if you click on the highlighted link.

The debtor’s attorney refused to sign the certification stating that the reaffirmation was in the debtor’s best interest.  The Bankruptcy Code provides for judicial review of whether a reaffirmation agreement is in the debtor’s best interest in cases involving unrepresented debtors, but the Code is silent as to whether a debtor can request judicial review if the debtor is represented but refuses to sign the “best interests” certification.

Judge Bonapfel ruled that a lawyer’s certification is not the only way a debtor can enter into an enforceable reaffirmation agreement.  The judge writes that “in the final analysis it is the client, not the lawyer, who makes the decision about reaffirmation.   Thus,

the Court concludes that, if a lawyer fulfills her professional duty to represent the debtor with regard to reaffirmation but concludes that she cannot make the required certification, the lawyer’s client may seek the Court’s approval of the reaffirmation agreement in the same manner as if she did not have a lawyer.

Judge Bonapfel’s decision, of course, makes a great deal of sense.  But, be aware that a higher court could overrule this principle and it is also possible (albeit unlikely) that another judge in the Northern District could reach a different conclusion on the same set of facts.

However, if you do want to reaffirm a debt and your lawyer will not sign the “best interest of the debtor certification” there is a legitimate legal argument to take the issue to a judge.  It does not mean that the judge will necessarily sign off on the reaffirmation but at least you have a place to plead your case.

Thanks to my good friend Scott Riddle for blogging about the Goodman case on his very useful Georgia Bankruptcy Law blog.

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