Many debtors who decide to file for chapter 7 or chapter 13 bankruptcy often have vehicle loans with a bank. This means that the auto loan is secured by their vehicle and if you stop making the payments, the bank can repossess your vehicle soon after your bankruptcy case is filed. For some debtors this is ok because they have no intention of keeping the vehicle. For most debtors they definitely want to retain their vehicle. If you are a debtor who wants to retain your vehicle after filing for bankruptcy you will have to decide whether you want to sign a bankruptcy reaffirmation agreement or not.
A reaffirmation agreement is a legal document issued by your bank after your bankruptcy filing in order to put you under a new contract post bankruptcy filing. This allows the bank to collect on a debt post bankruptcy filing without violating the bankruptcy automatic stay. Usually a reaffirmation agreement is issued on auto loans, but they may also be issued on a mortgage, furniture or other secured debt. If you agree to sign a reaffirmation agreement, your bank will tell you that they will continue to report your auto payments as current to credit bureaus, you won’t have any risk of having your vehicle repossessed if you stay current on payments, and you may be able to negotiate better interest terms on your vehicle. With that said, the downside is you open yourself up to being sued on the debt at a later date should you not be able to afford your vehicle payments.
If you choose not to sign a reaffirmation agreement and intend to keep your vehicle (or other secured property), you may continue to make your normal payment to the bank. If you are current on your payments then I have yet to see a bank repossess property. With that said you are definitely on a shorter leash in terms of the amount of delinquencies the bank will allow before seeking to repossess. The upside is that if you can’t make your payments, you won’t be liable for paying the debt post bankruptcy.
Therefore signing or not signing a reaffirmation agreement both have their benefits and your decision on whether to sign one will be a personal decision. Generally consumers should never sign a reaffirmation agreement on a home as there is no benefit to the debtor for doing so. For furniture or other items, banks usually will not seek to repossess the items as they are usually worth far less than you owe and it is not worth it to the bank to repossess so I usually advise clients to take their chances with minor secured items rather than reaffirming those debts. If you incurred a debt within 90 days prior to filing bankruptcy you may have to sign a reaffirmation agreement to avoid an adversary case being filed holding you liable for the debt.
If you have additional questions regarding reaffirmation agreements, give Symmes Law Group a call at 206-682-7975 to learn about your options.