After your bankruptcy has been discharged, you are unable to reaffirm any debts. Any reaffirmation must take place before the discharge is granted, according to bankruptcy law. Furthermore, the sole reason to reaffirm is to get the mortgage company to record your current payments to the credit bureaus.
Can you file a reaffirmation agreement after discharge?
You cannot reaffirm any of the debts mentioned in the discharge agreement once a discharge order has been obtained in your bankruptcy case. The same is true if the court has dismissed your lawsuit.
As a result, it’s critical to think about reaffirmation far ahead of the discharge date. Take some time to think over your circumstances, and if you haven’t already, consider contacting a bankruptcy attorney to assist you with the decision-making process.
What happens if I did not reaffirm my mortgage?
A reaffirmation agreement is an agreement between you and a secured creditor that is legally binding. The agreement in the event of a mortgage is between you and the mortgage lender. You agree to repay a loan on the same terms and conditions as the initial contract, according to the agreement. You agree to pay the debt owed after insurance or a foreclosure sale if your home is destroyed or the lender forecloses due to non-payment or other breaches of contract.
Secured debts, such as mortgages and vehicle loans, must be surrendered, redeemed, or reaffirmed under bankruptcy laws. If you continue to make your mortgage payments on time, your mortgage company may not pursue the matter.
Your personal duty for paying the debt represented by the promissory note is discharged in your bankruptcy case if you do not reaffirm the mortgage. The mortgage, on the other hand, gives your lender a claim on your home. If you stop paying payments, the corporation might foreclose on your home and conduct a foreclosure sale. The mortgage lender may agree to negotiate some loan terms to help you afford to keep your property in some instances, but it is not required to do so by law.
Advantages to Reaffirmation of Debt
In some situations, reaffirming a debt permits you to maintain the property that secures the loan, which can be a significant benefit. It also allows you to avoid making a lump-sum payment in order to keep the property.
Downsides to Reaffirmation of Debt
Reaffirmation, on the other hand, binds you to the loan. If you don’t make the payments you committed to, the creditor can seize the property, and you’ll be responsible for the difference between what you owe and what it’s worth when it’s repossessed. You’ll also have to wait another eight years to use Chapter 7 to wipe away the debt because you’ve already filed for bankruptcy.
- Even if you owe more when you file for bankruptcy, the creditor will agree to accept the current worth of the property as full payment on the obligation. Creditors may be prepared to negotiate since they realize that if you don’t reconfirm and they have to repossess, store, and sell the property, they would end up with even less than the present value (except on a mortgage).
How long do I have to reaffirm a debt?
Any party, either the debtor or a creditor, can file an executed reaffirmation agreement. Unless the bankruptcy court extends the time, it must be filed within 60 days after the first date scheduled for the first meeting of creditors in the bankruptcy case.
Can I sell my house if I did not reaffirm?
You’re not liable for the debt because you didn’t sign a reaffirmation agreement on your mortgage, but the lender still has a lien on the property. If you owe more on your mortgage than the house is worth, you won’t be able to sell it unless the bank agrees to a short sale.
What does it mean when a debt is not reaffirmed?
A reaffirmation agreement is a contract between a creditor and a debtor that waives the discharge of a debt that would normally be discharged in bankruptcy. If a debtor fails to reaffirm a mortgage loan, the lender will no longer report the loan on the debtor’s credit report.
Reaffirming Helps Rebuild Your Credit
Your auto lender will not record your post-bankruptcy payments to any credit reporting agencies because a bankruptcy wipes out the car loan but not the lender’s security interest in the car. As a result, timely payments will not help you rebuild your credit following bankruptcy. Your lender will continue to report payments if you reaffirm the loan.
Reaffirmed Loans Might Have Better Terms
It may be in your best advantage to reiterate if you can negotiate better conditions with the lender. You and the lender can agree to amend the terms of the original agreement since a reaffirmation agreement is a new contract (however, most are on the same terms). To make a reaffirmation more appealing, a car lender may lower the principal balance or interest rate.
Reaffirmation Provides Certainty Against Repossession
If you don’t sign a reaffirmation agreement before your case is closed and the automatic stay is lifted, the lender has the right to repossess your car. Even if you are current on your payments, some car lenders are known to repossess your vehicle right away. Other restrictions vary, but if you skip a payment, you should expect to be repossessed. As long as you keep up with your payments, reaffirming your car loan will protect you from the lender repossessing your vehicle.
Can I trade in my car after reaffirmation?
You can trade it in if your loan meets the cost of your existing vehicle’s payoff. A reaffirmation agreement can be canceled within 60 days. You’re stuck with it after that.
What happens when you reaffirm a debt?
