But the next wave of petition filings is building, says Drake, although more slowly than expected. He predicts that "over time, bankruptcies will likely rise again to pre-2005 levels, and with them the need to protect your credit union's investment in the loans and collateral that are your lifeblood."

To support his prediction, Drake cites the recent increase in credit cards minimum payments that will drive up new filings as effectively as a recession would. Consumers' overall credit card debt loan continues to rise, he said, and regular savings are "nonexistent."

"Nobody learned any degree of financial maturity since bankruptcy reform passed. In fact, Americans' debt levels have risen, and they're living in negative savings," he stated

Unfortunately, says Drake, "when credit card minimums increase and outruns consumers' ability to remain in financial servitude, consumers' delusion disappears and panic results. Most debtors' lawyers secretly applaud the new minimums."

Drake offered that the reason the number of bankruptcies has dipped has to do with the "fundamental irresponsibility" of debtors to keep proper documentation rather than the provisions of the reform legislation. New paperwork and record requirements have delayed some new filers for a while, he opined. To further buy filers some time lawyers are sending "retention letters" to lenders now in place of bankruptcy notices, to trigger state-law statutes forbidding further direct communications to debtors from collectors. According to Drake, most new-law petitions favor the secured creditor over the unsecured, and "although bankruptcy reform was intended to advance Chapter 13 petitions over Chapter 7 to allow lenders to recover a greater portion of their debt, the opposite is happening. Chapter 13 is still used as a method of involuntary partial reaffirmation of secured debt to the extent of collaterals' value."

However, said Drake, new-law Chapter 7′s will no longer permit "ride through" or "keep and pay" if contracts contain "bankruptcy as default" provisions. That means, he said, that debtors will have to deal with secured lenders at some point. Drake strongly advised credit unions to be sure indirect-lending retail installment contracts contain these ipso facto clauses, and to not let debtors keep collateral without a reaffirmation "unless you make a deliberate business decision to accept the risk." Since the bankruptcy reform legislation went into effect, the market has seen the rise of redemption and the decline of reaffirmation for secured lenders. That's because, said Drake, "reaffirmations are more painful than they use to be. Reaffirmations are antithetical to the purpose of bankruptcy. Judges are striking them down, so reaffirmations are more rare now than they used to be under the old law. That defeats the purpose of the new law." However, the attorney said, "lenders should view redemptions as a convenient, attractive alternative to surrender of collateral by Chapter 7 debtors. Just don't get chiseled on valuation. Taking the money is better sense for a lender than trying to get a reaffirmation from someone who's proven they're financially irresponsible."

When it comes to reaffirmations, he advised CUs that redemption should be for the loan payoff or retail value, whichever is less. For indirect auto loans, CUs should encourage dealers to furnish invoice copies on indirect loans, so the options and add-ons are apparent. In addition, do not presume the debtor's Motion for Redemption should not be scrutinized. According to Drake, often, redemption lenders will suggest the debtor seek to redeem for Kelley wholesale value or any other figure less than retail. That technique, he said, lightens the debtor's repayment burden and lessens the redemption lender's risk.

Drake also stressed that, "new-law certification requirements make reaffirmations unappealing to most debtors' lawyers, even though there is an exception for credit unions."

In the end, said Drake, "reaffirmation is a business decision" for any lender. However he cautioned credit unions to "beware [of] multiple reaffirmations of a series of debts since they permit selective rescissions."

While bankruptcy reform has "winnowed out many dabblers" from the bankruptcy bar, many former bankruptcy lawyers looking for a new avenue for revenue have become "consumers' rights" lawyers, said Drake.

"The debtors' bar has assumed the duty of seeking to evade and torpedo bankruptcy reform at every turn, as have many on the bench, who resort to the literal reading of ungrammatical statutes to achieve absurd results," he said, adding, "It is imperative that all credit unions engage experienced bankruptcy counsel at least in the courts in which members routinely file. Otherwise, the credit union will pay for its knowledge of the new code involuntarily rather than voluntarily." –[email protected]