Happy Groundhog Day!

Lately the same refrain keeps cropping up in my practice:  why did you wait so long?  I understand that very few people want to file bankruptcy, and I agree that the decision to file bankruptcy is an important one.  And while it is common to hear that bankruptcy should be a last resort, it is also true that you can wait too long.  So, in honor of Groundhog Day, while we wait to find out when spring will arrive, here are some problems that might crop up if you wait too long to file bankruptcy.

You exhaust your reserves.  This is probably the most common consequence of just hanging on too long, trying to avoid bankruptcy.  You are trying to keep up with mortgage payments or credit card payments after a job loss, illness, divorce, or the like, and you exhaust your savings, tap into your 401k or IRAs, incur taxes and penalties as a result, which makes the whole financial situation still worse.  You use up the resources that would make it easier to make a fresh start, and make it harder to recover financially.  It is easy, and probably natural, to just try to hang on and keep doing what you have always done.  It’s smarter to take an honest look at your situation and ask yourself whether you are going to be able to deal with your debt without some help.

You may lose control of assets that might otherwise be used to help you make a fresh start.  That is often the case when creditors sue you and obtain judgments against you.  A judgment becomes a lien against real property, which can be especially significant if you have investment property, or have inherited property, or, God forbid, you are holding title to family property to “keep it safe.”  The effect of a judgment on property depends on several factors, including where the property is located, whether you are entitled to claim it as exempt, and even what state you are in, but you shouldn’t wait until its a done deal to figure out what the effect will be.  At that point it may be too late.

Other issues can be decided in a law suit that will affect your ability to make a fresh start.  The amount of a debt may be determined to be higher than you anticipate, for example, by the addition of attorney fees and expenses.  Or, the court may enter a finding a fraud against you that will allow a debt to survive bankruptcy.  Other findings may also impact your fresh start as well, and if you are already in financial distress, you may find that it is prohibitively expensive to fight a lawsuit, or worse, several lawsuits.

Don’t wait until the bitter end to consider bankruptcy, and seek out competent legal advice about your bankruptcy options.   You might think that if you go see a bankruptcy lawyer that lawyer is automatically going to recommend bankruptcy, but that is not the case.  Most reputable bankruptcy lawyers are also knowledgeable about alternatives, and will advise you about those options, as well as tell you what may happen if you do nothing.  I regularly advise clients against filing bankruptcy (and sometimes that advice is because there is nothing left to protect).  You have nothing to lose, and quite a bit to gain by talking to someone as soon as you recognize that there is a problem, rather than waiting until you have no options.

Your Bankruptcy Attorney and you are a team, no doubt about it.  So, please choose your bankruptcy attorney wisely because you are going to be spending quite a bit of time with him or her and their staff.  Since the new bankruptcy law took effect in October 2005, the amount of paperwork in bankruptcy has quadrupled and the time spent planning, preparing and signing the documents  involved has increased dramatically.

So, the best advice I can give to you prior to the new year celebration is to take the time necessary to get to know your bankruptcy attorney well, and you may even ask to meet with members of their staff so that you know who you are dealing with.

When I say choose wisely, you must remember that you are choosing a bankruptcy attorney based upon their credentials first and foremost.  You need to know that this attorney is competent to handle your legal affairs.  You cannot rely on a slick yellow page advertisement to make your decision.

You need to do your homework first.  Ask your friends about different bankruptcy attorneys.  If you do not want to discuss your financial problems with a friend and prefer looking on the internet, then by all means, jump right to step number 2.  I believe a personal recommendation from a friend is one of the highest endorsements that an attorney can receive.  However, I also understand that many individuals do not discuss their personal financial situation with their friends.

