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Coastal gets adverse bankruptcy decision
WASHINGTON (10/31/08)—A U.S. District Court has upheld a bankruptcy court's adverse decision against Coastal FCU in a North Carolina bankruptcy case that involves reaffirmation agreements. The case, brought by Coastal, in Raleigh, involves a member’s automobile loan made in February 2005. The borrowers subsequently filed a Chapter 7 bankruptcy and signed a reaffirmation agreement with the credit union in order to retain the automobile. The borrowers were not represented by an attorney; therefore the bankruptcy court was required to hold a hearing to determine if the agreement imposed an undue hardship on the debtors. The court declined to approve the reaffirmation agreement and stated that the debtors could retain the automobile as long as the loan was not delinquent and they continued making payments. On Oct. 28, the U.S. District Court for the Eastern District of North Carolina Western Division upheld the bankruptcy court decision that declined to approve the reaffirmation agreement and permitted the debtors a "ride-through." Coastal FCU, backed by the Credit Union National Association (CUNA) and the North Carolina CU League, argued that through the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the U.S. Congress intended to eliminate the ‘ride-through' option. The term refers to an interpretation of former bankruptcy laws that permits a debtor to keep the loan collateral, such as an automobile, without either reaffirming the debt or redeeming the loan as long as timely payments continue. According to Mike McLain, CUNA Assistant General Counsel and Senior Compliance Counsel, "Some areas of the BAPCPA are poorly drafted and a literal application of the bankruptcy law can result in a decision that is clearly at odds with Congressional intent. That is what has happened in this case." U.S. District Court Judge James C. Dever III ruled that Coastal failed to show that an “intent exception” applies to this case that would permit the court to consider Congress' intent rather than the plain language of relevant sections of the Bankruptcy Code. McLain said, "We are obviously disappointed by the district court decision. We had hoped that the court would have recognized and upheld the changes made by the 2005 bankruptcy revisions.” Coastal will now consider whether to appeal the district court ruling to the U.S. Fourth Circuit of Appeals, McLain stated.


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