Here’s what happened when Jennifer reaffirmed her car loan with Apple Federal Credit Union.
Jennifer filed bankruptcy with another bankruptcy lawyer here in Northern Virginia. She had a car loan with Apple Federal Credit Union, and she wanted to keep the car. So she reaffirmed the car loan.
When you “reaffirm” a loan you take it out of the bankruptcy. Later on, if you can’t pay, they can repossess the car, sue you, and garnish you. Under the 2005 Bankruptcy Reform, if you don’t reaffirm your car loan, they can repossess your car–even if you are current. (Although the law allows it, very few lenders do repossess cars that are current–Ford Motor Credit does, at least here in Virginia. And I’ve seen it from Suncoast Credit Union in Florida, and Alaska Credit Union, from Alaska.)
Jennifer paid off her loan, and asked Apple to send her the title. Apple FCU refused.
Apple said she could NOT get her car title unless she paid her Apple FCU credit card, too. What?! The credit card was wiped out in the bankruptcy. Well, yes and no.
The credit union can’t ask Jennifer directly to pay the credit card–that WOULD violate the bankruptcy law. But “security interests” pass through bankruptcy. A security interest is the right to repossess your car, or foreclose on your house, if you don’t make your payments. After bankrutpcy that’s still true. You still have to pay your mortgage and pay your car.
Credit Unions get you to sign in small print that your credit card counts as part of your car loan. (I’m sure banks would do that too, unless some regulation told them they can’t. I don’t know where that regulation is, however.) The credit card balance, under the small print, is also secured by the car. Actually, I just down-loaded the Apple FCU credit card agreement and it says that collateral securing other loans with the credit union “may” also secure this loan. That’s a pretty weak warning.
That brings us to the reaffirmation. Jennifer thought when she reaffirmed and then paid off the car loan, that she would have a paid for car. The reaffirmation agreement showed the payments she had to make, and that the collateral was the car. Shouldn’t that means when she made all the payments the car was paid off?
Jennifer thought so. This column at bankrate.com thinks so. I used to think so, too.
But I have to admit that Apple FCU has a point. The required reaffirmation agreement, which is written in law at 11 USC 524(k)-(m) , doesn’t exactly say that. It doesn’t say anything about what happens to the collateral.
The required reaffirmation agreement includes all kinds of warnings: this is serious, you don’t have to do it, here’s what your payments will be; here’s the interest rate: here’s the collateral. But it doesn’t say, when you get to the end, whether the car is actually paid for.
Admitting that this is a gray area, I still decided to fight for Jennifer. I’m quick to fight for my own clients. (I think that’s a lawyer’s job. I explain what I do here.) But I also fight to protect the frontiers of the law. ( Jennifer brought her problem to me because she heard I was a fighter.)
I want to know what the judge thinks about what Apple FCU did here. Certainly it stinks. And I also want to know if the judge thinks Apple’s credit card agreement really creates an enforceable security agreement. It looks pretty vague to me.
I think Apple FCU is a decent outfit. Before this, I’ve never seen them do anything underhanded. (You can read in my blog about other banks and credit unions that I do NOT like.) We often recommend them to clients who are looking for a credit union. I have some hope they’ll decide they don’t want a fight on this issue.
If Apple decides to fight this out, I’ll let you know what the judge says.
Apple agreed we were right and they were wrong. We CONTINUE to have Apple FCU on our list of financial institutions we think treat people fairly.
Around Northern Virginia, we see a lot of people who bank with Congressional Federal Credit Union. When they asked for a reaffirmation, we asked what stand they took on whether the reaf nullified any claim for cross-collateralization. We asked for them to put it in writing and they did. Here’s an expert from their email. .http://robertweed.com/wp-content/uploads/2014/04/Congressional-FCU-Reaffs-Nullify-Cross-Collateral.pdf