Next comes the meeting with the Attorney.  Please make sure you are prepared for the meeting with the attorney.  Many, if not all, consumer bankruptcy attorneys offer a free initial consultation.  This is your opportunity to find out whether this person is the bankruptcy attorney for you.  I prepare for all of my initial consultations because I am looking at this person and asking myself:  Do I want to work with this person?  Will this person trust me enough to let me guide them through this process?  Will this person be there when I call requesting additional documentation?  Will this person be nice to me and my staff?  Will this person see this case through to the end?

Ask yourself:  Did they really listen to me?  Did they answer my questions?  Will they take my calls?  Will they return my calls?  Will they handle my case or will I be outsourced?  ( This is a tough call for many individuals because they do not understand the nature of how a consumer bankruptcy practice works.)  Please understand that your attorney will not be working on this file alone.  He or she should have an Administrative Assistant or a Paralegal or both.

Assistants and Paralegals serve a very important role in the Attorney Client Relationship, and therefore, it is important for you to understand this role from the beginning so that you never feel like you are being thrown around from person to person.

If you are considering filing a bankruptcy petition you should consult with an experienced lawyer so you can do some planning.  But you should be careful; as with most of life, good planning will save you money  but sloppy planning can land you in hot water.

I often talk with people who are considering bankruptcy who have already tried to do some planning on their own.  They sold their car to a friend for ten dollars, or quit claimed their property to their spouse thinking that was the only way to protect it.  Sometimes they used their tax refund to pay off a loan from a relative, or “settled” a debt with one creditor.  Other times they borrowed from their retirement or took out a home equity loan to try to forestall the inevitability of having to file.

These are things you should NOT do before filing. 

A transfer for less than value is a “fraudulent conveyance” and can be reversed by a bankruptcy trustee for up to six years in New York.  Paying a debt before filing bankruptcy, especially to a relative, is a preference, and can be taken back by a trustee.  Tapping into retirement savings or home equity is needlessly depleting an asset that would have been protected in a bankruptcy.

Before filing for bankruptcy you should speak with your attorney about maximizing your exemptions.  You should discuss the best use of your funds, including the potential benefits of not paying your creditors prior to filing.

Sometimes you and your attorney need to discuss the timing of your bankruptcy filing.  If you have a potential “fraudulent conveyance” issue, you may want to transfer the property back into your name before you file.  There may even be times when it makes sense to move to another state before filing.

You can see why it is so important to consult with a knowledgeable and experienced bankruptcy attorney before you file.  Proper planning can make the entire process go smoother and leave you in better financial health at the end.  You should also take the opportunity to speak with your lawyer about planning for after your bankruptcy.

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John Morley said, “Evolution is not a force but a process. Not a cause but a law.” Given the fact that this is a site about the law, we thought it necessary to continue our evolution.

Today we took off the wraps to show you the next step in the evolution of Bankruptcy Law Network.

The look is cleaner and lighter, allowing us to show off our content rather than letting you get mired in overpowering graphics. We’ve laid out more information on each page in a way that helps you get to the bottom of it all with a minimum of muss and fuss.

In case you’re keeping score, the site was designed by Cynthia LaLuna and the team at Rowboat Media. It’s a tricked-out version of The Thesis Theme for WordPress.

Lots of our readers are our colleagues, people who print out our articles and hand them to clients as a way of helping to educate them. We’re grateful you’ve placed your confidence in us.

Many of you are also people who are having bill problems and who need to find a lawyer in your area to help. You don’t want an advertising site that will shuttle you to someone who’s paid their fee for a listing; you deserve a lawyer who you can check out on your own, read his or her words and make a decision as to whether there’s a good fit between you.

That’s why this is just the first step to greater interactivity here on Bankruptcy Law Network. It’s a delicate balance, to be sure; we want to give you the tools you need to get some help, but it’s important that we do it without turning the site into some ad-fest that makes you want to run screaming.

So take a moment to subscribe to Bankruptcy Law Network by email by entering your email in the form to the right. You’ll never miss an article, and you’ll be the first to find out about new developments in the law.

