Secured Debts in Bankruptcy

If you wish to Surrender the Collateral:

Vehicles: You are no longer obligated to make the monthly payment, however, you must make arrangements with the lender to surrender the collateral within 45 days after the filing of your bankruptcy petition. You will not be responsible for a deficiency balance.

Mortgages: You are no longer obligated to make the monthly payment if you do not intend to retain your home. The lender will eventually proceed with a foreclosure. You will not be responsible for any deficiency balance after filing bankruptcy even if the foreclosure process occurs several months, even years, after you file.

Is a reaffirmation agreement required if you wish to Retain the Collateral?

Mortgages: You are not required to sign a reaffirmation agreement on a mortgage loan; however, you may elect to do so because it will help you rebuild credit and qualify for a new mortgage loan purchase in the future.

Vehicles: Most lenders will allow you to retain the vehicle without signing a reaffirmation agreement so long as you stay current on the loan. Contact your lender after filing bankruptcy to find out what their policy is on reaffirmation agreements.

Reaffirmation Agreements

How to get a reaffirmation agreement:

If you wish to reaffirm any loan, please contact your lender as soon as possible after filing bankruptcy to request a reaffirmation agreement. You have just 45 days after your meeting of creditors to return the reaffirmation agreement to the lender.

Are there benefits to signing a reaffirmation agreement?

Mortgages: There are two benefits to consider. If you do not sign a reaffirmation agreement, the mortgage account will be reported as “discharged” in a chapter 7 bankruptcy even if you keep the loan current after filing bankruptcy. Your mortgage lender will only report timely payments if you sign a reaffirmation agreement. The credit reporting will help you rebuild credit much faster than without a reaffirmation. Another potential benefit is the ability to obtain a loan modification or refinance in the future. Many lenders are refusing to refinance loans unless a reaffirmation agreement was signed.

Auto Loans: Very few lenders (e.g. Ford Motor Credit) require the debtor to sign a reaffirmation agreement in order to retain the collateral. Even if it is not required, you may consider filing a reaffirmation agreement because it will help to rebuild your credit for the same reasons as signing a reaffirmation on a home loan. If you do not sign a reaffirmation, the debt will show as discharged in chapter 7 bankruptcy even if you keep the payments current. By signing a reaffirmation, the creditor will report your debt to the credit agencies. So long as you stay current and pay on time, this reporting will help rebuild your credit.

For a flat fee of $95.00 per agreement, your attorney will complete, sign, and file the reaffirmation agreement on your behalf. Otherwise, you may choose to enter a reaffirmation agreement without the assistance of counsel. In such cases, the attorney will forward the agreement to you to complete, sign and, return to the lender. The lender will reject the agreement unless it is filled out correctly. Once the lender accepts the agreement back, you must attend an additional court hearing before a judge to obtain approval of the terms of the agreement. If your attorney signs the agreement, the court will automatically accept it without holding a hearing.

Consequences of signing a reaffirmation

If you sign a reaffirmation agreement you will be personally responsible for repaying the loan after your bankruptcy discharge. You will not be able to file another chapter 7 for eight years. In the event of default, the lender will seek a deficiency judgment if the value of the collateral is insufficient to cover the amount of the loan. You could have your wages and bank accounts garnished.

Instructions for signing a reaffirmation agreement: If we receive a reaffirmation agreement, we will help you complete it and we will sign the agreement so that you can avoid a court hearing. I am the only bankruptcy lawyer in Colorado who provides this service. Other firms do not assist in completing the agreement nor do they sign or certify the agreement.

If you execute a reaffirmation agreement and the attorney does not sign it, you will need to attend a Bankruptcy Court hearing either in person or over the phone. During the hearing a bankruptcy judge will determine whether the agreement poses an undue hardship on you. If the agreement poses an undue hardship, the Court will not approve the agreement.

If your attorney does not assist you in completing the forms, you will need to complete several sections of the reaffirmation agreement completely and accurately or the Court will not consider the agreement.