Oh no! I didn’t reaffirm my house! – Reaffirmations in Chapter 7 Bankruptcy
St. Louis bankruptcy lawyers
Reaffirmation agreements are one of the most confusing topics in bankruptcy law. Many people, mistakenly, believe that they must reaffirm a debt to keep the collateral. Let me dispel this myth.
Firstly let me explain what a reaffirmation agreement in a Chapter 7 Bankruptcy does. Ordinarily, debts that are discharged in a Chapter 7 case are no longer the legal responsibility of the debtor. This means that the discharge relieves you of your personal liability – if you don’t pay, you can’t be sued later (remember that some debts are not discharged in a bankruptcy – I won’t discuss that here).
When you sign and file a reaffirmation agreement, you are legally responsible for the debt. As such, if you miss a payment later, that may reflect negatively on your credit report and you could be sued for a default. The upside is that a good payment history can improve your credit score.
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Most types of debt you will never reaffirm. You don’t reaffirm credit cards and medical bills – that’s a no-brainer. But what about car loans? What about mortgages?
With cars and mortgages, the analysis can be more complex. You should probably not reaffirm a car note with a high payment or on an older vehicle. If you feel that payment is affordable and the car is reliable, you may be able to safely reaffirm the debt and take advantage of the positive credit impact of a good payment history.
But do you have to? Of course not. Many car lenders will allow you to keep making the monthly payments without reaffirming the debt. Remember that the lender still retains a lien on your vehicle, so you must pay it if you want to keep it. However, skipping the reaffirmation agreement may actually be good for you – if the car breaks down six months later, you can just stop paying and let it go back the lender. Since you didn’t reaffirm the note, you cannot be sued. Unfortunately, some lenders will not allow you to keep a vehicle you didn’t reaffirm on, so be cautious with this approach.
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I rarely if ever advise my clients to reaffirm a mortgage note. A mortgage is a long-term commitment, and we never know what the future may hold. If you don’t reaffirm the note, the mortgage lender WILL accept monthly payments and you WILL be allowed to stay in your home. It will remain YOUR home, and no one will know any different. But, if you fall behind in three years, or ten years, you can walk away WITHOUT LIABILITY to the lender. That is a HUGE advantage that people who didn’t file bankruptcy don’t get.
So, discuss these options with your lawyer, and make a smart decision on whether to reaffirm a car or mortgage loan. Remember, this is your chance at a fresh start, so don’t start out with a loan you wish you had gotten rid of!
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