Cars and reaffirmations were strange enough but with Household Goods things just get a little bit weirder.
Reaffirmation is the process in a Chapter 7 bankruptcy in which the debtor wishes to keep an item that secures a loan. The debtor agrees to continue to pay for the item and the creditor lets them keep it.
In the earlier parts I discussed reaffirmations in general, with houses and cars. Today we will talk about reaffirmation and household goods like furniture, computers, electronics and Jewelry.
Amazingly so that many of these items are secure to the lender when we buy them even though we are using a credit card.
Even though we do not remember giving them a security agreement we did. ( the security agreement is often the very long document you sign when you go to the furniture store and buy the furniture on credit or first apply for credit) Often when you apply for and receive a department store credit card you grant them permission to take a security interest in everything you buy with the card. Yep even the toothpaste you buy at Sears. Often when you are behind creditors threaten to pick up these items even though in most state they need to get a court order before they can pick up the goodies,
Once many years ago a department store was insisting my client sign a reaffirmation agreement in the items she purchased. We discovered the items were ladies undergarments so I offered to return them to the store used and unwashed. I never heard back from them on that again.
A debtor is presented then with several choices when filing chapter 7 and having a loan secured by household goods, electronics or Jewelry. Once again it is very important to discuss this with your lawyer.
1. The debtor can surrender the items to the creditors and owe no more money
2. The debtor can agree to reaffirm on the debt and keep the items. These type of loans often can be negotiated. If the debtor does that he will owe the balance on the debt.
3. The debtor can try to redeem the items from the creditor. Redemption requires you to pay the value of the item to the creditor. You keep the item the debt is now gone. You may actually have to go to court to do this,
4. My favorite choice is the do nothing option. That is right. Do nothing. the debtor does not sign a reaffirmation and does not return the item. The debtor just keeps the items without paying for it. This works at least here in Ohio because the creditors will never proceed to state court to obtain a state court order to pick up the items following bankruptcy. It is strictly an economic decision.
It is too costly to go after House hold goods which probably have little or no value on the resale market.
There is a risk in this. Although the debtor is not personally liable on the debt,the lender still has a lien on the Household goods. They can proceed after the bankruptcy for a remedy in state court to pick up the items. This risk is greater with local department stores and with jewelry then with any other household good item. I always warn my clients that some day someone may show up to pick up their old TV or computer, though you might not have to let them in or just hand it over because they asked. You need to know what your state requires – many will require a suit for the return of the property if they want to force the matter.
I usually recommend the do nothing option for my clients. However reaffirmation is an area you should discuss closely with your lawyer before you sign your bankruptcy papers.