Bankruptcy Court Sets Aside Agreed Waiver of Right to Rescind Reaffirmation Agreement as being unenforceable.

In the Case of Dustin M.J. Vaupel and Aimee D. Vaupel, Debtors, after the Debtors entered into a Reaffirmation Agreement with Collins Community Credit Union, both the parties agreed to Waive the Debtors Right to Rescind the Reaffirmation Agreement.

Here, the Court held that the debtor and creditor cannot waive this particular right of the Debtors to rescind the Reaffirmation Agreement.  The Court further found that the Credit Union was pressuring the Debtors to enter into the Reaffirmation agreement by maintaining that the Credit Union would pursue Debtors by filing an Adversary Complaint with the Bankruptcy Court under Section 523(a)(6) of the Bankruptcy Code, if the Debtors did not enter into the Reaffirmation Agreement.

The Court stated that:

If the Credit Union has a basis for such a complaint, it should file it, if appropriate. To use this allegation as leverage to seek compliance with the Reaffirmation Agreement strikes this Court as questionable. The Credit Union can file its discharge complaint and it can enforce its rights in State court. To use one to leverage enforcement of the other is not an agreement to which this Court wishes to be a party.

The Court further found that the vehicle identified in the Credit Union’s Reaffirmation Agreement was not identified on Debtors’ Bankruptcy Schedules as being exempt and, the Court noted that this third vehicle for the Debtors would be a luxury vehicle which the Debtors perhaps may not retain.

Debtors’ counsel was criticized for approving this Reaffirmation Agreement with the Credit Union and the Court admonished Debtors’ counsel:

Counsel who sign a reaffirmation agreement which approve luxury items or items which debtors cannot afford are doing a disservice to the clients as well as ignoring the responsibility which is placed upon them.

Here, the Credit Union and Debtors were not allowed to jointly waive the Debtors’ Right to Rescind the Reaffirmation Agreement, which was previously filed with the Court and otherwise apparently enforceable. (Bkrtcy.N.D.Iowa).

Author: Charles R. Harroun, Attorney at Law