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One reason that people considering bankruptcy hire lawyers is to prevent other lawyers involved in the matter from communicating directly with them, to avoid being taken advantage of.  The rules of legal ethics or professional responsibility governing lawyers unquestionably prevent creditors’ lawyers from making direct contact with represented parties.  But according to many legal ethics opinions (including from California, Arizona, and North Dakota), the bankruptcy trustee, who is usually a lawyer, may be free to contact represented debtors directly.  However, that trend may be changing, as the Virginia State Bar Ethics Committee just released Draft Legal Ethics Opinion 1861, proposing to find such direct contact by a trustee prohibited.

Most states’ legal ethics rules are modeled on the American Bar Association Model Rules.  ABA Model Rule 4.2 states: “In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order.”  Virginia’s Rule 4.2 is virtually the same.

The issue is whether the bankruptcy trustee is “representing a client” when making the communication.   The authorities allowing direct communications have found a trustee not to be representing a client, at least if the trustee has not also been appointed as counsel to the trustee.  But the Virginia Ethics Committee relied on a number of its prior opinions to the effect that “a lawyer acting as a fiduciary may be disciplined for actions taken in that role if the same actions would have warranted discipline if the relationship had been a traditional attorney-client relationship,” and held that the same is true for a bankruptcy trustee, who “represents” the bankruptcy estate in a fiduciary capacity.

This makes good sense.  As official comment [1] to Model Rule 4.2 explains, the “Rule contributes to the proper functioning of the legal system by protecting a person who has chosen to be represented by a lawyer in a matter against possible overreaching by other lawyers who are participating in the matter, interference by those lawyers with the client-lawyer relationship and the uncounselled disclosure of information relating to the representation.”   This purpose is served by barring direct Trustee-Debtor communications.  Any proper communication between the trustee and debtor may equally be conducted through debtor’s counsel – the trustee can request documents and information through counsel just as easily (or more easily) than doing it directly, and thereby prevent any overreaching or interference in the lawyer-client relationship.  This prevents misunderstandings and makes sure the lawyer can address the rare improper request while making sure the debtor understands and complies with proper requests.

The Virginia draft opinion is open for public comments until November 3, 2011.

If your bankruptcy attorney is a member of the National Association of Consumer Bankruptcy Attorneys [NACBA] chances are that attorney participates in a list service discussion of issues along with other bankruptcy attorneys across the country.  The NACBA list allows member attorneys to share practice tips and discuss emerging trends.

A recent discussion illustrates the need for accurate preparation of the bankruptcy paperwork and shows what could happen if proper procedures are not followed.

A debtor who filed bankruptcy did not disclose ownership of a pending personal injury claim.  After the bankruptcy case concluded the debtor settled the injury claim.  Debtor, the personal injury lawyer who worked the case and several medical providers received payment from the settlement. Later the bankruptcy trustee learned about the settlement and demanded all of that money.

At this point is it important for the reader to understand some basic bankruptcy principles.  A debtor files bankruptcy by submitting a Petition and Schedules to the court.  The Schedules contain questions designed to identify all  assets and all debts, along with questions about debtor’s financial affairs.  A personal injury claim must be disclosed on Schedule B of Personal Property.  A lawsuit must be disclosed on the Statement of Financial Affairs.  Assets that are not exempt constitute the bankruptcy estate. The trustee is charged with collecting assets of the estate for the benefit of creditors.  A professional person, such as an attorney, seeking payment from an estate asset, such as a personal injury claim, must first be approved and hired by the court.

Case decisions vary from state to state but generally under a theory of judicial estoppel, a failure to disclose an asset results in debtor losing that asset to the bankruptcy estate.  In other words, debtor loses the ability to exempt [exclude] a portion of the asset from the estate; or debtor loses the ability to receive any remainder leftover after all creditors are paid.  Also, professionals are not permitted to receive payment from estate assets without prior approval and employment by the court.  And the debtor could be denied a discharge of any remaining debt.

