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.

I have read your blog and you are very through so I write you with hopes that you might answer this question for me. I file Chapter 7  in 08, and did not reaffirm my loan. I am still living in the house and did make some payments. However, i have not for the last 8 months. It is my understanding that I must sign a document to reaffirm and that continuing payment in itself is not a reaffirmation…or?  Well it gets a little more complicated.  My house is valued at $410,000 and the bank has offered me a deal that is going to be hard to refuse. They have agreed to let me do a short re-fi in the amount of 180k.  If I agree to that is that in itself a reaffirmation?

Here is my response: in most cases, when you take out a mortgage loan, you are signing two different types of agreements.  The first type is a promissory note whereby you personally agree to make the payments.  The second type of obligation creates a property lien, meaning that you, as the owner of the property, pledges that property as collateral for the loan.

When you file a Chapter 7 and receive your discharge, your personal obligations are extinguished.  However, a Chapter 7 discharge does not eliminate the mortgage company’s lien against your property.  If you “reaffirm” your mortgage, you are actually reaffirming the promissory note and your personal obligations to pay.

For years, many bankruptcy attorneys advised their clients to avoid signing reaffirmation agreements for mortgages, car loans or any other secured debt.  The reasoning – even without a personal “guarantee” lenders are protected by the property lien.  If the lender is willing to accept payments (the so-called “stay and pay” option), the now discharged debtor keeps his property, keeps making payment, but does not have personal liability on the note.

If the debtor misses payments, the lender would still have the right to foreclose or repossess based on the property lien.  The debtor would not have personal liability for any foreclosure or repossession deficiency because his personal liability was extinguished in the bankruptcy.

There is a downside to this “stay and pay” strategy.  First, the debtor does not get any credit report benefit for making payments.  Because the debtor’s personal obligations have been extinguished, the lender no longer reports either a positive or a negative payment history.   A positive payment history from a mortgage company can be a good way to restore credit after bankruptcy, and if you do not reaffirm, you will not get this benefit.

Second, there is the “uncertainty factor” if you do not reaffirm.  Most mortgage or vehicle finance installment notes contain a default provision that includes bankruptcy as a default trigger.  In theory, at least, once your bankruptcy is closed (and the automatic stay of bankruptcy terminated), your lender could declare your loan in default and take action under State law to recover the collateral.  In my experience, lenders would much rather have monthly payments than your collateral but this risk does exist.

Finally, many of my readers have asked me if there is such a thing as “constructive reaffirmation” meaning that by making payments, are you in effect re-obligating yourself?  Are you creating a contractual obligation by your actions?

I think that the answer to this depends on State law but I would suspect that a mortgage or vehicle lender would have a hard time making this argument.  In many States (such as in Georgia) a financial obligation related to real estate must be written and they must have specific terms.  As a matter of general contract law, a contract usually will not be enforceable if its terms are not specified.   I would argue therefore that a debtor’s actions of simply making payments and the lenders actions of accepting such payments should not be enough to create personal liability on the part of the debtor.  I would be interested to know if any of the attorneys who read this blog have a different opinion or if anyone is aware of any case law that says otherwise.

At a minimum, if a lender tries to make the argument that you have somehow re-obligated yourself personally by your act of making payments, I would insist that the lender provide you with case law or other support for its position, and you should consult with a lawyer before agreeing to any payment or taking any action (like signing a new, valid contract) that could create personal liability.

My reader states that his lender has proposed a refinance for $180,000.   He did not say, but I presume that his prior (discharged) mortgage was much higher than this and that his current payments under the “stay and pay” are based on this higher balance.  If he enters into a mortgage contract for $180,000, that contract will function like any other mortgage – and include both personal liability under a promissory note as well as a property lien.   It is not a reaffirmation because the bankruptcy is over – instead, the proposed $180,000 loan deal is equivalent to a new mortgage.  This proposed deal could result in lower payments plus positive credit history, but it will also create personal liability that currently does not exist.  I would certainly advise my reader to discuss his options with an attorney so that he will fully understand the implications of his decision.

