07 Jun Bankruptcy Reaffirmation Agreement: To Sign Or Not To Sign, That Is The Question.
To sign or not to sign a reaffirmation agreement is always a question in a Chapter 7 Bankruptcy when there are secured debts. Bankruptcy Law Network is presenting information regarding the reaffirmations and what you should consider before signing one. You can click here to review all articles regarding the subject of reaffirmations. If you were to gather 5 attorneys and ask for their opinion on reaffirmation agreements you would most likely receive 5 different answers regarding this subject. Hence the reason of why we have chosen to write a series on this subject. This article will review why you may want to consider signing a reaffirmation agreement.
As Kevin Gipson outlined in his article if a reaffirmation agreement is signed it will hold the person liable for the secured debt after the discharge is entered in their bankruptcy. For some people a reaffirmation agreement might give them the fresh start that they were looking for because no matter how much debt that they discharge they still cannot afford their current house or vehicle. But let’s examine the flip side of this argument. Let’s say that if you discharge all your credit card debt and you have a stable income and you have a reasonable budget, would the advise still be to not sign a reaffirmation agreement? As with all things in bankruptcy my answer would be it depends and it would be necessary to examine the following factors.
You may wish to keep your vehicle because it is almost paid off and in good condition. You may wish to keep your home because it has equity in the home and fortunately the monthly mortgage is less than or equal to rent in your market. If this is your situation then you may be a great candidate for a reaffirmation agreement.
If a reaffirmation agreement is NOT signed and you are keeping a home or vehicle, the loan company will cease to send monthly billing statements. So if you are late on a payment then the loan company may proceed under state law to either reposes the vehicle or foreclose on the home. Further, the loan company will not update the credit bureau to give you credit for the monthly payments you are making. This was generally true just for loans for vehicles but in today’s market we are finding that both vehicle and home lenders are refusing to update the credit reports for those who have not signed a reaffirmation agreement. Now, once the loan is paid in full the loan company must update the report as paid in full but until such time they may not give you credit for your hard work. What about when you refinance your home?
If a reaffirmation agreement is NOT signed, the mortgage company will refuse to offer a refinancing agreement because the debt was technically discharged in bankruptcy. A combination of an unsigned reaffirmation agreement and a discharge means you will have to jump through several expensive hoops to refinance your home.
You will have to file a Motion to Reopen the bankruptcy, a Motion to Set Aside the Discharge, a Motion to Extend the deadline to file a reaffirmation and then file a reaffirmation. All this takes attorney time to file those documents and attorney time costs money. So in the long run, depending on the facts, it might be more prudent to sign the reaffirmation agreement while your bankruptcy case is open.
So let’s boil this down to a few key questions you need to ask before signing a reaffirmation agreement to reduce the risk of expensive hoops in the future:
These questions can be used when deciding whether to sign a reaffirmation on a vehicle, home, furniture, wedding ring, etc…. As long as you have secured debt in your Chapter 7 bankruptcy the lender may seek to have a reaffirmation signed so that they can collect the debt once the discharged is entered. Secured debt is a financial obligation tied legally to an object such as your home, car, wedding ring, etc… This legal obligation allows your secured creditor to take back the object in question if you do not pay your bill. If the lender can take your house, your vehicle, your wedding ring away from you because you did not pay, you probably have a secured debt. If this is your situation you need to consider whether or not to sign a reaffirmation agreement.
Let’s recap as to when you may wish to sign a reaffirmation agreement:
- When you can financially afford to keep the secured item.
- When it is in your best financial interest to keep the item as opposed to purchasing a new item.
- When you want to receive ongoing updates on your credit report for paying on time.
- When you have reviewed this decision with your attorney.
No decision is black and white in the law. There are many factors to consider and this is why we strongly advise that you speak to a licensed and experienced bankruptcy attorney before proceeding.
Remember that knowledge is power and the more knowledge you have regarding reaffirmations the more power you will have to make an informed and sound financial decision about your future.