Because the consequences are severe, a good bankruptcy attorney will personally meet with the new client and compile the answers for each and every question, instead of relying on a paralegal or secretary.  This allows the attorney to explain the question, to clarify confusion, to detect evasive answers and to repeat questions in different ways to insure accuracy.  The attorney, as a skillful interrogator, can cross examine the client to prepare an accurate case.

In addition to answering the question about personal injury claims and the question about lawsuits, debtor is required to sign and certify the accuracy of the Petition and Schedules.  And a few weeks after filing a case each debtor must appear and before a trustee and testify under penalty of perjury.

Trustees typically ask debtor some variation of these questions:

Are you personally familiar with the documents?

Did you meet with your attorney and provide the information for this case?

Did you read the schedules before signing?

Did you include all your assets?

Are the documents true and correct?

Are there any corrections or changes you want to bring to my attention?

Can I rely on these documents as being correct?

And typically debtors answer affirmatively to each of these questions, leaving debtor no room to change the story or to blame anyone else if the trustee finds non-disclosed assets.  But a debtor who hides assets and falsifies information only has oneself to blame.  For this reason, I follow the advice of a wise bankruptcy attorney who taught me to always ask one final interview question:  Now tell me everything you do not want listed on your bankruptcy.  Then include that information on the Petition and Schedules.

When it comes to payment plans for Chapter 7 cases, all fees and costs must be paid before the case is filed. At first glance, this may disappoint you, but most people it’s not a problem. The payment plan period usually overlaps with the pre-filing process. In other words, you and your lawyer need time to prepare your case for a successful filing. This work is done along side the payment plan. Once the payments are made and the work is completed, the case is filed. This usually works fine for people unless they have an unusual emergency (beyond just being subject to calls and normal debt lawsuits). In those cases, a payment plan will not work well, and it will be necessary to pay for a Chapter 7 case quickly.

Many lawyers would like to be able to file a Chapter 7 cases before cases were completed, but this is illegal. If an attorney extends a payment plan into the period after a Chapter 7 is filed, he or she is breaking the law. This is because unpaid, pre-filing fees cannot be collected after a Chapter 7 case is filed due to the automatic stay (and later the discharge injunction). Any bankruptcy lawyer who would consider offering an illegal payment plan is either ignorant about basic bankruptcy law or is playing fast and loose with the rules. In either case, you do not want to deal with someone like this. In general, the Court will not excuse you from the law just because you were following the advice of an unethical lawyer.

Experience Matters

How do you go about choosing your bankruptcy lawyer?  Most people never expect to be faced with bankruptcy.  Then there’s the embarrassment factor.  Facing bankruptcy is not something that most people are anxious to share with friends and neighbors. It’s not like asking for advice about a hairdresser or lawn service.  So how do you know who to choose?

The most important factor in choosing a bankruptcy lawyer is experience.  All you have to do is read a few posts on Bankruptcy Law Network to understand the difference experience can make.  From how to make your budget work in a chapter 13, to the key differences between Chapter 7 and Chapter 13, to what happens when the unexpected happens while you’re in Chapter 13,  to which exemption scheme applies to you, to how your business may be affected by bankruptcy, these posts are just a few examples of the questions that can arise in what may seem a simple ordinary bankruptcy case.

Bankruptcy is an extremely complex area of the law.  Proceeding without a lawyer can be extremely risky. Proceeding with a lawyer who is not well-versed in bankruptcy law and procedural rules can be just as, or perhaps more, risky.  And, though we all had to start somewhere, you would be quite justified in deciding that you don’t want to be the guinea pig for someone’s first foray into the Bankruptcy Court.  Your goal is to get to the end of your case, when the court enters an order that prohibits your creditors from continuing to try to collect from you. You want that order to resolve as much debt as possible, and you want to get there as efficiently as possible.  There are decisions and judgment calls to be made all along the way.  Contrary to what some people believe, it’s not just a question of filling out a set of forms and handing them in.

