Chapter 7 Bankruptcy Attorneys: Should I Sign a Reaffirmation Agreement?

The benefits of filing for bankruptcy can be vast if you have found yourself deeply in debt; however, there is much to learn—before, during, and even after the process. You will most likely have many questions throughout the process, and some will be asked of you as well as you pre-plan, attend your 341 meetings, and manage secured property which you may or may not want to keep.

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While Chapter 13 usually allows for the reorganization of most debt into a payment plan, along with the retention of property you choose to keep, Chapter 7 is often known as the liquidation bankruptcy, with discharging nearly all debt and continuing to pay for secured debts you want to keep such as a home or vehicle. If you have decided to keep secured debt like your vehicle, the question of the reaffirmation debt may arise. As you begin working with a skilled bankruptcy attorney, consult with them regarding whether it is a good idea to sign a reaffirmation agreement for your home or car.

Signing a reaffirmation agreement with a creditor means you are not allowing that particular debt to be discharged.  Essentially, that debt is treated as though it was never part of the bankruptcy.  In some cases, the creditor may not request a reaffirmation agreement or they may not request it timely (there is a deadline to file such agreements with the bankruptcy court), or you may not want to sign the agreement, even if you are continuing to make the payments on the loan. Technically, if you do not sign a reaffirmation agreement, the creditor may have the upper hand in being able to repossess the vehicle, although in practice, this likely would not happen, as creditors want to continue receiving payments. If you are paying faithfully without a reaffirmation agreement, the payments may not be reflected on your credit report.  If you become delinquent in payments and the vehicle is repossessed, the creditor may not sue you for a deficiency if you did not sign a timely reaffirmation agreement.

Conversely, if you do sign a reaffirmation agreement, your timely payments will help you to start rebuilding your credit immediately. The lender cannot repossess your car unless you default on the loan, and in that case, they could sue you for deficiency (the amount still owed).  An important consideration is whether or not you can afford the payments to the reaffirmed creditor.  If you cannot afford the payments, you may not wish to sign the agreement, and your attorney may not approve of you signing the agreement, even if you want to keep the vehicle.  You should consult with your bankruptcy attorney to evaluate the pros and cons of signing a reaffirmation agreement.  No matter what you decide, the advantages of filing for either Chapter 7 (discharged in five to six months) or Chapter 13 (discharged in three to five years) have the potential to free you from the terrible stress of being in debt with no income to pay it off. You probably have many questions about bankruptcy, from wondering how much you will have to sacrifice (very little in most cases), to whether you will have to go to court. Speak with a skilled bankruptcy attorney from the offices of H. Lehman Franklin, P.C. Call now to learn more at 912-764-9616, or contact us online.