November 20, 2017

Reaffirmation Requires Written and Signed Contract Between You and Your Creditor

reaffirmation agreement in chapter 7I have written before about the pros and cons of entering into a reaffirmation agreement with one or more of your secured creditors.  On the plus side, reaffirming a secured debt gives you a degree of certainty – you are once again in a contractual relationship with your creditor.  You know how much you are supposed to pay each month and you know the payoff balance, interest rate and terms of the agreement.

Further, you may be able to negotiate a more favorable deal when you reaffirm.  Other than cars, secured creditors are often not set up to liquidate used merchandise and since you already have possession of the property (collateral), many lenders are happy to negotiate more favorable terms with you so they can avoid the hassle of recovering and disposing of property.   This negotiation option is less true with motor vehicles, because there is an active used car market, but the negotiation option can work well when you are dealing with furniture or electronics.

Reaffirmation can also help you rebuild your credit because you are re-assuming personal liability for payments, and regular, timely payments usually will be reported as positive information to the credit bureaus.

On the other hand, when you reaffirm, you are re-obligating yourself personally to pay an installment note.  If you should default, you are fair game for all collection activities including wage garnishment.

Reaffirmation Must be in Writing, Signed by You and the Creditor and Approved by the Bankruptcy Judge

At least once or twice a month, I get an email from a frustrated individual who has received his bankruptcy discharge, and has continued to make monthly payments, but sees no mention at all about these payments on his credit report.

It is not enough that you checked the “reaffirm” box on your bankruptcy Statement of Intention.  You and your creditor have to complete a formal reaffirmation agreement.  These agreements usually consist of about 10 pages of legal speak and your attorney has to document that your budget can handle the reaffirmed payment.  Your attorney also has to sign the reaffirmation agreement and assert in writing that he thinks that reaffirmation is in your best interest.

Usually, reaffirmation agreements are prepared by the creditor or creditor’s attorney.   Sometimes lenders simply will not cooperate – they may not have any objection to accepting your payment and leaving you alone regarding possession, but they may forward a reaffirmation agreement to you.

I have also seen situations where lenders fail to file the signed reaffirmation documents on time and the reaffirmation agreement does not get court approval even though the debtor and his attorney did everything they were supposed to do.

If you and your attorney confer and decide that reaffirming a particular secured debt makes sense for you and that you can afford the reaffirmed payment, you should encourage your lawyer to quickly and aggressively request a reaffirmation agreement from your creditor.  Once your case is discharged and closed, it is difficult and expensive to try to re-open a closed case solely for the purpose of reaffirming a debt.

 

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.

Comments

  1. Has anyone ever had a repo on a auto when payments were made and the loan got paid in full after chapter 7? There was no reaffirmation agreement in place and the debtor paid on time for almost 3 years after the filing. Lender took all the payments and decided to repo after the debt was paid. Thanks!

  2. Reaffirming a car loan especially with new, more favorable terms = a good idea. Reaffirming a primary or secondary mortgage in a depreciating real estate market = bad idea. In fact, and this may sound a bit strong, but I consider it outright malpractice to sign with a client on a reaffirmation on a mortgage. But that just might be me.

  3. Chris, you raise an interesting point. On one hand, we have an ethical obligation to protect our clients’ best interests and reaffirming a mortgage in a depreciating market would seem contrary to that. However, one of the main reasons my clients want to reaffirm is to benefit from the positive references on their credit reports if they reaffirm and keep their payments up. If a debtor does not reaffirm, the lender will not report anything to the credit reporting agencies and it will delay the restoration of the debtor’s credit. If the debtor understands the risks inherent to reaffirmation but chooses to do so to improve his/her credit I think it is appropriate to process a reaffirmation.

  4. My attorney had me get an appraisal of my vehicle and then argued that the security interest in the car could only be for the actual value (e.g. 13,000 car was worth 8,000). The court force the bank to accept the loan was secured only for $8,000 and in Chapter 7 the other $5,000 was erased. Once I paid off the $8000 the car was mine, free and clear (though it took correspondence from my attorney to force the bank to release the lien).

  5. Tracey Cook says:

    What are the attorney’s responsibilities to the client, if any, to inform them of no reaffirmation agreement being singed by a mortgage lender? We were completely unaware for more than 3 years that our reaffirmation agreement on our home was never signed by the lender and therefore never filed with the BK court as our attorney never notified us of this fact. Do we have any recourse?

  6. Interesting question. The problem is this: once the reaff is signed by you and your lawyer and then mailed back to the lender, your attorney has no control over what the lender does or does not do. I suppose that you could file a motion to reopen for the limited purpose of filing a reaffirmation – but I would confirm that the lender is willing to do this before filing the motion. At some point, someone is going to file a Complaint for Damages against lenders who drop the ball.

  7. Paulette Roper says:

    Live in New York need a lawyer that handle social security disability overpayment

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