I directed him to visit the county courthouse and pull the file for this case.  He did and he reports that the return of service shows that his wife was served by a sheriff’s deputy.  His wife has no recollection of being served.  We did list the creditor on the bankruptcy petition but because we did not know that there was a judgment, we did not file a motion to avoid the judgment lien.  What can he do?

There are a number of lessons you can learn from this man’s experience.  First, you should always obtain copies of credit reports from all 3 credit bureaus prior to filing bankruptcy.   In Georgia, you can get a free credit report from each of the 3 main credit bureaus twice a year.  Online, you can go to annualcreditreport.com and download your reports.  Because credit reports obviously contain sensitive information the annualcreditreport.com system will ask several questions to identify yourself.  These are usually multiple choice questions – for example, the system may say “your credit report shows that you previously lived on one of the following streets: (a) Oak Street (b) Thompson Street (c) Ivers Road (d) none of the above.

If you are unable to answer these questions, the system will instruct you to mail away for your credit reports – here is a link to a page on my website with the credit report request letters.

Credit reports are helpful because they will usually show pending lawsuits as well as the names, address, account numbers and debt amounts for most of your creditors.  Obviously I can’t require all bankruptcy clients to bring me credit reports but it sure helps avoid “forgotten” creditors or judgments.

As far as what we can do, there are a couple of options.  First I want to make sure that service of process was correct.  If you are served with a lawsuit in Georgia, the sheriff’s deputy (or private process server) has to complete a document called a “return of service” that states when a party was served and by whom.  Section 9-11-4 of the Official Code of Georgia provides that service on an individual must be made on the defendant himself, or “by leaving copies thereof at the defendant´s dwelling house or usual place of abode with some person of suitable age and discretion then residing therein.”

In this case, if the sheriff’s deputy served my client’s wife, then service is most likely valid.

However, I sometimes see situations where the return of service is unclear as to who was served or even situations where the return of service is blank.  In these cases, a defendant can “collaterally attack” the judgment on the grounds that service was not made and he did not know about the lawsuit.

If it turns out that service is valid, my client will have little choice but to negotiate a settlement of the real estate debt.  Interestingly the Chapter 7 discharge would eliminate any personal liability he might have for this debt, but the liability remains as to his real estate.

My experience has also been that judgment creditors will become more amenable to negotiation the longer a real estate lien remains unpaid.  Here, my client could forego a refinance (or threaten to to forego a refi) and use the argument that the judgment creditor might have to wait for years to get paid as leverage to negotiate a reduced payoff.

• asking a friend or relative to add you as an authorized user on a MasterCard or Visa
• opening a savings and/or checking account at a credit union and establishing a pattern of regular deposits
• requesting a small loan from that credit union and paying back each installment on time
• opening a credit account with a gasoline retailer
• finding a co-signer to open an unsecured credit card account

I explained to the reporter that I am hearing from my clients that large credit card companies are soliciting them for cards as quickly as 6 months post discharge – no surprise in that successfully discharged debtor are a great credit risk, having no debt and no option to file bankruptcy

The reporter, who is a very nice and informed gentleman, would like to speak to anyone who has had success in re-establishing credit after Chapter 7.  If you would be interested in talking to this reporter, please email me using the form on this blog and I’ll put you in touch with him.

Many merchants use check reporting services like Chex Systems.  Another check reporting service I see frequently is called Telecheck.    These companies are credit reporting agencies just like Equifax or Experian and merchants use these companies when deciding whether or not to accept a check from a customer.

My Bankruptcy Law Network colleague, San Diego bankruptcy lawyer Michael Doan has written a very helpful post that sets out the specific steps that you need to take when you include a Chex Systems or Telecheck debt in your bankruptcy.   You can click on the link to read Michael’s timely post.  Michael notes that the check reporting agencies sometimes do not update their databases to show a “zero balance, discharged in bankruptcy” on accounts that are included in bankruptcy.

