If your home equity, car equity, or both are low enough to be protected by bankruptcy exemptions, then neither of these assets would necessarily be sold off to pay off debts. Instead, you would have an avenue for declaring Chapter 7 and then reaffirming these specific secured debts, so you may remain in your house, keep your car, or both.
You will have to enter into this agreement before the bankruptcy discharge. You are, in fact, required to file reaffirmation agreements no later than 60 days after the first date set for the 341 meeting of creditors.
Why do you need a reaffirmation agreement?
Filing the agreement re-creates the contractual relationship between you and the creditor. It ensures that the creditor will not pursue a repossession or foreclosure as long as you keep up with your payments.
Usually, you must get current or be current on your loan to sign such an agreement, though your attorney may be able to roll some part of the arrears into the balance so you can start fresh.
Can you renegotiate the loan?
Yes.
Before signing a reaffirmation agreement, you should ask for lower interest rates or a longer loan so you have a better chance of making the payments. While some creditors will balk at these provisions, others prefer signing them and getting paid to take your property.
Of course, if the creditor says no and you want to keep the property, you must sign the agreement on their terms. Still, it never hurts to ask.
Can I keep the collateral without a Reaffirmation Agreement?
If you do not sign a reaffirmation agreement, the Consumer Protection Act of 2005 prevents you from retaining the collateral attached to the loan, even if you are current with that loan.
This is because if you were allowed to keep the collateral without the agreement, the creditor would have no way to get it back, thanks to the discharge.
What happens after you file the Reaffirmation Agreement?
The court will schedule a Reaffirmation Hearing. The courts ask questions about your finances to determine whether the agreement is in the best interests of both you, the borrower, and your creditor.
You should consult with your bankruptcy attorney before pursuing one, as we can usually look at your finances and determine what the court is likely to say. The court primarily wants to know if you can afford that debt. If you can’t, they’re going to want to give the creditor back their property and discharge the debt so you can rebuild a more affordable life.
Get Help Today
Reaffirmation agreements are strictly voluntary, and it is important to understand exactly what you are doing before you sign one. Working closely with a bankruptcy lawyer can ensure that any agreements you sign will be good deals for you.
Ready to get started? Contact us to schedule a free consultation today.
See also:
What Newark, NJ Residents Should Know About Car Repossessions