Reaffirmation Agreements

SUMMARY:

    1. If you cannot make the payments, they will take your car away from you.

      My beautiful Mom in the family car ca. 1953
    2. If you DO sign a reaffirmation agreement then you default on your payments and they take it away from, they will SUE afterwards.
    3. If you do NOT sign a reaffirmation agreement, then you default on your payments, they will take it away and they can NOT sue you afterwards.
    4. If you do NOT sign a reaffirmation agreement, then even if your payments are current, they can repossess it anyway.
    5. But only Ford, Jaguar, SDCCU and California Coast Credit Union have stated that they will take it away if you don’t sign a reaffirmation agreement.
    6. But there is no reason to believe that the other banks and credit unions can not or will not change there minds some day.
    7. charge $50 to fill out your reaffirmation agreement forms for you per agreement.  You may fill them out yourself if you wish.
    8. The benefits of having an attorney fill out your reaffirmation agreement is that I also sign it.  Without my signature, the court will set a hearing for you.  It’s a short hearing but if you don’t go it won’t be approved.  While it’s a short hearing, once the court actually calls your case, it could be a long wait until the court does call your case.  So, for the $50 per reaffirmation agreement it does save you a really boring afternoon in court when you could be doing anything else that would be more productive.  

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.

CARS AND VEHICLES

Legally, WITHOUT a reaffirmation agreement the lender can repossess your car, even if the car payments are current. This is because filing the Bankruptcy is considered a Default of the car loan even if you are current on your payments. However, at this writing, the only companies who do repossess cars after bankruptcies where there are no reaffirmation agreements 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. Most Importantly, without the reaffirmation agreement, the lender CANNOT collect a deficiency against you if they do take the car.

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.

HOWEVER, if you do sign a reaffirmation agreement and turn it into the court, and if your attorney does not sign the reaffirmation agreement, and if the bankruptcy judge denies the reaffirmation, or in other words does not approve it, then as long as you keep making the payments on the car, then many attorneys believe that the lender cannot repossess it.

NEW UPDATE in CALIFORNIA LAW:

California recently has enacted a new bankruptcy changing the problem that bankruptcy debtors have regarding car loans when they file but owe money on a car loan. The California legislature has made the new law that filing a bankruptcy on a car loan is no longer automatically a “default” of the car loan. Under the current law prior to Jan 1, 2023, the mere filing of the bankruptcy was a default. This is not a good thing for a debtor who has to sign a reaffirmation agreement in order to keep the car.

Do you still have to pay for the car? Of course. If you stop paying for the car will they take the car away? Of course. Just like always and forever. But after Jan 1, 2023, Ford Motor Credit will no longer be able to repossess your car after your bankruptcy is over if you do not sign and file a reaffirmation agreement.

Basically you’re in a Catch 22, until Dec 31st, 2022, you’re check-mated.  Damned if you do and damned if you don’t.  Sorry about that, that’s just the way it is. If you’re able to wait until Jan 1, 2023 to get a better deal on your car, maybe you should.

Meanwhile, the all the other issues stay the same, if you sign and file a reaffirmation agreement with your car’s lender, then it could be really good for your credit in the future if you are able to maintain the payments. If you have challenges making your payments, it will also be reflected in your credit reports and scores and ruin your credit even worse than the bankruptcy, because it would be in addition to the bankruptcy on your credit reports. So that can cut both ways.

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.

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3 thoughts on “Reaffirmation Agreements

  1. Hello,
    I have had an issue with CitiMortgage. I filed for Bankruptcy in 2009 and when we did it we reaffirmed the property through our filing of the court. We held onto our house until we could and ended up short selling it in Febuary 2011. My attorney told me that the mortgage companies were not doing reaffirmation agreements then. Come to find out on our credit report we have our mortgage filed as a bankruptcy. What do we do? It was a short sale not a Bankruptcy.

    1. A bankruptcy in 2009 should make less of an impact on your credit being 4 years later than a short sale only 2 years ago. So, your credit rating should be better off because of what they did.

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