A Chex Systems file that show outstanding debt will make it very difficult, if not impossible, to obtain a new bank or checking account after bankruptcy.  If you take the necessary steps to clear your check reporting file, you greatly improve your chances.

Michael’s advice clearly applies once you have received a discharge in Chapter 7 or Chapter 13.   This raises a question in my mind as to what a Chapter 13 debtor can or should do during a five year Chapter 13 plan.   I wonder if a Chapter 13 debtor could argue that a check reporting agency’s refusal to delete a reference to an outstanding balance could be considered as a violation of the automatic stay.  I will pose this question to my BLN colleagues and update this blog post.

How can I file chapter 7 by myself without paying someone, anyone $ 99.00 $199.00, $299.00 etc… Three different people( with a financial intrest of course) said representation is required.

Here is my response: Jim, you certainly have the right to file a Chapter 7 case by yourself.  The forms are available either on-line or at an office supply store.  There are also several books about how to do this.  I am currently reviewing a book entitled The Complete Chapter 7 Personal Bankruptcy Guide by attorney Edward Haman that is published by Sphinx Publishing that is quite comprehensive.

Here are the issues:

1. the bankruptcy process has become significantly more complicated since October, 2005, when the BAPCPA changes to the bankruptcy laws were enacted.   I know a number of lawyers who used to file the occasional Chapter 7 here in Atlanta, but who have now given up the practice because of the complications.  In particular, you need to fully understand how the median income test and the means test works – if you do the calculations incorrectly, you could end up in a deposition at the United State’s trustee’s office, face a motion to dismiss or face a motion to convert to Chapter 13.

2. you need to understand about the pre-filing credit counseling requirement as well as the pre-discharge financial management course requirement

3. in order to actually file your case, you will need to go to the Clerk of Bankruptcy Court and scan your pages to get your case filed.  I suspect that this process is not particularly complicated, but I have not used the scanning equipment at the Clerk’s office.

4. you cannot dismiss a Chapter 7 voluntarily if you change your mind.  For example, if you file, but it turns out that you earn too much or own too many assets the judge may not let you out of your case, at least until after your assets are liquidated.

5. you need to understand how the Georgia exemption law works and how it applies in Chapter 7 to protect property that the law allows you to protect.  If you don’t properly declare property as exempt even if the law would otherwise allow you to protect it, then you could lose your property anyway.

6. do not expect to receive advice from the Chapter 7 trustees or the U.S. Trustees.  Their interest is to maximize the recovery of the estate (i.e. your creditors).

While folks contemplating bankruptcy obviously do not have a lot of money, I think that in most situations the complexity (which, no doubt is unnecessarily complex) makes a pro se filing a mistake.

My question is this-my father has a judgment against him by Bank of New York due to an unpaid debt. The debt was discharged in bankruptcy however, the judgment is still on the public records in New York. My father is now trying to buy a home, however, the title company wants the judgment released from the public records or at least subordinate to them. How can I make the Bank of New York relase their judgment from the public records?

The second course, which is the subject of this post, is the "ticket out."  Known as the "financial management course," this educational requirement involves education about budgeting, interest rates and other financial managment tools that will, hopefully, keep you out of bankrutpcy in the future.

In a Chapter 7 case, you are supposed to complete your financial  management course within 45 days from the 1st date set for your  Section 341 meeting of creditors hearing.  In a Chapter 13 case, you must complete the financial managment course prior to making your last Chapter 13 payment or prior to the closing of your case.

If you do not complete your financial managment course requirment and file your certificate of completion (your attorney will file this for you), you will not be eligible for a discharge.

In my practice I recently represented a Chapter 7 debtor who did not complete her course prior to her case being closed and we had to reopen her case for the sole purpose of filing the financial  management course certificate.  So far, it appears that most bankruptcy judges will permit such reopenings, but be aware that there is a filing fee to do this as well as an attorney’s fee for the time involved.

