Chapter 7 bankruptcy requires you to tell the court what you intend to do with property that has a loan as security. The most common are mortgages and car loans.
Home or apartment leases and car leases also fit into this category, as well as others.
When you file for Chapter 7 bankruptcy in Florida and want to keep your car or home, you may be able reaffirm the debt. This means you are signing a new contract to personally obligate yourself to make all the payments in the future.
In other word, reaffirmation is a new binding legal contract that survives the Chapter 7 bankruptcy.
the reaffirmation agreement is part of your Chapter 7 bankruptcy, so you will need to sign it. Once you’ve signed, I will review the document and send it to the creditor. The creditor also signs and submits it to the court. The court reviews the reaffirmation agreement and either approves it, rejects it, or sets the matter for a hearing.
Reaffirmation agreements are rejected or set for a hearing when the judge believes the payment or terms may not be in your best interests.
Many times clients want to reaffirm a high payment vehicle, yet do not have enough income to support the payment. In this situation, the judge would likely deny the reaffirmation so that you don’t get into financial trouble again, right after getting your discharge.
Sometimes clients want to sign a reaffirmation agreement thinking they cannot get another loan. When they find out this might be easier than they think, they may have the opportunity to revoke the reaffirmation agreement.
Timing is important, if you wait too long, you may not be able to revoke a reaffirmation agreement.
In most cases, to keep a car, you must sign a reaffirmation agreement, or the car lender might pick up the vehicle – even if you are current with your payments. There are a few lenders who do not repossess if you keep making timely payments, but there is no guarantee. So for car loans, this can be risky.
As to reaffirming a mortgage loan on your home, there may be other options. Please ask me about “retain and pay”.
Signing a reaffirmation agreement should not be done as a routine matter. Each loan should be carefully considered to make sure it is in your best interests to obligate yourself on the debt for all payments in the future.