What does it mean to reaffirm a debt?
Reaffirmation means that you are agreeing that the debt will not be discharged and you will be bound post-bankruptcy to all the terms and conditions contained in the reaffirmation agreement, which are largely the same as in the documents that you signed when you got the loan. In other words, if you were to reaffirm a debt in your bankruptcy and then later lose the collateral, such as in a foreclosure or repossession, you would be liable for all attorneys’ fees, court cost, repossession fees and any deficiency that results after sale of the collateral. If you don’t reaffirm and you subsequently lose the collateral, you would be responsible to give back the collateral but will not be liable for those above mentioned fees and costs. Thus, it is somewhat dangerous to reaffirm unless you are absolutely sure you will be able to make all payments on your loan and that you want to keep the asset regardless of the condition it’s in.
There are small consequences associated with your decision to not reaffirm. For example:
The loan company may be less likely to work with you in the future, such as in a request for an extension, refinancing, or in obtaining a new loan.
Some companies will stop sending you billing statements and may stop reporting your timely payments to the credit bureau, which would prevent you from using your positive payments to re-build your credit after bankruptcy.
More importantly, if choose not to reaffirm, the finance company may still try to repossess, even if you remain current on your payments. The code does authorize your lender to do this. This has occurred in less than 1% of cases in our firm. We have no control over the lenders determination in taking this course of action. Should the lender decide to pick up the vehicle because you failed to reaffirm, regardless of the current status of your payments, they will need to sell it at auction. In an auction, they will likely receive less than you owe and would be prevented from coming after you for the deficiency because of the bankruptcy. Do you see why lenders are discouraged from exercising their right to pick up the collateral?
***Regardless or your decision to reaffirm, secured creditors must be paid in full if you want to keep the collateral***
In some cases, your choice to reaffirm or not is not an option. If you do not have disposable income, the court will not accept your reaffirmation. Schedules I and J of your petition discloses your income and expenses. If you do not have sufficient income to pay the debt you seek to reaffirm, the court and your attorney cannot approve a reaffirmation. The stated goal of federal bankruptcy law is to provide the honest debtor with a fresh start. Allowing you to come out of the bankruptcy with liability on a debt you cannot afford is contrary to the stated goal.
Jady