Most of the vendors who provide pre-filing debt counseling will also provide financial managment courses as well.  The list of vendors that I provide to my clients can be found on my BankruptcyWorksheet web site.

I always advise my clients to get the Financial Management course out of the way.  You are not likely to think about this requirement 4 years into your Chapter 13 and the only notice set out by the clerks’ office is done a couple of months into your case.

The Financial  Managment course can be taken by phone or over the Internet and it will last only a few hours.  I would be interested to hear from anyone who has taken this course to get your observations and thoughts about its value.

1. Become a more educated consumer.  Bad financial decisions often lead to debt problems that can overwhelm you, thereby leading to a bankruptcy filing.  If you are filing or if you are close to filing, take a few minutes to step back and think about how you ended up in your financial predicament.  What would you have done differently?  Moving forward take advantage of the financial resources on the Internet, most of which are free. Examples of helpful sites include
   NADA – shows car prices
   Consumer Feedback Central – a blog post with 100 feedback sources
   Bankrate.com – comprehensive financial resource
   The Motley Fool – easy to understand investment advice
   Clark Howard’s web site – consumer guru Clark Howard offers advice about living on the chap and avoiding ripoffs.
2. Resolve to cut your overhead.  Start by creating a household budget.  Include a "rainy day" saving account in your budget and avoid major purchases that strain your budget.  Obviously, houses and car purchases are the two biggest areas that you can control.  Work towards a goal of having a paid off car and a paid off house.  Monthly overhead that you cannot change will eat you up, both financially and mentally.
3. Avoid unnecessary purchases and learn to spot sales pitches.  Good salespeople train themselves to sell to you by allowing you to convince yourself to make a purchase.  A very useful book that describes many of these techniques is called Influence by a social psychologist named Robert Cialdini.  If you understand how you are being influenced you may be less likely to fall prey to sales pitches for unnecessary purchases.  Some of the types of unneeded purchases that I see a lot in bankruptcy court include:
   • time shares – almost always a bad deal
   • large furniture purchases – if you are on a budget, you will pay 10 cents on the dollar for used furniture
   • fancy vacuum cleaners – almost always a wasteful purchase
   • expensive new computers – if you use your computer for school homework or to email, a one or two year old computer will serve your purchases.  You will pay $200 to $300 instead of $1,500 to $2,000
   • big screen televisions – personally, I watch very little television – perhaps a baseball or football game on occasion and the news every once in a while.  My children are only allow to watch tv on weekends. Most successful people I know watch very little television.  If you find yourself watching hour after hour during the week, consider alternatives like reading a book, taking a walk or finding a part time job.  There is nothing positive that will happen in your financial life if you watch four or five hours of TV every day

   Got any other ideas or helpful resources?  Let me know.

Lest you think that I am alone in my attitude about the current bankruptcy law, take a look at this blog post by South Carolina bankruptcy lawyer Däna Wilkinson on the Bankruptcy Law Network blog.  Däna entitles her post "Top Ten Wastes of Time After BAPCPA" and she discusses the wastes of time for both debtors and their lawyers.

In my view the whole median income/means test income calculation using gross income numbers from the six months prior to filing is the biggest waste of time.  Why should your eligibility for Chapter 7 today be a function of your income over the past six months.  At least in the Northern District of Georgia, bankruptcy judges have been open to the idea of tossing out the six month lookback if your current income situation has changed.

These medican income/means test calcuations can take several hours and, at the end of the day, the results tell us nothing about the debtor’s current capacity to pay creditors.  But, because I have to spend my time processing the numbers, my fees have gone up.  What a waste of time for no good purposes.

Close behind the median income/means test requirement are the credit counseling/financial managment course requirements.  Basically these required education courses offer very little useful information to a bankruptcy filer, but they do add around $100 to the cost of filing – $50 for the certificate to get in and $50 for the certificate to get out.   If there is a point to this surcharge, it escapes me.

Take a look at Däna’s article – it would be interesting to hear from both debtors and debtor’s lawyers – what do you think?

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