Reaffirmation Agreements in Chapter 7
Our Montgomery bankruptcy attorneys often encounter clients who wish to keep the secured property that they have and still file a Chapter 7 bankruptcy. One way to keep the property is to reaffirm the debt. When you reaffirm a debt, the debtor agrees that they still owe the debt after the bankruptcy case is over. In other words, the creditor's lien on the property and the debtor’s personal liability for the debt survive the Chapter 7 bankruptcy intact. An example would be if you never filed a bankruptcy you would still owe the money.
Reaffirmation provides a sure way for the debtor to keep the property if you abide by the terms of the Reaffirmation Agreement and if you make your payments to that creditor. Reaffirmation also allows the debtor and creditor to come to new terms, or at least can negotiate new terms, which may reduce the debtor’s payment, the debtor's interest rate, or the total amount of money that you owe, and the amount of time that you must pay the debt. This is one of the great advantages to reaffirming your debt in a Chapter 7; however, there are disadvantages to a reaffirmation.
Once you agree to reaffirm the debt you are now personally liable for that debt even though you filed a Chapter 7 bankruptcy. This means that you can't walk away from the debt after your Chapter 7 bankruptcy case is discharged. You are still obligated to pay for this debt and pay for any deficiency balance if the property is repossessed, damaged, or destroyed. Another disadvantage is that because you can only file a Chapter 7 bankruptcy case every eight year you'll be stuck with that debt for a very long period of time. For example, if you reaffirm the debt on your truck, and then you default on the payment after the Chapter 7 bankruptcy case the creditor can repossess the vehicle and sell it. The bill that you owe for the difference between what the truck was sold for and what you owe is a deficiency balance. You are now responsible to pay the creditor that deficiency balance, and you can't discharge it in a Chapter 7 bankruptcy for 8 years from the filing of your original Chapter 7 case.
Reaffirmation Agreements may be used with almost any type of property and almost any type of loan; however, the creditor must agree to the new terms of the reaffirmation if those terms are different than the terms of the current agreement. The debtor and the creditor must file the Reaffirmation Agreement in court as part of the Chapter 7 bankruptcy case. The bankruptcy court must next review the Reaffirmation Agreement. Prior to the discharge of the case your bankruptcy judge can approve the agreement if it is in your best interest or can disapprove of the reaffirmation agreement if it is not in your best interest or if it would create an undue hardship. In many instances the bankruptcy judge will reject the agreement if it looks like the debtor will not be able to make the payments on the Reaffirmation Agreement after the debtor pays his or her basic living expenses.
Reaffirmation Agreements come with very serious consequences. A debtor should only consider a Reaffirmation Agreement if the creditor insists on it or if it's the only way to keep the property that the debtor really needs, and the debtor has a good reason to believe that he will be able to pay off the balance. Reaffirmation Agreements are the only practical way to keep automobiles and homes. It is a sensible way to keep property that is worth significantly more than what the debtor owes on the property, and never reaffirm a debt for more than what it would cost for you to replace the property.
Our Montgomery bankruptcy attorneys work with debtors and Reaffirmation Agreements every day. We are here to help you. All consultations are always free, and we can usually see you within 24 hours. We have offices located in Montgomery, Selma, Greenville, and Troy. Call us at 334-LAWYERS (529-9377) to set an appointment, or you may us the “text us” link or Contact Form on our website. Remember that doing nothing changes nothing so call us today!