The Bankruptcy Abuse Protection Act of 2005 (“BAPCPA”) largely eliminated the so-called “ride through” option for security interests in personal property; however, for nearly two years there was no clear indication as to whether the ride through option still existed for security interests in real property. Recently, in In re Caraballo, the Connecticut Bankruptcy Court confronted this uncertainty head on and determined that the ride through option still exists for real property. 386 B.R. 398, 400 (Bankr. D. Conn. 2008). Importantly for bankrupt individuals, utilizing the ride through option allows them to “keep their property during and after bankruptcy by remaining current on their payments, which prevents creditors from imposing harsher terms on debtors during the bankruptcy process.” Christopher M. Hogan, Note, Will the Ride Through- Ride Again?, 108 COLUM. L. REV. 882, 883 (2008).
In coming to its conclusion that the ride through option exists for real property, the court in Caraballo looked at the statutory language of 11 U.S.C.A. § 521(a)(6) (2005) and 11 U.S.C.A. § 362(h)(1) (2005) as amended by BAPCPA, congressional intent, and case law from other circuits. Caraballo at 402. Applying its conclusion, the court held that the mortgage holder could not foreclose on the debtor who did not reaffirm as long as payments continued on the mortgage. Id. Following the lead of other circuits and applying its own reasoning, the Connecticut Bankruptcy Court gave a clear indication to practitioners in the Second Circuit that, although the ride through option no longer exists for personal property, it still exists for real property.
Part I of this memo will examine the background of the real property and the personal property ride through options in the Second Circuit before BAPCPA. Part II will outline a few major changes from BAPCPA to the code that affected the ride through options. Next, in Part III, Section A, the facts and procedure of Caraballo will be presented. Section B is an in-depth look at the reasoning the court applied in reaching its conclusion. In coming to its conclusion, the court took three things into account: statutory language, congressional intent, and case law from other circuits dealing with the same issue. Part IV will examine subsequent case law reflecting the outcome of Caraballo. Finally, in Part V, this memo will analyze the outcome of this decision and the effects it will have on practitioners.