Reaffirmation Agreements in Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, you will either retain or surrender your secured property. You will probably have to sign a reaffirmation agreement if you are going to keep your property, for example, your vehicle and your home. The reaffirmation agreement basically will reaffirm the amount remaining on the loan, interest rate and the monthly payments. Usually the agreement will be that you continue to make the same payments on the balance due. If you owe a significant amount more than the value of the collateral, sometimes you can negotiate with the creditor to reduce the balance due, monthly payments, and/or interest charged.
If you do not sign the reaffirmation agreement but continue to pay the debt, then it is possible that the creditor will repossess the collateral, although it really depends upon the benefit to the creditor of doing so. For instance, if the vehicle is worth much less than the loan, then it is to the creditor’s benefit to continue to allow you to make payments. The bankruptcy discharges the debt unless you sign the reaffirmation agreement. Therefore, if you do not sign the agreement even if you say you will reaffirm it in the bankruptcy petition and you stop paying the debt, the creditor can pick up the collateral; however, it cannot come after you for the deficiency. That is why the creditor wants a signed reaffirmation agreement.
If you have a secured debt and an unsecured debt, i.e., a credit card, with the same lender, then often that lender will require you to reaffirm both the secured and unsecured debt to keep the collateral. For example, you want to keep your vehicle as you have equity in it of $10,000.00 so you will want to sign the reaffirmation agreement with the lender; however, you also have a credit card with the same lender with a balance due of $10,000.00. The lender will require that to keep your vehicle, you must sign a reaffirmation agreement that you will pay the balance due on the vehicle as well as the $10,000.00 credit card debt. If you do not sign the agreement, then it is to the creditor’s benefit to repossess your vehicle.
By Lynette Silon-Laguna Google+