When an individual files for Chapter 7 bankruptcy and they want to keep certain debts, such as a house or car, they can typically do so by choosing to reaffirm the debt with the creditor. A properly filed reaffirmation agreement is the usually the only way a debt will survive the bankruptcy and thus will not be discharged. Therefore, deciding whether to reaffirm any debt is a very important issue for anyone who files a Chapter 7 Bankruptcy.
The most common debt that a debtor typically wants to reaffirm is their mortgage or mortgages on their house. By signing a reaffirmation agreement with their mortgage company, the mortgage will survive the bankruptcy and the debtor will be allowed to keep their house as long as they are able to maintain the payments. Further, the mortgage will still show up on their credit report as an active debt. The positives of reaffirming the mortgages is that it helps in rebuilding credit because the debt is showing up on their credit report. The negatives? The debt survives the bankruptcy and therefore if the debtor ever falls behind on their house payments and the property is foreclosed, they may owe a deficiency balance on their mortgages. The mortgage company could later sue them for this balance and obtain a judgment for this balance which could result in a garnishment or a judgment lien attaching to other property they own.
I have been telling almost all of my clients that they should not sign a reaffirmation agreement on their mortgage or mortgages, even if they want to keep their property. Under the current bankruptcy laws, a mortgage company cannot foreclose on the property if a reaffirmation agreement is not signed and the debtor is current with their mortgages. By not signing the reaffirmation agreement, the debt would be discharged and would show up on the credit report as being discharged. But as long as the debtor continues making regular mortgage payments, they would be able to keep the property.
Another debt that most individuals may want to reaffirm is their car. This is typically only advisable if they can afford their car payment and that they are not upside down in their car payment. Upside down means that they owe more than what the car is worth. If a debtor wants to keep their car through the bankruptcy, they probably need to sign a reaffirmation agreement. Car creditors can and do repossess cars of which the car payments are current but a reaffirmation agreement is not signed! Why? The new bankruptcy laws gives the creditor this remedy. Why are they doing it? Itcould be to go ahead and cut their loses? Or, as I believe, it could be a way for them to scare debtors into signing the reaffirmation agreement. Some debtors may need to sign a reaffirmation to keep their car, but usually most individuals can and do qualify to purchase another vehicle soon after their bankruptcy is over. Therefore, one should really think twice before signing a reaffirmation for their car.
Other secured debts that my clients like to reaffirm are furniture loans. Again, I also advise them not to sign it. If a reaffirmation is not signed on a furniture debt, the debt is discharged and the only recourse for the creditor is to pick up the furniture. What are the chances that the creditor will pick up their furniture? Very, very, very slim. The reason is simple: most furniture depreciates as soon as you take it out of their store. Further, the creditor cannot sell used furniture for more than what it would cost them to pick it up. So, the best course of action is to NEVER sign a reaffirmation for a furniture debt and take the chance that they do not come and pick up the furniture.
What about those pesky loan companies that require you to put certain household goods as collateral? Should one reaffirm these? Not a good idea. Again, chances are very unlikely that they will come and pick up the collateral.
All in all, the only debt that consumers should ever consider reaffirming is their car. They should also make sure that they discuss everything with their attorney before deciding to sign any reaffirmation agreement. They filed for bankruptcy to get relief from their debt. The last thing they want is to come out of the bankruptcy and find themselves in the same situation as before they filed for bankruptcy because they signed a reaffirmation that they could not afford.
Brian S. Limbocker, J.D., LL.M.
Limbocker Law Firm, LLC
3330 Cumberland Blvd., Ste. 500
Atlanta, GA 30339
Fax - 678-412-4152
Offices also available in Woodstock and Duluth