Reaffirmation is the process of agreeing to continue to be accountable for a debt in order to keep the property that secures the loan (collateral). You and the lender sign a new contract, which is normally on the same terms as the old one, and file it with the bankruptcy court.
You must be current on your loan before you may get into a reaffirmation arrangement. You must also be able to use a bankruptcy exemption to protect all of the equity in the property. If you can’t exempt all of the equity in the property, the trustee will most likely sell it and use the revenues to satisfy your unsecured creditors.
Can a creditor refuse a reaffirmation agreement?
Reaffirmations are not looked upon favorably by the courts, as Thomas E. Ray pointed out in this column in March 2001; nonetheless, if properly agreed to, a reaffirmation agreement is very difficult to revoke. The Bankruptcy Code of 1978 gave rise to reaffirmation agreements, and their preceding history is detailed in In re Oliver, 99 B.R. 73. (Bankr. W.D. Okla.1989). “Section 524(c) allows a chapter 7 debtor to request renegotiation of the terms of the security arrangement with the creditor, so providing an alternative route for a debtor to try to keep secured collateral.” Bell v. United States, 700 F.2d 1053, 1056 (6th Cir.1983). Both the debtor and the creditor are willing participants in this discussion, and inter-party communication is a key component of the process. ß362(a)(6), on the other hand, forbids “any act to collect, assess, or reclaim a claim against the debtor that originated before the action began.”
Most courts have found that creditors do not violate the automatic stay by attempting to acquire a reaffirmation agreement since a strict interpretation of these Code sections makes enforcement impossible. 143 B.R. 438, In re Briggs (Bankr.E.D. Mich. 1992). These attempts, on the other hand, cannot be in violation of ß362, which is intended to protect the debtor from harassment. Illegal or forceful behavior certainly fits the bill. In re Briggs, supra, the issue of “coercion” is discussed, as well as whether administrative account freezes, repossession threats, and other acts are violations of the automatic stay. Surprisingly, the Briggscourt found nothing wrong with the creditor’s procedures in demanding the debtor to reaffirm both a secured and an unsecured loan before the creditor agrees to reaffirmation.
Tying Reaffirmation to Additional Credit
The tension between the automatic stay and reaffirmation has also been examined by the Seventh Circuit. 79 F.3d 43, In re Duke (7th Cir. 1996). A letter to a debtor proposing to confirm a pre-petition debt is not a breach of ß362(a), according to the court, which agrees with a majority of bankruptcy courts (6). Sears also extended a credit line upon reaffirmation and sent a copy of the letter sent to the attorney directly to the debtor in the Duke case. The letter was not inherently coercive because there was no suggestion of unfavorable consequence if reaffirmation was not agreed to, according to the Seventh Circuit. Duke v. United States, No. 46. Another “…mererequest to reaffirm the debt, absent other circumstances…”, Bessette v. AVCO,240 B.R. 147, 158, came to the same judgment (D. R.I. 1999). It’s possible that the method of completing the quest is crucial. Under ß362(a), direct telephone contact with a debtor who is represented by counsel for the purpose of securing a reaffirmation has been ruled to be sanctionable (6). 143 B.R. 798, 802-803; In re Flynn, 143 B.R. 798, 802-803; In re Flynn, 143 B.R (Bankr.D. R.I. 1992).
Tying Reaffirmation to Other Unsecured Debt
The First Circuit in a recent judgment cited all of these and other precedents. In re Jamo, the court discussed the parties’ freedom to discuss any proposed agreement or to decline to enter into one. While a creditor is under no need to execute a reaffirmation agreement and may decline to do so for any valid reason, including no reason at all, the creditor must not violate the debtor’s rights. “Refusing to sign a reaffirmation agreement unless the dischargeable unsecured debt is settled is…a violation of the debtor’s statutory rights.” 15 B.R. 75, 78, In re Green (Bankr. S.D. Ohio 1981).
The First Circuit concurred, ruling that a creditor’s refusal to sign a reaffirmation agreement unless dischargeable unsecured debt is paid is a violation of the debtor’s statutory rights. 165 in In re Jamo. The Inre Briggs analysis did not apply if the creditor is holding the homestead hostage for the reaffirmation of unsecured and unrelated debts, according to the court. The First Circuit determined that this activity went beyond negotiating reaffirmation and was an intentional and knowing violation of the stay. As a result, the court maintained the bankruptcy court’s ruling, which barred the creditor from foreclosing on the home for a year, granted debtors a year to cure defaults, and awarded attorney costs to the debtors.
Conclusion
Creditors have the right to request reaffirmation letters from the debtor’s counsel, which must be copied to the debtor. They can add a credit enhancement to a deal to make it more appealing. Creditors are cautioned against using the reaffirmation procedure to compel a debtor to pay otherwise dischargeable debt by linking it to a favorable secured debt.
