There is no perfect time to file for bankruptcy. Ideally, you should wait to file at a point when you have not touched your credit cards for several months and your credit card charges over the past year have not taken a big jump. Further there is less chance that you will face any objection if you have made at least the minimum payment over the past 6 months or longer.
I 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.
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Most people know that Chapter 7 allows you to wipe out unsecured debt – credit card bills, medical debt and other signature loans. But what about secured debt – loans you are still paying to finance your home, your car, perhaps some jewelry or furniture?
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If you are purchasing a vehicle and you file Chapter 7, your options are (1) surrender the vehicle, (2) reaffirm the existing loan, or (3) redeem the vehicle by paying the lender fair market value. Redemption, which is described at Section 722 of the Bankruptcy Code used to be an uncommon choice. More recently, however, several lenders have entered the market to finance Section 722 redemptions. In this video, I discuss how redemptions work and how to know if a Motion for Redemption under Section 722 is a good idea.
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I recently received an email from a blog reader asking about his obligations to his mortgage company when he does not reaffirm:
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.
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I have been getting a lot of questions recently about reaffirmation and about the consequences of not reaffirming a mortgage loan. I have previously written about the consequences of not reaffirming a mortgage debt. The 2005 BAPCPA changes to the Bankruptcy Code attempts to force debtors to choose between reaffirmation or surrender of their collateral. The trend I am sensing both here in the Northern District of Georgia and elsewhere around the country suggests that bankruptcy judges are not particularly inclined to force this issue. In cases where the debtor cannot or will not sign a reaffirmation there seems to be a judicial acceptance of the old “stay and pay” process.
More on If I Do Not Reaffirm My Mortgage in Chapter 7, Do I Automatically Lose Title to my House?
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My colleague, attorney Scott Riddle, posted a very interesting observation in his Georgia Bankruptcy blog about the bankruptcy implications of Clayton County, Georgia’s school accreditation fiasco. For those unaware of the situation, the Clayton County School System is about to become only the third school system within the past 20 years in the United States to lose its accreditation.
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Thank you for your informative web site. I have 2 questions I am filing for SS as I am 63 my bill are current however I was laid off last year and my health is failing. If I file would I be able to keep my car? I owe 16K on it as low milage (17K) my son will be giving me the payments. Also I have been renting this small house for the past 5 years I have never been late with the rent do I have to notify the landlord if I plan to stay here? I own nothing but have 25K credit card debt all these bill are current but I have run out of savings
Christina
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I have a question about the blog in Nov,2006. You said that filing bankruptcy can stop car repossion . But after you file chapter 7 do you get to keep the car and the debt is discharged or you can keep the car only if you promise to make payments on tht vehicle. Because I have been told the only way you can keep the car when filing chapter 7 is if you promise to make payments and you do not include it in your chapter 7 bankruptcy. I was told if you owe on the vehicle and place it in your chapter 7 bankruptcy you have to give the car back. Could you give me some insight.
–Fana
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Does a change in the Chapter 13 law that provides for "adequate protection" payments to vehicle lenders put the debtor’s interests in conflict with the debtor’s lawyer? As the final language to the BAPCPA changes to the Bankruptcy Code were being negotiated by lawmakers and lobbyists, a very interesting provision was included, most likely at the insistence of lobbyists for vehicle finance companies.
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