Considering or have filed a Chapter 13 Bankruptcy case?
Ignore This Educational Bankruptcy Post —
Are you a Chapter 7 filer with secured property that you would like to keep? This post is for you.
For those of you that filed a Chapter 7 and have a security interest in property — you may hear the words “Reaffirmation Agreement” soon. This is the what, where, who, when and process you need to know regarding your Bankruptcy Reaffirmation Agreement.
What Is A Reaffirmation Agreement?
A Reaffirmation Agreement is a new contract with the creditor that will be enforceable after your bankruptcy case closes. If you sign a Reaffirmation Agreement and then cannot pay on the debt, the creditor can take you to state court to seek the return of the property, a judgment and proceed with a garnishment.
Where Does A Reaffirmation Agreement Come From?
Creditors holding a security interest that they want to protect post-bankruptcy will request that a Reaffirmation Agreement is signed. They will prepare it and provide it to your attorney’s office for review.
The typical creditors we receive Reaffirmation Agreements from are larger car lenders, credit unions holding secure loans, and Nebraska Furniture Mart.
Who Doesn’t Send A Reaffirmation Agreement?
Of course, not your unsecured creditors, they have nothing to gain.
Mortgage companies. The lender for many people’s largest asset, likely will NOT send a Reaffirmation Agreement. In fact, not reaffirming on mortgages is the industry standard practice when filing for bankruptcy. Lenders are aware it is the unlikely case, that our Judges would sign off on a Reaffirmation Agreement between most clients and mortgage companies.
When Should You Sign A Reaffirmation Agreement?
Only sign a Reaffirmation Agreement if you are sure, you will be able to pay off the debt in full.
You are responsible for the debt under this new contract. If you default, the creditor can receive a judgment against you and the bankruptcy cannot help you. In the case of car loans, the creditor can repossess the vehicle and you will be responsible for any deficiency that remains after the vehicle is sold at auction.
What If You Don’t Sign A Reaffirmation Agreement?
Mortgages:
You will keep making your monthly payments and they will be applied to your debt just as they always have been.
If you decide to refinance in the future, it will be up to the company if they want to base on this information or not. We have found in the past that it is sometimes necessary to use a different lender after your case for a refinance.
Creditors will not submit payment history to the credit reporting bureaus. You may request a yearly payment history from your mortgage company and they are required by law to provide it. You can then go through the credit reporting agencies (3) dispute processes – free via www.annualcreditreport.com. Make sure you attach your payment history that the mortgage company provided when you make your dispute. Update this dispute / history year-to-year as your payment history changes.
Vehicles:
A Kansas court case decision in Hall v. Ford Motor Credit Company, Inc., allowed Ford to repossess a vehicle after the debtor’s bankruptcy case closed without a reaffirmation agreement filed in the bankruptcy case. The debtor was current on payments, but did not sign a reaffirmation agreement. The court considered the amount of equity in the vehicle and payment history.
At this time, we are not aware of other car loan lenders repossessing vehicles after a bankruptcy if no reaffirmation agreement was filed and the debtor is current on payments. However, we want to make you aware of this possibility when considering a Reaffirmation Agreement.
Process For Signing A Reaffirmation Agreement
If you wish to sign a Reaffirmation Agreement it must be filed with the court before you receive a discharge in your case. An Order of Discharge is usually received 60 days after your 341 meeting. The Creditor will file the Reaffirmation Agreement once you have reviewed its terms and signed it.
The court may require you to attend a hearing if your Schedule J indicates a negative budget. The Judge will want to ensure you are aware of the consequences of signing a Reaffirmation Agreement and that you have the ability to pay the debt in full.
A Reaffirmation Agreement can be revoked or cancelled within 60 days of being filed with the court or before an Order of Discharge is entered in your case – whichever is longer. If you wish to cancel a Reaffirmation Agreement you signed, you must notify your attorney immediately.
The bankruptcy cannot help you after the fact.
Key takeaways
- Reaffirmation Agreements are only filed in Chapter 7 cases
- A Reaffirmation Agreement is a NEW contract between you and the creditor
- Mortgages are not typically reaffirmed
- Since you did not reaffirm your mortgage loan:
- Your payments will NOT show on your credit report
- The mortgage company will likely not provide you with a refinance in the future
- You can self-report and get a loan with a new lender
- You should ONLY sign a Reaffirmation Agreement if you KNOW you can pay a loan in FULL