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REAFFIRMATION AGREEMENTS
A Reaffirmation Agreement is a new promissory note to keep paying on an old contract for the purchase of goods where the lender can repossess or foreclose the goods. Because you have signed a security agreement the lender has the right to repossess or foreclose if you do not pay for it.
Chapter 7 bankruptcy discharges your personal obligation to pay the loan, or in other words, you no longer have to legally pay on the note. However, the lender still has a lien on the object(s) in question. Jewelry, refrigerators or large appliances, and most notably cars can be repossessed in this way.
What a reaffirmation agreement does: It allows you and the lender to agree that you may keep the goods so long as you continue to pay for them. When executing a reaffirmation agreement with the lender sometimes the lender will reduce the balance owing, the interest rate or both. As a result the payment and term can be reduced.
Nowadays most lenders will not reduce the interest rates and balances on cars. Home mortgages never do. You can often reduce the balance and interest rates on appliances, jewelry, computers and motorcycles.
If you do sign a reaffirmation agreement, you will have 60 days to change your mind and rescind it. Rescissions must be in writing, served on the creditor and preferably filed with the court.
MORTGAGES
You would never reaffirm a mortgage. Never. Seldom but sometimes a mortgage lender will tell a client that the client’s post bankruptcy mortgage account would show up as good credit on their credit report if the client had just done a reaffirmation agreement. It’s all the bankruptcy attorney’s fault that the client’s credit is not better than it is right now because he didn’t tell the poor client to reaffirm the mortgage.
Most mortgage companies will not do this to you, just a few. Ones that do are unscrupulous and are aiming to get you to sign your life away. They want you tied to that mortgage through the reaffirmation agreement come hell or high water. If they can just do that, then if you foreclose, maybe they can sue you. If you are in a worse position later, maybe you have to short sell, and when you do, they will ask you to pay them back sometimes, $10,000 to $50,000 in order for them to approve the short sale.
No, we don’t know what will happen, but I have a client right now who is being sued by a lender, his former first mortgage, who asked him to sign just such a promissory note in order to approve his short sale. Fortunately for him, he did not do a reaffirmation on his mortgage during his bankruptcy. Therefore, his mortgage company cannot in fact stick him with the debt, but for some reason they think that they can. Wrong, they cannot. We will be suing them soon for violating the Bankruptcy Discharge Order.
Because we do not have a crystal ball, and because the length of the term of a mortgage is so long, we NEVER sign a reaffirmation agreement on a mortgage. This is the industry standard.
CARS AND VEHICLES
Legally, WITHOUT a reaffirmation agreement the lender can repossess your car, even if the car payments are current. However, at this writing, the only companies who do are Ford Motor Credit & Jaguar Credit & California Coast Credit Union. I cannot promise that other companies will not change their policies and begin behaving like Ford.
WITH a reaffirmation agreement, as long as the payments are current, then they cannot take the car just as before the bankruptcy. However, just as before the bankruptcy, if you get behind in payments they will take the car AND sue you for a deficiency balance.
If you get behind, WITH or WITHOUT a reaffirmation agreement, they will definitely repossess the car. So, the thing to do is to ask yourself, is the economy getting better or worse? Answer: Worse, my business is constantly picking up. Everyone who comes in tells me that the business they work for is dropping off. Fewer orders, fewer sales, employees are being let go.
So, if you just keep making the payments and don’t worry about it, you have a great probability of nothing changing, and eventually once the vehicle is paid off, they will still have to give you the pink slip.
If you sign and file a reaffirmation agreement, and then change your mind, you have 60 days to do so in writing and it must be in writing, signed and filed with the court.
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