My office regularly receives calls from people who ask the same basic question: how much do you charge for a simple bankruptcy?  I can answer that question, but it would be misleading. Unless you have some expertise in bankruptcy law and practice, how do you know you have a simple bankruptcy case? Your bankruptcy case can be affected by questions as simple as how long you’ve been living at your current location, or how long it’s been since you filed your tax returns.

So how do you know how much experience is enough experience? And how do you find out how much experience a lawyer has? I don’t think there’s an easy answer to that.  I do think you need to do your homework, and find out something about the lawyer that you’re going to see. I also think that you have the right, and frankly the obligation to yourself, to ask questions. You can ask questions about the lawyer’s experience. You can look up a lawyer’s resume on her website, or on your state bar’s website.  You can and should ask questions about your case, and you should be comfortable with the attorney’s answers to your questions.  You should have some level of comfort that the lawyer is familiar with how bankruptcy will affect your situation.

You should also know who you are  meeting with, or talking to, whether by phone, in person, or online. Are you meeting with a lawyer, or are you meeting with a paralegal? When does a lawyer become involved in the decision-making process in your case? There are all kinds of ways to handle the decision-making process as it relates to a bankruptcy filing, but you have the right to know what that process is, and not be misled about who is making those decisions, and what level of expertise that person has.

I think my clients are often reluctant to admit it to me, but my impression is that many, if not most, visit more than one bankruptcy lawyer before choosing one.  I think that’s a good idea.  I also think that many prospective clients go into the process with one overriding concern, i.e., the cost of bankruptcy.  The outcome of your bankruptcy case may be proof positive of the old adage,” you get what you pay for.” The irony of the focus on cost for many people is that it backfires.  It always costs more to straighten out a mess than to prevent the mess in the first place.   It’s also important to compare apples to apples.  In districts where the practice of unbundling of legal services is permitted, (and even in some places where it isn’t) you may find that the difference in cost from one attorney to the next is the difference in the services the attorney is to provide.

Yes, an experienced bankruptcy attorney may (and I emphasize “may”) cost more than someone who just “dabbles,” or who has just hung out a shingle and will take whatever fee-producing matter comes along.  But remember this.  The reason you are hiring a bankruptcy lawyer is that you don’t know enough about bankruptcy to identify the pitfalls.  Find someone who does.

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Let’s say you file chapter 7 bankruptcy, and you want to keep paying your vehicle loan and thereby keep your vehicle.  The bank sends your bankruptcy lawyer a “reaffirmation agreement,” which is a pre-printed official form issued by the bankruptcy courts.  It states that you are continuing to pay the monthly payments on your car loan, and the remaing balance, monthly payments, and other terms are filled in.   The reaffirmation agreement contains places for the signatures of the bank, your lawyer, and you.  Signing the reaffirmation agreement results in the debt surviving the chapter 7 bankruptcy discharge, and your liability for the reaffirmed debt continues on, unaffected by the discharge of debts.

The problem is that your lawyer might refuse to sign it.

Yes, you read that right: your lawyer can refuse to sign the reaffirmation agreement.  You might ask, how can this be?  Isn’t the lawyer on your side?  Why would he or she refuse to let you reaffirm on a debt, when you have the right under the law to do so?

Lawyer certification that you can afford the future payments on the debt 

The problem is that the reaffirmation form contains a certification by the lawyer that (1) the reaffirmation is a fully informed and voluntary act by the debtor, (2) in the lawyer’s opinion, reaffirming the debt will not create a hardship on the debtor or any dependent of the debtor, and (3) the lawyer has fully explained the binding nature of the reaffirmation and the consequences of default.

It’s the second point that your lawyer may have a problem with: certifying to the court that the reaffirmation is, in effect, a good idea, and you can afford the payments to be made under the reaffirmation agreement.

