People who need to file for Chapter 7 bankruptcy are constantly telling me that they don’t want to “file on” their house or car(s). What they mean is that they want to keep their house and car(s) after their Chapter 7 bankruptcy is over. This is true because every person who files bankruptcy must list each and every one of their creditors in a bankruptcy petition. As a result, house lenders and vehicle lenders MUST be listed. There’s no option. However, that doesn’t mean that my clients can’t keep their house and car(s). Quite the opposite is typically true. Most of my clients choose to reaffirm on their home and vehicle(s).
So what does it mean to reaffirm my house or car??
To reaffirm your house or car you simply sign a new contract with your lender that is then filed with the bankruptcy court. The contract is called a reaffirmation agreement and it basically states that even though you know that you could give back your house/car and walk away not owing on that debt that you would like to keep the house/car and you understand that if you get behind on the payments that the bank will foreclose/repossess the asset, that it will be sold and that you will be liable for any deficiency balance.
With respect to cars, reaffirmation is a fairly easy decision. If you want to keep the car you will need to sign a reaffirmation agreement. If you don’t want to keep the car you don’t sign the reaffirmation agreement and the bank comes and picks up the car. Many people automatically think that they should keep the car. However, keep in mind whether you can afford to make the payments, whether you are upside down on the vehicle and your interest rate prior to signing a reaffirmation agreement for your vehicle. It’s often a good idea and show around for how much you could pay for another used car vs. agreeing to reaffirm on the one you have. If you don’t sign a reaffirmation agreement on a car you want to keep it is possible that the car will be repossessed, so it’s important to make a decision.
The decision to reaffirm on a house is often a bit more tricky. So long as you continue to make your house payment, odds are that your bank is not going to commence/continue a mortgage foreclose lawsuit after bankruptcy. However, if you don’t reaffirm your home, your positive payment history for your house payment will fail to appear on your credit report. Examples of times when my clients might not sign a reaffirmation agreement for their home but continue to make payments include: 1) little to no equity in a home they want to sell soon, 2) when a client’s employment is in question (i.e., he or she believes layoffs are coming at work, and 3) if clients believe that they may be divorced soon and neither party could afford to make the house payment. The bottom line is that each case is very fact-sensitive. Bankruptcy attorneys will guide their clients through this decision, as it is not one that should be made lightly. Whether or not to reaffirm is an important step to making sure that after the bankruptcy has been discharged that you are back in a position to succeed financially.
**Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.