What are Reaffirmation Agreements?
When you file a bankruptcy case, some or all of your debts are discharged and you are no longer legally responsible for paying them back. This gives you a “fresh start.” However, after filing your bankruptcy case, you may want to repay a particular debt or you may be asked by a creditor to pay a debt. If you decide that you want to pay any specific debt that otherwise would be discharged, you may be required to sign a reaffirmation agreement and file it with the court.
Under a reaffirmation agreement, you agree to pay a debt even though you could have eliminated the debt in your bankruptcy case. Reaffirmation agreements are strictly voluntary. When you reaffirm a debt, you continue to be legally responsible for paying it back. This gives the creditor some legal rights. For example, if you have a car loan and miss a payment in the future, the creditor can do any of the following things:
(1) repossess the car;
(2) sell the car to someone else; and
(3) sue you for all the money you still owe on the car (the deficiency balance).
When you reaffirm a debt, that debt is treated as if you never filed a bankruptcy case and such debt is not forgiven. This can have serious financial consequences. Therefore, reaffirmation agreements must not impose an undue burden upon you or your family and must be in your best interest. It is wise to consider all of your options before entering into a reaffirmation agreement.
Should I Reaffirm a Debt?
In many cases, you do not need to reaffirm a debt. This will give you the full benefit of a “fresh start” by eliminating your debt. However, you may have special reasons for paying back a particular debt. If this is the case, you may be able to pay it back on a voluntary basis, without signing a reaffirmation agreement. It is a good idea to talk to an attorney at StoneCrest Law Firm to find out what is best for you.
If you filed your bankruptcy case on or after October 17, 2005, a reaffirmation agreement may be necessary. For example, if you own secured property, such as a car, you must tell the bankruptcy court what you intend to do with it.
You have three options:
(1) Keep the car and continue making payments until it is paid off;
(2) Redeem the car by paying it off in a lump-sum payment (this could be less than you owe); or
(3) Return the car to the creditor and owe nothing more.
If you can afford to keep the secured property and continue making payments, it may be necessary to sign a reaffirmation agreement, unless the creditor agrees otherwise. If you decide that you cannot afford to keep the property, you must return it to the creditor. If you decide to return it, the debt will be discharged.
After you file a bankruptcy case, you will receive an appointment to meet with the bankruptcy trustee. This is called the 341(a) hearing or “meeting of the creditors.” After that meeting, you have 30 days to sign a reaffirmation agreement, redeem the secured property or return the secured property to the creditor. If you fail to do one of these things, you may lose important legal rights and the property.
Reaffirmation Hearing
The bankruptcy judge must approve your reaffirmation agreement if you do not have an attorney or if your attorney will not certify the agreement. You will receive a hearing date to appear before a judge and explain why you want to reaffirm the debt. You must also explain how you can afford to make payments in the future.
The judge may ask:
(1) The reasons why you want to reaffirm the debt,
(2) Whether you understand what you are agreeing to,
(3) Whether you are likely to have the ability to maintain the payments, and
(4) Whether the payments will cause a hardship for you or your family.
If you reaffirm a particular debt and the bankruptcy court approves the reaffirmation agreement, that debt is not discharged in your bankruptcy case. You must make the payments, no matter what hardship this may cause you.
Making Payments
While your bankruptcy case is pending, you must continue making payments on your debt to avoid losing your secured property. Your creditor may have stopped sending you the monthly bill after you filed your bankruptcy case. If so, contact the creditor immediately to obtain the correct payment information, including the address and payment date. If you do not hear back from the creditor, it is still your responsibility to send payments on time.
Can I Cancel a Reaffirmation Agreement?
A reaffirmation agreement can be cancelled:
(1) Before the court issues a discharge; or
(2) Within sixty (60) days from the date the reaffirmation agreement is filed with the bankruptcy court.
This information is to explain reaffirmations and the rights your secured creditors might have regarding some of your property.
Secured creditors are creditors that have a “lien” or “security interest” against your property. This “security interest” is a type of ownership. Usually the lien is created when you purchase something and promise to pay for it in installments. Some creditors have a lien because you borrowed money against your house or your personal property and granted a security interest to the creditor to obtain the loan. Others may have a lien as a result of a judgment against you. Common secured creditors are mortgage lenders (security interest in your home), or car lenders (security interest in your vehicle).
In every chapter 7 bankruptcy case, we are required to file a document called a “CHAPTER 7 INDIVIDUAL DEBTOR’S STATEMENT OF INTENTION”. That document states how you intend to handle your secured creditors. Your options are:
1. Retain the property, and either
a. Reaffirm the debt (pay according to your contract with a written agreement);
b. Redeem your property (pay the market value in one lump sum); or
c. Avoid the lien (only if allowed by law).
2. Surrender the property to the creditor;
You must perform your stated intention within 45 days of the filing of your case or the creditor may be able to take the property from you.
“Purchase-Money” Creditors
Secured creditors that loaned you the money to buy the secured item, (a house, a car, furniture or appliances, jewelry, etc.) have a “purchase-money” security interest in your property. These creditors are entitled to be paid or to receive the property back. When a bankruptcy case is filed we need to notify these creditors, if any, of your intentions and will be processing the reaffirmation of the contract, the redemption of the property or the surrender of the property within the next two months. In some cases, we are able to negotiate a new agreement with the creditor so that you can keep the item or items purchased and pay less that the full balance of your contract, with lower monthly payments.
If your intention is to surrender the property, we will be notifying the creditor to contact you directly to make arrangements for the turnover of the property.
“Non-Purchase Money” Creditors
If you pledged property you already owned to a creditor for a personal loan, that creditor has a “non-purchase-money” security interest. If they don’t have possession of the item, and they don’t hold the legal title to your property (such as a “pink slip” to your car or a Deed of Trust against your house), the lien is usually avoidable by the bankruptcy court. We may be able to obtain an order from the court which releases the lien against your property and you won’t have to surrender your property to that creditor or pay them anything. This should be done as soon as possible to avoid later attempts by the creditor to obtain your property.
Experienced Sacramento Bankruptcy Lawyers
We are experienced Sacramento Bankruptcy Lawyers. We have helped thousands of individuals and businesses get the relief they need from their creditors through the use bankruptcy by filing a Ch. 7, Ch. 13, credit card debt negotiation or debt settlement and have successfully dealt with adversary proceedings brought by difficult creditors. Our bankruptcy lawyers have achieved proven results and can give you the great legal advice and strategy needed to get you the results you want. Contact us today to schedule your complimentary attorney consultation by clicking HERE or by calling 916-999-1376. We look forward to helping you with all of your Sacramento bankruptcy needs.