In fact, the official reaffirmation agreement form requires that the debtor summarize his or her monthly expenses from Schedule I and J of the bankruptcy petition, showing how the debtor can afford the reaffirmed payments.  Typically, a chapter 7 case’s Schedule I and J show just the opposite; they show that the debtor’s monthly budget is “negative” and that the money for reaffirming a debt simply isn’t there.

This means it is common for a bankruptcy lawyer to feel that he or she cannot, in good conscience,  make the certification to the court in the reaffirmation agreement that the debtor can afford to keep paying on the debt.

The solution is a simple one: the lawyer need not sign the reaffirmation

The lawyer’s unwillingness to sign the reaffirmation agreement doesn’t have to create a conflict between the debtor and his or her bankruptcy lawyer.  This problem has an easy solution: the bankruptcy lawyer should help the debtor to carefully fill out the entire reaffirmation agreement, with monthly budget figures matching up exactly with the figures already used in Schedules I and J of the bankruptcy petition.

Although this might seem to doom the reaffirmation to being labelled as “unaffordable” by the court, the way to address this is to simply explain, on the line provided in the reaffirmation form, why the debtor feels that he or she can afford the payments, notwithstanding the figures in his monthly budget on Schedules  and J.

For example, the debtor could state: “I can afford these car payments because I have no other way to get to work except in this car, and I will find a way to adjust my other expenses to make the payments on this reaffirmed car loan.”  This way, the court will know that the debtor has devoted careful thought to exactly how the car payments are to be made in the future.

And here’s the clincher – although the reaffirmation agreement contains a place for the lawyer to sign, and thereby certify that his client can afford the payments, the lawyer’s signature is not required.  The bankruptcy courts have anticipated that a lawyer might sometimes feel that he or she cannot sign a reaffirmation agreement for a given client.  Therefore, the courts allow a reaffirmation agreement to be filed without the lawyer’s signature.  A court hearing is then scheduled, at which the lawyer explains  why the debtor feels he or she can afford the payments on the debt.  The court can then approve the reaffirmation agreement without any need for the lawyer to sign or certify anything.

This solution does requires a court hearing, but that’s what your lawyer is there for, going to court with you and explaining your legal position to the judge.  A reaffirmation hearing is brief and it only requires that you and your lawyer tell the judge why reaffirming on the debt is necessary and reasonable for you.  This isn’t a high hurdle to jump over, in most cases.

Filing a reaffirmation agreement without your lawyer’s signature is commonplace, and it usually results in bankruptcy court approval of the reaffirmation.  This approach nearly always achieves the goal of allowing the reaffirmation to be approved, while permitting the lawyer to participate without making a certification the lawyer is unable to make.

So, you’re in a Chapter 7 bankruptcy and you want to know whether you should reaffirm your car loan.  A reaffirmation agreement basically takes a secured loan, like a car loan, outside the effect of your bankruptcy discharge.  As to that one debt, it’s like you never filed bankruptcy.  You filed Chapter 7 bankruptcy in order to eliminate all the phone calls and threats and creditor harassment, and make a fresh start.  Then you have to decide whether to sign a reaffirmation agreement, which puts you right back on the hook for that debt.  Should you, or shouldn’t you?

Almost everyone wants to keep their car.  In South Carolina, where public transportation is virtually non-existent, it is an unfortunate reality that most people need a car to get or keep a job.  Currently, in order to be absolutely sure of keeping your car after a Chapter 7 bankruptcy, you have to do three things:  make the payments, keep it insured, and sign a reaffirmation agreement. But that should not end the inquiry.  You (and your attorney) should both be looking at whether signing a reaffirmation agreement is in your best interests.  We know you want to keep your car.  But a reaffirmation agreement can have serious consequences, and can seriously interfere with the fresh start that you filed bankruptcy to obtain. So, here are some key factors you should consider.

1.  First, look at the value of your car and how much you owe on it.  If you owe more than the car is worth, reaffirming is a risk.  My clients always tell me that they can and will make the payments.  Maybe so, but what if the car is in an accident and is a total loss?  What if the insurance pays off on the value of the car, leaving you owing the difference?  Then you may have to make payments on a different car, but be stuck owing thousands of dollars on the wrecked car.  You are right back in financial trouble, and you take another hit to your credit rating.  You can check to see of you can buy GAP insurance to cover that difference.  If so, you eliminate some of the risk.  If you can’t buy the insurance, that may be a pretty good indication that you are taking too much risk.

2.  The current state of the law gives the lender the option of repossessing your car if you don’t reaffirm, even if you are making payments.  But they don’t have to repossess.  Many lenders will let you keep the car as long as you continue to make payments on time, and keep the car insured.  In many cases, they are better off doing that, and they recognize that fact.  There are some who will stand on their rights, and who may decide to take the car even if your payments are current. Your attorney can help you evaluate the risk, depending on your lender.  Your attorney can also advise you concerning other issues that may make repossession unlikely.  For example, in some states, if you have a co-borrower who has not filed bankruptcy, there may be no default as to that person, and so no right to repossess.

3.  You should also carefully evaluate your budget, and the available funds to pay the car payments.  In a nutshell, if your budget is tight, you probably shouldn’t reaffirm.  The tighter your budget, the more likely that you will be forced to miss a payment at some point, and that you will lose some of the benefit of going through bankruptcy if you default on a debt that has been reaffirmed.  Consider the overall picture here, too.  How long are you going to be making the car payments?  Are you going to have the car paid off soon, or are you going to have to pay for another four or five years?  Is there some other change in your budget that will make it more difficult (or easier) to make the car payments?  If you have already filed bankruptcy, and you are still struggling to make ends meet, you may want to take that as a sign.

4.  Can you negotiate a better deal from your lender?  Some lenders are willing to listen to a proposal that makes a reaffirmation more favorable to you, either by reducing principal, reducing the interest rate, or capitalizing arrears.   If your concern is that you owe more than the car is worth, ask the lender to reduce principal.  If you are concerned that the payments are too high, ask for a lower interest rate.  Not all lenders will meet you in the middle like this, but there is no harm in asking, and you might get a deal that will make you (and your attorney) a whole lot more comfortable.

5.  Consider your lender, and your relationship with them.  One of the big differences in dealing with reaffirmation agreements depends on whether your lender is a credit union or not.  If the lender is a credit union, you get less protection from the court (and your attorney) and should therefore be more cautious about signing a reaffirmation agreement.  If your account was sold to a new lender after bankruptcy, you may also want to factor that unknown into your thinking.

6.  While you are considering a request to reaffirm a car loan, be brutally practical and honest with yourself.  As noted above, most people who live outside major metropolitan areas in this country need “a” car.  That doesn’t necessarily mean you need the particular car you are driving.  Do you have a friend or family member who would let you borrow (or buy) a car that is underused?  Do you have a source of cash (a tax refund, or a retirement account) that could be used to buy basic transportation for cash?  Remember, practicality and honesty are key here.  I have heard all kinds of explanations over the years for keeping cars (and trucks and motorcycles and motor homes) that basically boil down to “I don’t want to give it up.”  I know you don’t want to–I want you to consider whether you need to.  I recently had a client explain to me that he had to keep a new truck because he had to have a reliable vehicle to get to work.  Okay, I get that.  But then it turned out that his wife, who doesn’t work, also had a new car.  And his teenage son also had a vehicle.  It seemed to me that alternative transportation was available, and that he was confused between “want” and “need.”  Given the serious consequences that go along with reaffirming on a car, I think it’s important to eliminate that confusion.

Other considerations may also impact your decision, including whether your attorney is willing to sign off on your reaffirmation agreement, and whether you will have to attend a hearing and justify your decision to the judge, and whether the judge will approve your reaffirmation agreement or not (which may not be a bad thing).  Stay tuned to Bankruptcy Law Network for more on those issues coming soon.

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